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Experts: Mylan land deal a gray area for disclosure

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Mylan's former corporate headquarters in Southpointe II, a business park just off of I-79 in Washington County.

Mylan NV is defending its decision not to tell investors that board member Rodney Piatt was involved in land deals for the company’s Cecil headquarters because he was not a direct participant and received no money in the transactions.

The world’s third-largest generic drugmaker disclosed other business dealings in recent years involving board members, even though those related-party transactions did not include direct payments from Mylan.

For instance, the company stated in a December filing with the Securities and Exchange Commission that the brothers of Executive Chairman and former CEO Robert Coury received more than $1 million in fees in 2013 and 2014 from insurance companies while acting as brokers for Mylan’s employee benefits programs. Mylan has disclosed the relationship each year since 2006.

Mylan disclosed 27 related-party transactions between 2002 and 2014, and 19 involved family of executives and board members, a Tribune-Review examination of regulatory filings found. The company was red-flagged by a shareholder advisory firm for the frequency of transactions connected to insiders.

Mylan likely chose to disclose the dealings with Coury’s brothers, even though the company in some cases did not pay them directly, because they involved a top executive’s family members, experts said. There is typically much more scrutiny on officials at the very top, they noted.

“The CEO is the one person who’s under the microscope,” said Edward Nelling, a professor of finance at Drexel University in Philadelphia. “With directors, they’re one step removed, and the spotlight is shining a little less brightly,”

Joan MacLeod Heminway, a professor at University of Tennessee’s College of Law, said any deals involving the family of a board member or executive are widely recognized as grounds for disclosure under securities law.

“If you have a transaction with a firm that has someone extremely close from a familial standpoint,” she said, “from a securities lawyer’s standpoint, they usually trigger disclosure.”

The land deals involving Piatt, which surfaced this week in media reports, are in a gray area because he was not a direct party to the purchases and was not paid directly by the company, the experts said. Yet Heminway, Nelling and others said they believed Mylan should have disclosed the deals if for no other reason than to avoid the appearance of a conflict of interest.

“I would suggest that there’s no such thing as too much disclosure,” Nelling said, “especially when it involves the lead independent director.”

Mylan spokeswoman Nina Devlin did not respond to an email Friday requesting comment from the company and Coury. Piatt did not immediately return a telephone call. The SEC declined to comment.

Publicly traded companies such as Mylan are required by the SEC to tell their shareholders about transactions or other deals worth $120,000 or more between the company and its board members, executives and their families. The related-party transaction rules are meant to discourage companies from enriching insiders at the expense of investors.

Only 11 percent of companies in the Standard & Poor’s 500 had directors engaged in related-party transactions last year, according to an analysis by Institutional Shareholder Services, a company that advises large institutional investors on publicly traded firms.

Other disclosures from Mylan included that the son of former board member C.B. “Sonny” Todd was employed as a senior manager at Mylan. The company also told investors from 2002 to 2004 that it had between $7.2 million and $10 million deposited at CentraBank Inc., where board member Douglas Leech was CEO.

The Piatt land deals that have raised questions involved property in a business park where the company built its headquarters.

In 2012, Mylan bought a seven-acre parcel in Southpointe II from Illinois businessman Andrew Miller for $2.9 million. Miller, who is involved in development at Southpointe, purchased the property from Piatt earlier the same day for $1, Washington County land records showed. Piatt is lead developer of Southpointe.

In May, Mylan bought an adjacent 11-acre parcel from Miller for $9.2 million, six months after Miller paid Piatt $10 for the property.

“Clearly there was an effort to disguise the ownership,” said Jeffrey Sonnenfeld, a professor at the Yale School of Management and a corporate governance expert.

Sonnenfeld asked, if Piatt did not benefit from the sale, then why take steps that appear to conceal his involvement?

“It creates a bad odor about the company,” he said. “It raises serious questions about the diligence and competence of the board.”

Alex Nixon is a staff writer for Trib Total Media.

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