UPDATED Inside the story: MarketWatch reports on how an SEC letter to one pharma forced a reporting change on the rest
I'm often asked where I get ideas for stories. This time former colleague Ciara Linnane asked me about a strange change at Pfizer that led to spotting its material impact on a whole industry.
MarketWatch updated its story today to reflect the SEC’s posting on May 6 of comment letters on the issue for Eli Lilly and Bristol Meyers that join Biogen’s mentioned below. It certainly seems now — given the nearly identical language used by all involved and mention of calls and meeting with SEC officials — that it was a coordinated effort by the SEC to crack down on a materially misleading non-GAAP practice by the pharma industry.
It also has come to my attention that SEC Corp Fin Chief Accountant Lindsay McCord mentioned the issue, the SEC’s actions, and the MarketWatch article at a conference on financial reporting at Baruch College in New York on Wednesday, May 4.
The headline reads:
Drug companies are making an accounting change after the SEC cracked down on Biogen | Comment letters sent to Biogen have changed how companies account for upfront payments made to fund R&D at companies they own stakes in
I am using this story to describe how I work with other journalists to support their work and get the word out about companies’ accounting and reporting shenanigans. Whether I write my own stories, or not, and whether there is a need for a quote from me, or not, I am always open to answering questions and supporting journalists. I hope to have even more time to do this once I get to Wharton in a couple of months.
Ciara Linnane is the investing and corporate news editor at MarketWatch based in New York. We worked together when I was the Transparency Reporter there, based in DC from May 2015 until October 2020. During that time I learned a lot from Ciara and her team about how MarketWatch and the wire services report earnings each period. Over time I was asked to share my knowledge about how companies report earnings, quarterly results and annual financials to the SEC.
Ciara and her fellow editor for the West Coast companies reporting, Jeremy Owen, worked with me to report many, many stories about how companies took advantage of non-GAAP reporting to mislead investors, manipulate the perception of their performance and make sure top executives get paid no matter the GAAP results. In many cases we were gratified that the SEC paid attention and eventually told the companies to cut it out or brought enforcement actions related to our reporting.
In one particular case a whistleblower prompted by our reporting brought a class action lawsuit that settled for $70 million cash and that led to FASB changing the GAAP rules to allow the activity, rather than the SEC bringing enforcement actions on a consistent basis. The new rule is not yet effective so companies like Block, aka Square, are still exploiting the loophole.
On Tuesday morning at 7:30 am Ciara sent me a vague email to mention that she had noticed more than one drug company mentioning some kind of accounting change for R&D this quarter in earnings press releases. She asked me to take a look, if I had time.