Medco Receives SEC Subpoena Related To Consultant On Calpers
March 18 2011 - 5:50PM
Dow Jones News
Medco Health Solutions Inc. (MHS) said Friday it has received a
subpoena from the Securities and Exchange Commission's Los Angeles
office seeking documents relating to an ongoing probe of a
consultant whom the pharmacy benefits manager hired to help it win
a contract with the California Public Employees' Retirement
System.
The company also spelled out details of its dealings with its
former consultant, Alfred Villalobos, who was a past Calpers board
member when Medco engaged him in 2004, two years before it won the
system's business. The commission seeks documents relating to
current and former affiliates of Villalobos and Calpers, among
other people and entities, Medco said in a filing with the SEC.
Disclosure of the subpoena caps a week in which Calpers dropped
the company from consideration for renewal of the PBM contract as
of 2012, amid government probes surrounding the awarding of the
original pact. Medco shares slid 13.7% this week.
Medco, one of the nation's largest PBMs, said its own
independent directors have been monitoring state and federal probes
of Villalobos, and that the independent directors and the board's
audit committee have decided not to conduct an internal
investigation now.
Calpers said earlier this month that it had contacted Medco's
independent directors and urged them that the situation required
the company to conduct an independent investigation and that the
nation's largest public pension fund expected a prompt report of
the outcome.
Medco had previously disclosed that the SEC made a phone inquiry
about Villalobos last month, and that the California attorney
general's office requested information about him from the company
last year.
"The company intends to provide documents and to cooperate with
the SEC and to continue to voluntarily cooperate with the
California attorney general," the SEC filing said.
Medco said it engaged Villalobos after its previous Calpers
pharmacy benefits management contract ended in 2002 and before
Calpers issued a request for bids in 2005. Medco engaged the
consultant after Calpers hired a big plaintiffs' law firm to pursue
"perceived issues with the company's PBM services under the
contract ending in 2002," the filing said.
"The consultant was compensated $4 million, paid over time in
four equal installments, to primarily provide advice and assistance
on connection with what the company anticipated would be and, in
fact, became, a lengthy, contentious and highly detailed audit. The
audit was successfully concluded and the outstanding issues were
resolved," Medco said.
Medco said it then paid Villalobos $20,000 a month in a
year-to-year contract ending in 2009, "and largely unrelated to
Calpers. Both contracts with the consultant stipulated that he
follow all laws and regulations in connection with his work for the
company, and required the consultant to avoid all conflicts of
interest or even the appearance of impropriety."
Calpers this week dropped Medco from consideration for a renewal
of its PBM contract, which expires at the end of this year. The
company had been a finalist for the business and a Calpers
committee had recommended it be the top competitor.
On Monday, Calpers released a report it commissioned to examine
middlemen paid by outside money managers to help win fund business,
and said the review found apparent misconduct and that some top
fund officials had acted inconsistently with their
responsibilities.
A relatively small portion of the report included descriptions
of meetings in 2004 at Villalobos' Nevada home between Medco CEO
David B. Snow Jr., Villalobos and several men who were Calpers
officials at the time.
California last year filed civil fraud charges against
Villalobos, alleging that, acting as a placement agent, or
middleman, for investment firms, he entertained key senior Calpers
executives who then influenced the board to authorize securities
transactions that generated tens of millions of dollars in
commissions for him.
Villalobos has denied wrongdoing, according to media reports.
His attorney didn't immediately return calls for comment.
Separately on Friday, attorneys representing California state
workers filed a lawsuit against Medco and three former Calpers
officials, claiming violations of the state's unfair competition
law and asking for restitution of all money paid to Medco under the
contract.
By the time the current, renewed contract expires at the end of
the year, Calpers has said it will have paid Medco some $48 million
since 2006. Medco managed about $500 million of prescriptions for
Calpers employees in 2009.
-By Dinah Wisenberg Brin, Dow Jones Newswires, 215-982-5582;
dinah.brin@dowjones.com
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