VRX - Valeant Pharmaceuticals International Inc.

[lessthaniv]

Yes, I agree Eric.

 

I see Pearson involved in two possible ways:

 

1)Either he was involved from day 1 and it's revealed that these specialty pharmacies were established with Pearson's knowledge  to specifically defraud insurance companies with the intent of boosting sales and earnings for VRX, or;

 

2) It may also be that Davenport took it upon himself to pump sales through Philidor to hit earn-out targets given his 27% ownership in Philidor. And when Reitz withheld reimbursement cheques after discovering his methods,  it eventually made its way back to Valeant as they hadn't received their money. In this scenario, Pearson, may have tried to keep the issue private and made an enormous management  mistake by covering up Davenports actions.

 

Both scenario's are clearly - not good.  But I think scenario #1 is worse.

 

If it was Pearson's intent (scenario #1) ... I would question everything he's done because there are likely more skeletons in the closet.  If, on the other hand,  he's simply made a stupid decision trying to sweep things under the rug (scenario #2) - simply replace him and the remaining businesses move forward. He's already cut ties to Philidor and being young (Philidor), the impact while meaningful is not insurmountable.

 

From an investment standpoint, the two speculative scenarios I envision result in a different conclusion as to whether I should meaningfully invest funds.

[Picasso]

But remember there were Valeant employees at Philidor.  Do you really think they just never relayed Philidor tactics back to Pearson?

 

Maybe Peter Parker just kept his mouth shut.

[ZenaidaMacroura]

Eric, that just goes to show you're like 90% of VRX bulls.  Haven't even bothered to read the 10-K.  Tsk tsk tsk... If you did you would have noticed fun things like "growth of business dependent on deranged PIC from our California distribution network," and "our stock may be the target of bear raids from assets managers who display hatred towards our largest shareholders."

 

Joking aside, I only started really digging into the financials after AZ value put out his blog.  I owe that guy a beer for making sure I was at least verifying what management stated on slide decks and conference calls.  It's too easy to just rely on the work of others with this company. 

 

Anyway I'm reserving some judgment until we get more clarity on what happened, but at a minimum Pearson did a completely crappy job of handling these issues.  That's the problem when star managers do well for so long.  The board gives them too much rope and they start doing a lot of dumb things.

 

Managers that claim to be "value" investors say in their fancy letters that they seek dis-confirming evidence to their thesis. All they needed was a search engine to find blogs like AZ value where he was pointing out discrepancies in reported numbers in the 10-K and the silly presentations that VRX put out. I wonder what do these managers really do? Do they really not seek dis-confirming evidence?

 

I think it is just very hard to practice this in reality. Even for CoBF (which has the best online group in my opinion), the bulls on the thread were pounding the table and ignoring questions raised by AZ value. Several of the bulls no longer post on the thread. It is emotionally hard to deal with the outcome here. If I were them pounding the table hard, I would be doing the same thing today. So no judgements.

 

The lesson to learn here, in my opinion, is how do I avoid being in this situation ever again - To stay emotionally detached and rationally look at outcomes from all angles. Respect each ones opinion and think about it rationally. May be we need a new thread on CoBF about lessons learnt from investments when they go wrong.

+1

[ZenaidaMacroura]

Yes, I agree Eric.

 

I see Pearson involved in two possible ways:

 

1)Either he was involved from day 1 and it's revealed that these specialty pharmacies were established with Pearson's knowledge  to specifically defraud insurance companies with the intent of boosting sales and earnings for VRX, or;

 

2) It may also be that Davenport took it upon himself to pump sales through Philidor to hit earn-out targets given his 27% ownership in Philidor. And when Reitz withheld reimbursement cheques after discovering his methods,  it eventually made its way back to Valeant as they hadn't received their money. In this scenario, Pearson, may have tried to keep the issue private and made an enormous management  mistake by covering up Davenports actions.

