Ex-Valeant Official Was a `Double Agent' for Cash, Jury Told

(Bloomberg) -- An alias email account, fake business cards and a shell company named "Liberation" in Dutch were all part of a former Valeant Pharmaceuticals International Inc. executive’s bribery scheme that duped the drugmaker, a Manhattan jury was told.

Gary Tanner, a onetime senior director at Valeant, got a $9.7 million kickback from Andrew Davenport, the former head of Philidor Rx Services LLC, after Valeant was manipulated into paying $133 million for an option to buy the mail-order pharmacy, a federal prosecutor said Thursday at the start of their fraud and money-laundering trial.

Tanner was Davenport’s "man on the inside" at Valeant, a "double agent" who steered the company’s business to Philidor and stunted efforts of rival pharmacies, Assistant U.S. Attorney Amanda Kramer said. The men, who deny wrongdoing, sat quietly with their lawyers as Kramer spoke to jurors in a standing-room-only courtroom.

"$9.7 million -- that’s how much dirty money was pocketed by Tanner for selling his loyalty and betraying his employer," Kramer said. Tanner "showed up at work the next day and never said a word."

The case, filed in 2016, helped explain how Valeant became linked to Philidor, which the pharmaceutical giant secretly controlled and used to increase sales. Valeant disclosed the link in October 2015, beginning a long fall in the share price, sparking questions about its transparency and business model, and leading to accounting restatements and the exit of top executives and board members.

Shares in Valeant have tumbled. The U.S. has portrayed the Laval, Quebec-based company as a victim in the case, and numerous employees are expected to testify. One possible highlight of the trial will be the testimony of a former Valeant executive, Laizer Kornwasser, who secretly recorded conversations, including one with former CEO Michael Pearson.

Kramer said the U.S. would present evidence on Tanner’s shell company and his use of an email account under the pseudonym “Brian Wilson” to communicate with Davenport about their scam.

She said witnesses will testify that Tanner met with them in an official capacity and introduced himself as Brian Wilson. Kramer told members of the jury they’d also see evidence that Davenport used a shell company of his own -- named End Game LLC, after the last stage of a chess game -- to hide his payment to Tanner.

Tanner’s former financial adviser was the first to testify, telling jurors he had asked her to help manage a possible $15 million windfall from selling his interest in a company, which prosecutors implied was Philidor. "Valeant does not know that he owns 7.5 percent of the company and for now prefers to keep it that way," according to typed notes by Elizabeth Weiss, the adviser.

Tanner never disclosed any conflicts of interest related to Philidor, Sheana Carson, Valeant’s chief compliance officer, testified. She also said Tanner was involved with the company’s option to purchase the pharmacy.

Tanner’s job included helping to build up Philidor in a way that would benefit Valeant, but he was also supposed to start relationships with other pharmacy companies to spread the business around, the U.S. said. Tanner delayed searching for other retailers and eventually balked at the ones he met with, prosecutors say, all to corruptly make Philidor more valuable to Valeant.

Davenport ultimately earned more that $40 million under the options agreement he struck with Valeant, passing almost a quarter of it on to Tanner, according to prosecutors.

Opening Statements

Brendan McGuire, Tanner’s lawyer, told jurors that his client hired an accountant in anticipation of the payment and payed taxes on the windfall. The attorney conceded that Tanner should have told Valeant about the payment, but said his failure to do so didn’t break any laws.

“Gary is not on trial here for violation of the employee handbook,” McGuire said in his opening statement. “Who pays taxes on the proceeds of a fraud?” the lawyer asked. “That makes no sense.”

Davenport’s lawyer, Jonathan Rosen, portrayed his client as a successful businessman whose services were sought out by Valeant’s executives in an effort to increase the company’s sales. By the time Valeant’s board of directors visited a Philidor facility, the lawyer said, the pharmacy was filling 4,000 prescriptions a day.

Davenport "creates the rising ride and doesn’t drown in it," Rosen told the jury. "Philidor’s success is Valeant’s."

The trial before U.S. District Judge Loretta Preska is expected to last three to four weeks.

The case is U.S. v. Tanner, 17-cr-00061, U.S. District Court, Southern District of New York (Manhattan).

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