UPDATE 2-Goldman sold 1.3 million Valeant shares backing loan to CEO, Valeant says

(Adds stock movement, other background, details from 2014
regulatory filing allowing the loan, comment by finance
professor, in paragraphs 3-6, 8-12)
NEW YORK, Nov 6 (Reuters) - Goldman Sachs (N:GS) GS.N sold 1.3
million shares of Valeant Pharmaceuticals (N:VRX) International VRX.TO
on Thursday, a day when the drug company's shares fell as much
as 20 percent, because they were securing loans made to Valeant
CEO Michael Pearson (L:PSON) that needed to be paid.
Valeant said the sale was required by Goldman and had not
been done at Pearson's request. Goldman declined to comment.
Valeant shares on Friday recovered some of Thursday's lost
ground, gaining about 5.5 percent to $83.15. Valeant has been
under pressure over scrutiny of its high price markups and
accusations it used Philidor Rx Services pharmacy to inflate
revenue.
The company has denied that it inflated revenue and has
opened an investigation to look closely at allegations related
to its ties to Philidor.
Pearson has come under increased pressure in recent days
over his handling of Valeant's business practices, and could
face more criticism over the loan behind the Goldman sale.
Corporate governance experts say CEOs with such loan
arrangements have less to lose than other shareholders.
Pearson had pledged about 2 million shares as collateral for
loans of $100 million, which was disclosed in its April 2014
proxy statement, Valeant said in a news release. Goldman Sachs
required repayment of the loans and sold the shares in order to
be able to repay them in full, the company said.
"It was not my desire that shares be sold now," Pearson said
in the statement. "I have the complete confidence in Valeant's
ability to move forward."
The loans were used for financing charitable contributions,
purchasing Valeant shares, and meeting tax obligations related
to vesting and payment of Valeant equity awards, among other
things, the company said.
The charitable contributions included donations to Duke
University and to help fund a community swimming pool, the
release said. The 2014 proxy described the loan as being needed
to meet tax obligations related to equity awards and said the
company had allowed the move because of the expansive share
ownership requirements applied to him.
That annual regulatory filing also introduced a so-called
"anti-pledging" provision that prevented further loans to
company directors, executives and employees using stock as
collaterol. The company said in the filing it was committed to
reducing the level of pledging generally and would only allow
future pledges with approval from the board of directors.
Charles Elson, finance professor at the University of
Delaware and director of the Weinberg Center for Corporate
Governance, said such pledging arrangements are problematic and
should not be allowed by the board.
"It's considered very poor governance to permit your CEO to
pledge stock, because if the stock falls, the stock will have to
be sold and it could demonstrate a lack of confidence in the
company," Elson said.
On Thursday, analysts attributed much of Valeant's intraday
decline to concerns over business practices at the Canadian drug
maker and pressure on Pearson to step down.
One of Valeant's biggest shareholders, Bill Ackman, told the
Wall Street Journal in a story published on Thursday that he had
suggested to a Valeant board member that Pearson might have to
go. Later that day, Ackman sent an email to the company saying
he still supported Pearson. Shares closed at $78.77 on Thursday,
far from their August peak of $263.70.