 

Both scenario's are clearly - not good.  But I think scenario #1 is worse.

 

If it was Pearson's intent (scenario #1) ... I would question everything he's done because there are likely more skeletons in the closet.  If, on the other hand,  he's simply made a stupid decision trying to sweep things under the rug (scenario #2) - simply replace him and the remaining businesses move forward. He's already cut ties to Philidor and being young (Philidor), the impact while meaningful is not insurmountable.

 

From an investment standpoint, the two speculative scenarios I envision result in a different conclusion as to whether I should meaningfully invest funds.

Not looking to take an extreme view but I would like a sounding board -if scenario #2 how different is that from Buffett initially downplaying Sokol?  My recollection might be fuzzy.

 

I haven't yet subscribed to the base case that Pearson's head should roll for the events of last month...

 

I think it's very possible that much of the upper echelon was unaware or downplayed the extent/significance of what was then an unfolding situation.  I mean they took days to schedule their response call -I Think that's a tell.

[lessthaniv]

But remember there were Valeant employees at Philidor.  Do you really think they just never relayed Philidor tactics back to Pearson?

 

Maybe Peter Parker just kept his mouth shut.

 

When you run a multi-billion dollar company, you hire divisional heads to be on top of things as you can't know everything ... you have to trust in the people you've surrounded yourself with. If they're dirty and you've placed your trust in them ... bad things happens.

 

While I also questioned the salad oil scandal analogy ... it does remind me John Gutfreund at Solomon Brothers. When Paul Mozer was discovered to be breaking Treasury rules in his trading, Gutfreund was informed but initially did nothing about it. He swept it under the rug. Buffett who had invested a few years earlier ended up taking over as CEO and over the next decade made money on his $700M when it was sold to Travelers. Here the business was ok, but it was overshadowed by a dumb decision by the then CEO to sweep it under a rug. In the end, the business won out.

[namo]

The lesson to learn here, in my opinion, is how do I avoid being in this situation ever again - To stay emotionally detached and rationally look at outcomes from all angles. Respect each ones opinion and think about it rationally. May be we need a new thread on CoBF about lessons learnt from investments when they go wrong.

The lessons to learn here, in my opinion, are not yet drawn! You're talking as if everything was over. But very little time has elapsed since the initial revelations, though the deluge of posting and the adrenaline rush make it seem a year, and we know... well, very little.

 

Let's give it time and revisit in 1-3-6 months then 1-2-3-5-10 years. We're long-term oriented here, right?

 

I'm with the more nuanced posters here.

1) Some things seem shady but may still have a decent-ish explanation

2) The business may suffer a lot, or very little

In other words, high uncertainty. I see only time as the solution.

 

 

That said, yes, we can agree that staying detached is a good principle.

[writser]

Very well put, Rishig. The main gripe I have and, for the record, had (see my quote below from august) with the bulls is that they got so immersed in their own research that I think they didn't see the forest for the trees anymore. Grossly exaggerated they spent hundreds of pages analyzing the gross margin impact of foot cream sales in Colombia, the estimated cashflow generated by Zofirax after the patent expiration in 2040 and the market share of Salix in Russia in 2023. This lulls one into overconfidence because it makes you feel you know everything there is to know about VRX (and because the detailed analysis makes you feel smarter than other posters). I think a few bulls got so immersed and so confident that they ignored important 'meta'-questions that I believe you should ask yourself for every investment. Is it possible that I am wrong? What is the margin of safety if I am wrong? How confident should I be in my own analysis? Is my analysis independent or influenced by management / other investors? What are the important things to focus on in my analysis?

 

Now the stock tumbled from $230 to $100 and the bulls are still doing the same thing. However, instead of discussing the gross margin of foot cream sales in Colombia the discussion has shifted towards the impact of what Davenport knew in August 2015 on expected revenue in Poland in 2014 and the effect of backing out Philidor on organic growth in 2023. Not once did they take a step back to think: whoah, maybe this should have been in the 'too hard' pile from the start. Which, I firmly believe, is the only correct analysis for 99.9% of the posters here, including me for sure.

