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Bristol-Myers Squibb’s CEO Peter Dolan and General Counsel Richard Willard resigned today, spurred by the recommendations of a federal monitor, after the company came perilously close to violating a deferred-prosecution agreement entered last year. Bristol-Myers director James Cornelius was appointed interim CEO of the New York-based pharmaceutical and health care products company, and Sandra Leung, vice president and corporate secretary, was named interim general counsel. Former FBI director Louis Freeh, now a Bristol-Myers director, was appointed as Leung’s adviser. Bristol-Myers has had to answer to monitor Frederick Lacey, a former federal judge, since last year when it signed a deferred-prosecution agreement with U.S. Attorney for New Jersey Christopher Christie in the face of a prosecution on conspiracy and securities-fraud charges. The company has extensive research facilities located in New Jersey. The agreement was the outgrowth of a three-year investigation into a “channel stuffing” scheme by which the company, during 2000 and 2001, allegedly used financial inducements to get wholesale distributors to accept unnecessarily high levels of inventory shipments, thereby artificially pumping up quarterly sales results. The June 2005 accord meant that Bristol-Meyers could avoid further federal litigation if it kept its nose clean. But under Dolan’s and Willard’s watch, the Department of Justice’s antitrust division began probing the company’s agreement to pay at least $40 million to a Canadian competitor, Apotex Inc., to delay putting its generic version of Bristol-Myers’ blood thinner Plavix on the market. Bristol-Myers spokesman Jeffrey Macdonald said he was unable to comment on the reasons behind the decision to remove Dolan and Willard. In a prepared statement announcing the personnel changes, Bristol-Myers noted that the federal monitor and Christie did not find any violation of the deferred prosecution agreement. The company further stated that outside counsel Debevoise & Plimpton, which is conducting an investigation relating to the Plavix transaction, found no evidence to conclude that Bristol-Meyers or any of its employees acted unlawfully. But the question of possible impropriety appears to have led Lacey, the federal monitor, to recommend – at a Sept. 11 Bristol-Meyers board meeting which Christie and outside counsel Debevoise & Plimpton attended – that Dolan and Willard resign. And under a deferred-prosecution agreement, the monitor’s recommendation generally carries the force of an order, say securities lawyers. The company also said, in its prepared statement, that the board meeting had nothing to do with the ongoing Justice Department antitrust investigation. Stock analysts had been clamoring for Dolan’s ouster due to product-related missteps and the channel-stuffing investigation. Wall Street reacted favorably to today’s moves. Bristol-Myers shares were at $24.20 near the close of trading, up 85 cents for the day. Mary Jo White of Debevoise & Plimpton and Kenneth Conboy of Latham & Watkins, each of New York City, are currently advising the Bristol-Myers board. White, the former U.S. Attorney in Manhattan, also advised the company on its deferred-prosecution agreement with the government. Conboy is a former federal judge in Manhattan. Board Chairman James Robinson III will head a committee to search for a new CEO. Dolan has agreed to assist in the transition to the new leadership. Willard worked in the Department of Justice from 1981 to 1988, at one time serving as assistant attorney general in charge of the civil division. As part of the deferred-prosecution agreement, Bristol-Myers agreed to pay $300 million into a shareholders compensation fund, in addition to $539 million it had already paid out to settle shareholder lawsuits filed in district court and elsewhere. The company also agreed to endow a chair at Seton Hall University School of Law in Newark, focused on business ethics and corporate governance.

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