Eugene Melnyk (file photo)

Biovail founder and Ottawa Senators owner Eugene Melnyk is in hot soup again with securities regulators.

Securities regulators in both Ontario and the U.S. have charged Mr. Melnyk and three other former Biovail officers with accounting fraud.

The U.S. Securities and Exchange Commission on Monday issued a notice of hearing and related statement of allegations against the company, Mr. Melnyk, and former chief financial officer Brian Crombie, current CFO and former corporate communications director Kenneth Howling, and controller John Miszuk.

The SEC said Biovail had failed to properly account for $47-million-worth of expenses a special purpose entity called Pharmaceutical Technologies Corp. in its 2001 and 2002 financial statements, and had in June 2003 improperly recognized $8 million in revenue relating to a purported "bill-and-hold" sale of its best-selling antidepressant drug Wellbutrin XL.

The regulator also accused the Toronto-based pharmaceutical company of putting out misleading or false statements about its October 2003 earnings miss, as well as for failing to correct and disclose a $3.9-million understatement of its 2003 second-quarter financial statements relating to foreign exchange losses.

The Ontario Securities Commission also put out a complaint with many of the same allegations.

Biovail had in October 2003 said nearly half of its failure to meet third-quarter earnings was because of an accident involving a truck containing a shipment of its Wellbutrin XL drug, but the SEC said the accident had actually had no effect on the earnings.

"The SEC's complaint alleges that present and former senior Biovail executives, obsessed with meeting quarterly and annual earnings guidance, repeatedly overstated earnings and hid losses in order to deceive investors and create the appearance of achieving earnings goals," the regulator said in a statement. "When it ultimately became impossible to continue concealing the company's inability to meet its own earnings guidance, Biovail actively misled investors and analysts about the reasons for the company's poor performance."

The complaint also included an allegation that Mr. Melnyk had failed to disclose his ownership of shares held by several offshort trusts that he controlled.

Without admitting or denying the allegations, Biovail agreed to pay a $10-million penalty, but the payment does not settle the charges against Mr. Melnyk, Mr. Crombie, Mr. Howling and Mr. Miszuk.

As a result of the allegations, Biovail said Mr. Howling and Miszuk are being "reassigned to different non-officer positions within the company," with the company's current finance vice-president and treasurer, Adrian de Saldanha, taking Mr. Howling's place as interim CFO.

Biovail said it will also submit to an examination of its accounting functions by an independent consultant as part of the settlement.

Mr. Melnyk released a statement denying the majority of the regulators' allegations and said he was "disappointed" by the proceedings.

"The only allegations made against me by the SEC pertain to a single missed shipment of Wellbutrin that occurred almost five years ago, in 2003, as well as to certain unrelated reporting issues that have already been resolved with the OSC and have been addressed in a regulatory filing with the SEC earlier this year," his statement read.

Mr. Melnyk also said he was trying to resolve the reporting issue with regards to the Wellbutrin shipment accident, and said he had publicly disclosed all the facts of the accident as he understood them.

"I intend to vigorously contest the absolutely false allegations of the SEC and OSC and am confident that I will prevail once all the facts are heard," he said.

Although Biovail's share price dropped to a low of $10 late Monday morning, the company's stocks rose again in the afternoon, increasing by 3.57 per cent at 3:12 p.m. to $12.20.