 

I guess that's what fascinates me the most about this thread. Valeant is an overfollowed large-cap. There is huge controversy among investors about the sustainability of its results (just see the length of this thread). Charlie Munger called this a fraud on national television. There is no easily apparent margin of safety in the balance sheet or current earnings. The CEO is teared apart on glassdoor.com. Insiders are selling. Serial acquirers tend to underperform. Call me simplistic but within 10ms of looking at Valeant a few neurons in my brain start to fire up: "stay away from this!". That does not mean I think Valeant is a fraud - their story might check out. I don't even care. What I am certain about is that this is not a one-foot hurdle. I'm just as unlikely to go long as to go short.

 

The image this thread conjures up is of a couple of Sherlocks sitting in leather armchairs, smoking pipes, saying: "This company is elementary, Watson. This old fart Munger doesn't understand what he's talking about. I work at a software company but in my spare time I've been doing research on the internet. I know everything about Zovirax. I'm an expert on patents. Superficially this company looks extremely sketchy but I can safely ignore that because I have deduced everything there is to know here, Watson! The bears are simply not as smart as I am. This stock will earn me 20% per annum."

 

As a retail investor, how can you be so supremely confident in your analysis? Unlike Wellmont I don't think investing based on guts and conviction will yield outperformance. I try to remain skeptical about my own abilities to analyse a company as a retail investor. I especially try to remain skeptical when a lot of simple value investing heuristics are stacked against me. So, you are trying to convince me that this is the one of the few serial acquirers that doesn't blow up? That a $80b company will continue to grow by 20% per annum? That in this case 5x leverage is not dangerous? That in this case Charlie Munger is wrong? That in this case we can ignore glassdoor.com? That in this case it isn't a problem that the CFO resigned? That in this case the manager is truly exceptional? That in this case we can ignore insider selling? That in this case we can ignore that shares outstanding doubled in a decade? That in this case paying a gazillion times 2014 FCF is actually very cheap? That in this case we can ignore that management doesn't really break down how their subs perform? Guess what?

 

"Extraordinary claims require extraordinary evidence."

 

Given that, I really don't see how you can take a position in Valeant either way. Now all the bulls will undoubtedly parry me saying that I should do more research and that this post was way too superficial (and they have a point). But try to look at this in a probabilistic way. What is the base rate of companies with the characteristics mentioned above outperforming the market? How confident are you in your own analysis? If you combine these two metrics, do you think it is even worthwile to take a look at Valeant?

[ERICOPOLY]

Curious why the class period doesn't include the day that management presented the issue as a "Standard Collections Dispute".  I guess there will have to be another class organized to cover those individuals should this turn out, as I strongly suspect, to be anything but a standard dispute:

 

http://finance.yahoo.com/news/shareholder-alert-brower-piven-encourages-222500030.html

[arcube]

The lesson to learn here, in my opinion, is how do I avoid being in this situation ever again - To stay emotionally detached and rationally look at outcomes from all angles. Respect each ones opinion and think about it rationally. May be we need a new thread on CoBF about lessons learnt from investments when they go wrong.

The lessons to learn here, in my opinion, are not yet drawn! You're talking as if everything was over. But very little time has elapsed since the initial revelations, though the deluge of posting and the adrenaline rush make it seem a year, and we know... well, very little.

 

Let's give it time and revisit in 1-3-6 months then 1-2-3-5-10 years. We're long-term oriented here, right?

 

I'm with the more nuanced posters here.

1) Some things seem shady but may still have a decent-ish explanation

2) The business may suffer a lot, or very little

In other words, high uncertainty. I see only time as the solution.

 

 

That said, yes, we can agree that staying detached is a good principle.

 

Actually a number of lessons can be drawn without waiting for a lot to happen further. Not to say that there will not be more lessons to learn here. Lot to unravel here but a lot has already.

