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SEC fines CVS Caremark $20m for overstating earnings

Settles federal allegations that it misled investors in $1.5b bond offering in 2009

According to the SEC’s complaint CVS fraudulently omitted from a $1.5 billion bond offering document that it had recently lost significant Medicare Part D and contract revenues in its pharmacy business.

Steven Senne/Associated Press

According to the SEC’s complaint CVS fraudulently omitted from a $1.5 billion bond offering document that it had recently lost significant Medicare Part D and contract revenues in its pharmacy business.

Drugstore giant CVS Caremark Corp. has agreed to pay $20 million to settle charges brought by federal securities regulators that it misled investors in 2009 and committed accounting violations.

The Securities and Exchange Commission also barred CVS’s controller at the time from serving as an accountant at a publicly traded company for at least a year. The regulator held him responsible for an improper accounting adjustment that resulted in overstating the company’s earnings that year.

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According to the SEC’s complaint, filed in federal court in Rhode Island, CVS fraudulently omitted from a $1.5 billion bond offering document in 2009 that it had recently lost significant Medicare Part D and contract revenues in its pharmacy benefits business. When CVS eventually revealed the full extent of the setbacks on Nov. 5, 2009, its stock price fell 20 percent in a day, the SEC said.

In addition, the SEC alleged that in the third quarter of 2009, CVS “dramatically and without public disclosure’’ changed its accounting for 525 Longs drugstores it had acquired the prior year.

By reducing the value of property in the Longs stores from $189 million to zero, CVS was able to post a small gain in earnings for the quarter, instead of a drop, according to the complaint, filed in federal court. CVS is based in Woonsocket, R.I.

CVS neither admitted nor denied the SEC’s charges. “This matter is now fully resolved for the company and individuals,’’ CVS said in a statement Tuesday. The company said it had already announced the pending settlement to shareholders, last August, and that the final resolution would not require a restatement of earnings.

The controller who oversaw the earnings overstatement was Laird Daniels, 44, of North Attleborough, the SEC said. Daniels, according to the SEC, said the accounting scheme turned the acquisition of the Longs drugstores from a “bad guy” into a “good guy.”

Daniels would rise through the ranks of the company, becoming chief accounting officer in 2010, responsible for all the financials at CVS. He remains with the company, CVS said, but not in an accounting role, as senior vice president for international operations and business development.

Daniels agreed to settle the administrative case against him by paying a $75,000 civil penalty. His lawyer did not respond to a request for comment.

“The accounting standards are designed to provide the public with a fair and consistent measure of public company performance,’’ Paul Levenson, director of the SEC’s Boston Regional Office, in said a statement. “Instead, CVS and Daniels used improper accounting tactics to give investors a misleading picture of the company’s retail pharmacy earnings.’’

CVS shares closed at $73.18, down 65 cents.

Beth Healy can be reached at beth.healy@globe.com. Follow her on Twitter @HealyBeth.
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