Similarly, in defending both himself and Valeant from the now constant drumbeat of controversy, one of Pearson’s constant refrains has emphasized his commitment to transparency.
A March 11, 2014, Securities and Exchange Commission filing suggests Pearson and Valeant have a long way to go on both of these fronts. Put bluntly, a footnote in a Valeant filing more than 18 months old appears to show how Pearson made a handsome profit through what is referred to as an unspecified “error.”
How handsome? Thanks to a rocketing stock price and corporate opacity, Pearson picked up a block of stock for $20 million less than it was then worth.
(Southern Investigative Reporting Foundation readers will recall its Oct. 19 revelation of the company’s secretive relationship with Philidor, its captive — and soon-to-be shuttered — specialty pharmacy that kicked off this trauma for Valeant. On Oct. 25 a follow-up story was released.)
Let’s start with why this is a truly unusual document for a Form 4, an often ignored class of company filings that disclose corporate insider share purchases and sales. Traditionally, the value of Form 4’s are usually interpreted in connection to a broader context or event, like executives selling into a potential corporate share repurchase or their buying shares because of an improving sales outlook.
In this case, given the unusually heavy weighting Pearson’s compensation plan has toward share price appreciation, a March 2014 Form 4 filing noting his acquisition of 502,996 restricted stock units — shares awarded only when share price appreciation triggers are met — was to be expected given Valeant’s then soaring stock price.
But then take a look at the filing’s footnote No. 2: “On May 24, 2013, the Registrant delivered 502,996 vested performance share units (the ‘2010 PSU Grant’) to Mr. Pearson in error. In connection with Mr. Pearson returning to the Registrant the value of such shares on the date of delivery (plus interest), Mr. Pearson has been credited with 502,996 vested share units to be delivered to him in accordance with the terms of the original 2010 PSU Grant.”
The awarding of 502,996 shares to Pearson “in error” is difficult to imagine for anyone who understands the compartmentalization of a large company.
Valeant is a large, fully-staffed corporation and Pearson’s compensation is closely scrutinized by both its board of directors and lawyers. As such, any clerical error would likely have been immediately caught.
Notwithstanding the error, there is no filing detailing the initial grant. The only mention of the block prior to March 2014 is found buried in a footnote on page 32 of Valeant’s 2013 Proxy noting that the 502,996 RSUs had met their vesting triggers. Previous RSU grants, especially one for 486,114 shares in 2011, don’t seem to have generated any problems.
What we can say is that this is the kind of mistake that happens all too rarely in the professional lives of most people. On May 24, 2013, the date of the initial–and errant–restricted unit award Valeant’s share price was $84.47; on March 11, 2014, the stock closed at $139.96, a difference of $55.49. According to the footnote, Pearson appears to have rectified the error by writing a check for the “value of such shares on the date of delivery.”
The footnote’s language suggests that “the date of delivery” is May 24, 2013, meaning that sometime before March 13, 2014 — the date of the Form 4’s filing with the SEC –Pearson wrote a check for about $42.48 million (plus an unspecified interest rate) to own a block of Valeant shares that was then worth over $70.39 million, a nearly $28 million differential.
It’s not clear if these shares were part of the block of 1.3 million shares (out of 2 million originally) that Pearson had pledged to Goldman Sachs for a $100 million personal loan. The shares were seized by Goldman last week when he was unable to make an October 30 margin call.
The Southern Investigative Reporting Foundation requested comment from Valeant through Renee Soto at Sard Verbinnen, its outside public relations adviser. She said the company would not comment beyond its previously made disclosures. A follow up phone call was not returned.