MP is so W.E.B.

VRX is no BRK.

This is not like the Salad Oil Scandal.

When people try to hide something and think they will never get caught, they usually do get caught. Some high level examples.

 

Like Rishig said, one thing for sure is to learn how to stay emotionally detached and not get swayed by some star names in the stock and at least look at a reasonable case as provided by AZ Value.   

[Picasso]

Valeant was and is a story on leveraging returns other pharmacueticals left behind into a low tax and cost structure.  That in itself is not that complicated.  There were and still are red flags but this isn't over. Part of the issue was thinking all of amortization was a non expense. The valuation to getting to the point where that might not matter anymore.

 

I do have issues with the growth assumptions still made by some of the bulls.  I'll get interested in buying the stock if it trades more distressed and it demonstrates a clear margin of safety.  I want the bulls to think the story is toast and feel ashamed to say the word growth and Valeant together. 

 

That said, writser has a point that there were a lot of clowns talking up the stock before. Some of them had no business being in this stock. But we are getting to a point where it can get very ugly for the stock and I'd like to understand as much as possible before deciding it's "too hard.". A levered stock facing liquidity issues with valuable assets can give you very very good returns.

 

Most of Klarman's portfolio is "too hard.". We don't all have to take the same path when investing. When the story is all said and done we'll have learned many valuable lessons whether one was long, short, or just munching on the popcorn.

[ERICOPOLY]

Valeant was and is a story on leveraging returns other pharmacueticals left behind into a low tax and cost structure.  That in itself is not that complicated.  There were and still are red flags but this isn't over. Part of the issue was thinking all of amortization was a non expense. The valuation to getting to the point where that might not matter anymore.

 

I do have issues with the growth assumptions still made by some of the bulls.  I'll get interested in buying the stock if it trades more distressed and it demonstrates a clear margin of safety.  I want the bulls to think the story is toast and feel ashamed to say the word growth and Valeant together. 

 

That said, writser has a point that there were a lot of clowns talking up the stock before. Some of them had no business being in this stock. But we are getting to a point where it can get very ugly for the stock and I'd like to understand as much as possible before deciding it's "too hard.". A levered stock facing liquidity issues with valuable assets can give you very very good returns.

 

Most of Klarman's portfolio is "too hard.". We don't all have to take the same path when investing. When the story is all said and done we'll have learned many valuable lessons whether one was long, short, or just munching on the popcorn.

 

That's why I'm still interested in the story. It's not just that I look great in Nancy Drew's panties.

[ZenaidaMacroura]

I don’t really like trying to puzzle together what happened as the chance of actually guessing right is, in my opinion, quite low.  But got the itch to spin a tale so gun-to-my head if I had to guess how this mess transpired:

 

-Reitz was scared that he was on the hook/or got greedy or some combination thereof (not really critical to my theory).  Regardless Reitz thought he had a legitimate grievance.

 

-Davenport/Philidor believes Reitz is attempting a shakedown/or that Reitz has misapprehended the situation.  They don’t want to slow down the pace so they try and allay his concerns while steaming ahead.  If philidor is channel stuffing they have no reason to believe that Reitz is onto them.  So they feel ok downplaying arbitration/not really taking his allegations seriously (this is interesting because surely they would want to avoid the scrutiny that a lawsuit would bring about if this was the case?).  They don’t want to burden Parent-Vrx with this as they feel like they can contain the situation or that they can outgrow the issue so they either downplay it as a collections issue to VRX-Management or maybe they tell Pearson and the other suits that they think Reitz is just unhappy with selling so cheaply.

