When Charles W. Stiefel took control of his family's business, Stiefel Laboratories was the largest dermatology manufacturer on earth. And the Coral Gables-based firm, which traced its history 160 years back to Stiefel's ancestors in Germany, was still family owned.
Charles Stiefel, though, decided it was time to cash in, and instead of telling stockholders about his plans, Stiefel lied about the firm's value, bought up thousands of shares -- and even fired people to snatch up their stock, all to make a mint when GlaxoSmithKline bought Stiefel in 2009. Or so says the SEC in a new lawsuit filed in Miami alleging Stiefel defrauded investors of more than $100 million.
"Stiefel made numerous misrepresentations and omissions to Stiefel Labs' shareholders," the SEC says in the suit, filed yesterday in U.S. District Court.
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For decades, Stiefel Labs grew into a manufacturing behemoth largely under the public radar. The firm was founded in 1847 by J.D. Stiefel, a German businessman who pioneered a technique to make medicinal soap.
By the time Stiefel moved to Coral Gables in 1977, they were an international force with plants around the globe churning out skin medications.
In a rosy Miami Herald profile in 2004, Charles Stiefel told the paper his family firm had no interest in selling out to Big Pharma.
"We're very happy to be private,'' he told the paper. ``We fund our research ourselves, and we don't need to access the capital markets.''
Now, the feds say that Stiefel told the same thing to his employee shareholders -- right up until the moment he sold out to GlaxoSmithKline.
Stiefel's employees owned stock in the company, but couldn't sell until they retired or otherwise left the company. As Charles Stiefel negotiated a sale to GSK, the SEC says, he changed the rules to let employees sell -- calling it a "chance to diversify," without mentioning any pending sale.
Even worse, he set the employees' stock price at around $16,000 per share as he personally bought up 4,355 shares for himself. Then, when GSK bought the company in 2009, he got $60,000 per share.
It didn't take long for employees to smell a rotten deal; in July 2009, a group filed a lawsuit against Charles Stiefel. "It's really unfortunate that a company took advantage of its employees, who worked long and hard to accumulate the shares in their retirement fund," their attorney, Norman Segall, told the Herald at the time.
Their case is still open, but now the feds have bolstered their case with their own suit against the one-time Stiefel Labs head.
The SEC wants Stiefel and his old company to return "all ill-gotten profits" and face civil penalties as well.