A Major Accounting Scandal : Dr. Michael Pearson

1837 Words Dec 14th, 2016 8 Pages
A major accounting scandal that came to light recently regarded Valeant Pharmaceuticals in 2015. Mr. Michael Pearson was the CEO of Valeant at the time. He had a new idea for improving the profitability of drug companies. He would drastically reduce research and development costs for new drugs, and instead buy other drug companies that have successfully sold products. When these usually smaller companies were bought by Valeant, Mr. Pearson would authorize an increased price for some of the specialty life-saving drugs. The reason for doing so, is he felt the drugs were undervalued and he was merely bringing them to a price that the market would bear. He also purchased companies in foreign countries that had a more favorable tax rate, and attempted to direct profits from U.S. firms into the foreign companies as a means to reduce the tax cost and so increase profits. Valeant would incur debt to purchase these companies, or partner with investment firms such as Pershing Square, ValueAct, and Sequoia mutual fund. Banks were also willing to lend as a result of the 2008 financial crisis. ValueAct was a large shareholder of the Valeant Company. As a consequence, they had a seat on the board of directors. ValueAct believed that management should be incentivized by performance. As such, Mr. Mike Pearson was paid mostly in Valeant stock. The better the stock performed the more it would be worth. Mike Pearson set the tone at the top to be one of sales and increasing the stock price.…

More about A Major Accounting Scandal : Dr. Michael Pearson

Open Document