 

-Parent-Valeant now aware of the “collection issue” (Davenport’s version of events) instructs Chai-onn to correspond directly with Reitz to get a handle on a developing situation.  For whatever reason Reitz decides to have his lawyer fire back that he has “never heard of Valeant….massive fraud…conspiracy.”  This sort of corroborates the narrative that Philidor has been relaying to Parent-Valeant (that Reitz misapprehends the situation, or it’s a shakedown).    If you’re walking along minding your own business and someone looses an arrow at you, you would take notice.  You might disclose it on your Q3 call when mentioning the relevant entities (indeed they should have in hindsight), however things were really beginning to escalate and the arrows were flying from all directions (Clinton Tweet, regulatory, Subpoena, Sirf report, Citron, Hempton blog), and the last thing they wanted to do was reveal that the person they had a collections issue with was also accusing them of massive fraud (Parent VRX still thinks Reitz has misapprehended the situation).  They simply didn’t want to make a mountain out of a mole hill (that they didn’t even think was there).  If parent-vrx had thought there was fraud then It would have been apparent that the cat was out of the bag – the “collections issue” would not go away.  But on the call they seemed confident that they would collect/litigate Reitz into submission.  To me it implies they didn’t have a handle on the situation –from Parent-Valeants vantage point Reitz saying he’s never heard of Valeant has discredited him (even though Eric makes reasonable points as to why reitz shouldn’t be ‘written off without a trial’ –unfortunately Eric doesn’t have the ear of Valeant’s C-suite).  So VRX thinks it would be like leaving containers incorrectly labeled "gasoline" in the crowded theater where Andrew and John are already yelling fire.  Given all the uncertainty surrounding the allegations shorts were making –most of which management thought were off base, and after successfully discrediting the ‘Citron Fraud allegation’ and ‘channel stuffing’ concern management was quick (too quick) to dismiss Reitz as another one of those coming out of the woodwork.

 

Edit: I'm not at all married to my story so I don't mind striking out all or part of it!

[ERICOPOLY]

Given all the uncertainty surrounding the allegations shorts were making –most of which management thought were off base, and after successfully discrediting the ‘Citron Fraud allegation’ and ‘channel stuffing’ concern management was quick (too quick) to dismiss Reitz as another one of those coming out of the woodwork.

 

Edit: I'm not at all married to my story so I don't mind striking out all or part of it!

 

Thing is, Reitz is your captive pharmacist in charge.  Not a short seller just trying to drive the stock down.

 

And he's stopped sending you checks... at some point you have to say... okay, what is your suspicion of fraud based upon???

 

You could at least ignore Left because he doesn't send you checks, he's not a business partner of yours.

 

This other guy Reitz... he must have a very high reputation if you went into business with him right?  "Oh, don't worry about the initial fraud claim from Reitz, we already know that guy is a lowlife".  Yeah right!  They just inked the deal with him eight months earlier!

 

Somebody who is actually an insider that is trying to report a fraud, that you do hundreds of millions of dollars in volume through, is very different from an outsider that you don't even do business with.

[randomep]

 

 

writser, this is exactly what I was thinking...... VRX so obviously belong to the too hard pile..... a lifetime of investing in this type of companies cannot produce outsized returns..... for any mortal!

 

 

This board is turning into the corner of Valeant , Berkshire and Fairfax (not that I have anything against that, it is pretty entertaining)

[Nicholas]

This is worth a read....

 

http://www.bnn.ca/News/2015/11/2/Berkshire-Hathaways-Charlie-Munger-takes-aim-at-Valeant.aspx

 

 

 

[ERICOPOLY]

The CEO is responsible to uphold the reputation of the company.  You can't ignore a fraud report from someone who is at the epicenter of hundreds of millions of dollars of your revenue -- if there is a fraud, you need to stamp that out!  What if the fraud keeps going and grows out of control!  So you must at minimum investigate such claims, or you're being damned irresponsible.

 

 

And so when such claims come up, if have not in fact investigated them, it's "left, right, left, right, left, right..." IMO.

