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Apr 2, 2015 by |

What Securities & Exchange Commission (SEC) v. Stiefel Laboratories Tells Us About SEC Jurisdiction Over Private Entities


The recent Securities & Exchange Commission (SEC) v. Stiefel case shows that private entities are subject to Securities & Exchange Commission enforcement, say California securities fraud lawyers.

The Securities & Exchange Commission filed a complaint in October 11 against Stiefel Laboratories, and the Eleventh Circuit decision came down in June 2014. Stiefel Laboratories, a privately owned company led by its chairman and CEO Charles Stiefel, had established an Employee Stock Bonus Plan starting in 1975. Because Stiefel Labs was not public, current and former employees who were eligible to sell their shares were effectively dependent on the Plan or Stiefel Labs to repurchase those shares.

Stiefel Labs used a third-party accountant to perform a valuation of its shares at the end of each fiscal year. Charles Stiefel began seeking and accepting bids and terms of sale from potential acquirers starting in late 2008, and Stiefel Labs was purchased by GlaxoSmithKline in June 2009 for $2.9 billion. Shortly thereafter, Plan shareholders were paid $68,131 per share for their stock. As recently as April 2009, Stiefel Labs had repurchased shares from current and former employee shareholders at a $16,469 per share valuation from late December 2008 to April 2009.

The Securities & Exchange Commission alleged that this constituted fraud including omission of material facts in connection with the purchase or sale of securities, and that Charles Stiefel aided and abetted these violations. The repurchases benefitted the Stiefel family and other shareholders whose interests increased in value as the number of shares outstanding decreased. Additionally, the repurchases occurred while Stiefel Labs possessed material, nonpublic information. The Securities & Exchange Commission also alleged that the third-party valuations previously used to determine the company’s value and the share price used a flawed methodology and that the third-party accountant “was not qualified to perform the valuations.” In addition to the Securities & Exchange Commission filing, a number of civil suits were filed against Stiefel Labs by former employees who had sold their shares back based on the third-party valuations (only to see others selling their shares for more than four times that amount just months later).

California securities fraud lawyers say that Securities & Exchange Commission (SEC) v. Stiefel reaffirms that private corporations, limited liability companies, and partnerships are not exempt from the securities laws or Securities & Exchange Commission enforcement action. Full disclosure is required, whether a company is private or public, in connection with the purchase or sale of securities. California securities fraud lawyers recommend that private companies bring on independent directors and trustees, and highly qualified valuation firms, in order to protect themselves from Securities & Exchange Commission violations.

Evans Law Firm, Inc. has offices in San Francisco, Los Angeles, and Sonoma, and handles all types of securities fraud cases, including IRS and SEC whistleblower cases. If you have a securities fraud claim, please contact Evans Law Firm, Inc. at 415-441-8669 or via email at

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