A move by Valeant Pharmaceuticals to single out two former top executives over its accounting problems is likely a bid to win leniency with government agencies investigating the drugmaker, according to accounting and securities experts.
Valeant (vrx) on Monday said Chief Executive Michael Pearson was leaving the company, and billionaire investor William Ackman, one of the company’s biggest shareholders, would take a seat on its board, as Valeant tries to rectify accounting problems and save its business.
Valeant is under investigation by both state and federal agencies, including the Securities and Exchange Commission.
In a strongly worded statement, the company said “improper conduct” by former chief financial officer Howard Schiller and by its former corporate controller contributed to a misstatement of financial results. Schiller and the controller, whom a person familiar with the matter identified as Tanya Carro, provided incorrect information to the board committee and its auditors, Valeantsaid.
“They want to send the message to the SEC and the various states attorneys general that, ‘Hey, look, we are making some of the big shots walk the gang plank, we have done the digging,” said Erik Gordon, a professor at the University of Michigan with expertise in corporate governance.
Valeant declined to comment.
Schiller issued a statement denying wrongdoing and said he had declined the board’s request to resign from his current role as a company director. Carro, who has been placed on administrative leave, could not be reached for comment.
Schiller, who had worked alongside Pearson for a number of years, left as CFO last year, though he returned to Valeant as interim CEO after Pearson went on medical leave.
Valeant, which makes prescription dermatology drugs and consumer products like Bausch & Lomb eye care, has come under fire for aggressive drug price increases. It is under investigation by Congress and the U.S. attorney’s offices for Massachusetts and for the Southern District of New York.
The company is also being investigated by the SEC. The probe was sparked after short seller Andrew Left accused Valeant in October of using a specialty pharmacy, Philidor Rx Services, to inflate revenue, people familiar with the matter told Reuters earlier this month.
Valeant has denied the accusations, though it set up an internal board committee to review its relationship with Philidor.
Valeant‘s internal review identified around $58 million in net revenue in the second half of 2014 that should not have been recognized on the company’s financial statements. On Monday, the company said its financial statements for 2014 and the first nine months of 2015 could no longer be relied upon.
The SEC is likely to “ramp up their inquiry if for no other reason than the company itself has admitted to improper accounting,” said Joseph Carcello, an accounting professor at the University of Tennessee.
According to guidelines first laid out in a 2001 SEC report known commonly as the Seaboard Report, companies can be credited for their efforts to discipline wrongdoers and self-report problems.
Highlighting the actions of individuals could reduce penalties in a potential settlement with the SEC, said James Cox, an expert in corporate and securities law at Duke University.
“This is an attempt to try and calm the waters,” Cox said.
The Department of Justice issued a memorandum last year emphasizing that company cooperation with government investigations must include efforts to identify individual wrongdoing.
An SEC spokeswoman declined comment on the status of the Valeant probe. The Department of Justice declined to comment on whether or not it is investigating Valeant.
Valeant is also facing four securities fraud lawsuits filed in New Jersey federal court last year accusing it of inflating the company’s share price by not disclosing the use of specialty pharmacies to prop up sales of high-priced drugs. The company has not yet filed an answer to those complaints.