[fareastwarriors]

Valeant 'Witch Hunt' Going Too Far for Brave Warrior's Greenberg

 

 

http://www.bloomberg.com/news/articles/2015-11-03/valeant-witch-hunt-going-too-far-for-brave-warrior-s-greenberg

[flesh]

I have a  long position in vrx cost basis 96.

 

Seems to me just keeping value in mind would have solved most of the previous long's problems. I read the entire thread when the stock was over 200 and it simply didn't meet my maximum NTM fcf/ev multiple rule of 15 for growers. We all have different definitions of value for sure, however I simply couldn't understand why anyone would pay over 200/share recently. I cringed when some posters were buying at 230.

 

I liked the company before but the price was too high..... I set a buy target at 117.... it quickly went below this price and I watched it for awhile patiently. Once all the issues came up I lowered my ntm fcf number by 20% which seemed conservative enough to account for existing and some future issues. Then I got my price.

 

Personally, it would be quite difficult to apply the host of possible lessons from this company in the future. I suspect if I did try, the memory would fade over time.

 

I suppose this is a bit too simplistic for most, it's always worked well for me. I find it hard to remember/apply all the different biases/mental constructs. Having a checklist has helped but there's never a one size fits all.

 

Whether or not I'm correct in this long investment, by simply focusing on value, I will have avoided much loss and possibly made a good investment. In most cases, when I set a buy target for a company I like, I get it within 1 year or less.

 

However, I did miss out on PCLN this year at 1008/share in january because it was slightly above my 15x ntm ev/fcf target.  :'(

[Picasso]

Were there a lot of people buying over $200?  I only remember Gio posting his buys a few times.

[ccplz]

Were there a lot of people buying over $200?  I only remember Gio posting his buys a few times.

 

Lol he seems to have stopped posting in the last 2 weeks heh.

[Picasso]

Sort of hard to post when we're all playing Hardy Boys, Nancy Drew, and Encyclopedia Brown trying to figure out this mess.  Beyond the potential financial rewards it is a bit fun to use some critial thinking skills. Peter Parker, Jack Reacher, chess moves, etc etc.

 

I think the current Valeant CFO top ticked some insider buys as well. If it is indeed a big fraud (I don't think it is) you would think Schiller would at least give him the courtesy nudge before blowing several million.

[rishig]

Were there a lot of people buying over $200?  I only remember Gio posting his buys a few times.

 

Lol he seems to have stopped posting in the last 2 weeks heh.

 

"Praise by name, criticize by category" - Warren Buffett.

[Liberty]

It certainly is never good when big problems surface at companies you own, especially when there could be fraud. It's possible that I have been fooled by management. It's not really a consolation, but if that is the case, at least I was in good company; someone who can fool Jeff Ubben and Mason Morfit for years while they are on the board can probably fool many people. I know it's now popular to say that the bears warned us, but what they actually said isn't quite what ended up happening, and I find the revelations about possible fraud at Philidor a lot more worrying than what had been raised before.

 

This is a good case study in reverse halo effect. When things were going well, everything about the company was great (management, the structure, the assets). Now that things are going badly, everything about the company is terrible (management, the structure, the assets). I think when the dust settles, reality will probably be more nuanced, and even if things are bad enough that ValueAct and the board has to fire management and put others in place, I doubt there won't be value there.

 

I'm in the camp that is waiting for more information. I think many people act like everything is known, but I think (to paraphrase Rumsfeld) that there are probably still many unknowns unknowns that will come out and that aren't even part of the speculation at this point, and when we have a more complete picture, we'll be able to judge things better. Most of what we have from management was a response to the original accusations of channel stuffing and fake sales. I want to hear what they have to say on this more recent stuff.

 

I think it's a good sign that they put that ex-federal judge and deputy attorney general on the investigation committee. The guy seems to have a sterling reputation, I don't think he'd join a kangaroo court. Same for Morfit and Ingram.

[Rasputin]

 

Placing the Allergan gains into operating earnings instead of investment income.

