SEC Sues to Oust ICN Chief, Restrict His Future Work

Capping years of regulatory clashes with one of Southern California’s most flamboyant corporate executives, the Securities and Exchange Commission took the unusual step Wednesday of moving to oust ICN Pharmaceuticals Inc. Chairman Milan Panic and bar him from ever running a publicly traded company.

The government’s long-anticipated fraud lawsuit--filed in federal district court in Los Angeles--accuses Panic, his Costa Mesa-based drug company and two other executives of fraudulently misleading investors in 1994 about ICN’s progress in winning federal approval for a new hepatitis drug.

Though ICN learned in November 1994 that the drug, called ribavirin, would not be approved by the Food and Drug Administration, Panic and other executives waited four months to disclose the news and continued to express optimism about the drug’s prospects, the government’s complaint alleges.

After ICN revealed the FDA rejection on Feb. 17, 1995, the company’s stock dived 34% in two days.

ICN officials said Wednesday they would vigorously defend the SEC lawsuit and denied any wrongdoing. They said the company’s optimism about ribavirin was justified by the fact that the FDA eventually approved its use last year in combination with another drug.

“The effort to bar Mr. Panic from serving as an officer or director of a public company has no basis in law or fact,” said Arnold Burns, the company’s attorney. “To suggest that Mr. Panic is unfit to serve in a public company is a blatant example of the SEC’s overreaching.”

The government’s case represents the culmination of a series of legal skirmishes with the hard-charging Panic, who served as prime minister of Yugoslavia in 1992.

The SEC brought cases against ICN and Panic in 1977 and in 1991 for allegedly releasing inaccurate financial information and making misleading statements about a drug trial, according to SEC attorney Merri Jo Gillette.

“From our perspective, we are now on the third go-around,” Gillette said. “That tends to show a pattern of conduct.”

Gillette said Panic’s past problems contributed to the SEC’s decision to seek harsher penalties for the executive, including the effort to bar him from serving as an officer or director of a publicly traded company.

Such an enforcement move is relatively uncommon for a company as large as ICN, which had annual sales last year of more than $800 million, analysts said.

The SEC action also names Nils O. Johannesson, 54, a former ICN executive vice president, and David C. Watt, 46, the company’s general counsel. Johannesson is accused of making misleading statements in company press releases, and Watt is alleged to have helped keep the FDA rejection letter a secret. Attorneys for the men did not return phone calls.

The suit seeks civil fines up to $100,000 per violation against each of the men and $500,000 per violation against the company. The SEC would not say how many total violations are alleged in the case.

At one time, the government had considered filing insider trading charges against Panic, who sold nearly 80,000 shares of ICN stock--worth about $1.7 million--in the days after he learned about the FDA rejection. Panic has said he was planning to sell the stock long before he learned of the FDA action.

Last fall, ICN announced that the SEC had dropped the insider trading case. But Panic’s stock trades are still the target of a federal grand jury probe in Los Angeles, where the U.S. attorney has launched a criminal investigation into ICN, Panic and other current and former employees, according to a recent ICN filing with the SEC.

On Wall Street, ICN’s stock price rose 6% Wednesday, suggesting that a growing number of investors believe the drug company might be better off without its chairman. The stock closed Wednesday at $19.31, up $1.13 on the New York Stock Exchange.

Some analysts said the SEC lawsuit might increase the chances that the company will be sold.

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Times staff writer Leslie Earnest contributed to this report.