 

 

i'm not sure where you get this.  It's clearly labeled Gain on investments (see note 23) on the 2014 10-K.  It's way below the operating income line.  The gain of $292.6 million was added back to operating income to get to income before provision for income taxes. 

 

This fact is further reinforced by note 23, page 263 of the 2014 10-k

 

"The net gain of $286.7 million was recognized in Gain on investments, net in the consolidated statements of income (loss) and is net of expenses of approximately $110 million , in the aggregate, which includes the $53.7 million of commitment letter fees described in the preceding paragraph as well as legal, consulting, and other related expenses."

[ZenaidaMacroura]

Given all the uncertainty surrounding the allegations shorts were making –most of which management thought were off base, and after successfully discrediting the ‘Citron Fraud allegation’ and ‘channel stuffing’ concern management was quick (too quick) to dismiss Reitz as another one of those coming out of the woodwork.

 

Edit: I'm not at all married to my story so I don't mind striking out all or part of it!

 

Thing is, Reitz is your captive pharmacist in charge.  Not a short seller just trying to drive the stock down.

 

And he's stopped sending you checks... at some point you have to say... okay, what is your suspicion of fraud based upon???

 

You could at least ignore Left because he doesn't send you checks, he's not a business partner of yours.

 

This other guy Reitz... he must have a very high reputation if you went into business with him right?  "Oh, don't worry about the initial fraud claim from Reitz, we already know that guy is a lowlife".  Yeah right!  They just inked the deal with him eight months earlier!

 

Somebody who is actually an insider that is trying to report a fraud, that you do hundreds of millions of dollars in volume through, is very different from an outsider that you don't even do business with.

 

I can see where you're coming from but I feel like if the aim was truly to shine a light on malfeasance at Philidor would Reitz really have his lawyer respond to Valeant by saying: "We've never heard from you before.  I don't know you, let go of my purse!" And this is while sitting on WAC $6mm USD in boxes of inventory with Valeant's logo plastered on it?

 

https://www.youtube.com/watch?v=dfjfi4iqoDM

 

Maybe it's standard boiler plate legalese but when asked if he contacted law enforcement or regulatory officials about the fraud Reitz declined to say whether he had.  I would think that would be the FIRST thing you do, before writing that you intend to keep the money/and had never communicated with the parent-organization who you were in regular email correspondence with weeks prior. 

 

 

 

And I also have a conspiracy version that I don't wholly take seriously:

 

What are the incentives here? 

 

Is Pearson is going to be adamant about not settling/arbitrating/letting Reitz keep the money and writing it off as a bad receivable in order to avoid being "found out?"  That would be a much better 'sweeping it under the rug' solution than saying on record that it's merely a collections issue while knowing it's about to be known as much more than that?  If we're speaking monetarily, Pearson has billions at stake and writing off $19-69mm in WAC is probably not something anyone would notice.

 

Davenport has tens of millions at stake, is he going to risk a clawback if his activities are exposed assuming he has something to hide?  Why not just keep his newly minted fortune and in a worse case scenario underperform and not get milestone payments?  You only have to get rich once.

 

Then you have Reitz, who was paid $350K for his trouble.  He sees $19-25mm sitting in an account he oversees.  He claims to fear for his future (of what, not being a millionaire? cheapshot- mostly kidding) so he decides to deny knowledge of valeant and say he's justified holding the funds as leverage/and because he's been exposed to liabilities.  Doesn't that sounds like a bit of a reach?

 

Why didn't Reitz just contact authorities or regulators from the get go?   

 

EDIT: Also not to impugn his character but when you say Reitz is a 64 year old pharmacist it sort of paints the picture that he's the kindly elder labcoat who oversees the young pharmacists at your corner Walgreens -The evercore deck mentioned he founded/is still director of a small-medium research lab and he's had disciplinary action regarding falsifying the efficacy of something they were developing.  Doesn't really mean anything but I could see it implying that he has a drive to reach a certain station in life or some such thing.