Board Clears Panic in Sale of ICN Stock : Inquiry: The chairman of the Costa Mesa drug maker sold shares while delaying news of an unfavorable FDA decision. Angry investors call the vote a ‘whitewash.’

COSTA MESA — Directors of ICN Pharmaceuticals Inc. cleared controversial Chairman Milan Panic of any improprieties Tuesday for selling $1.24 million worth of his stock while delaying the public release of information detrimental to the company.

The board, which met at the company’s headquarters in Costa Mesa, unanimously agreed with the recommendation of a special three-member committee of outside directors to take no action against Panic, according to an ICN news release.

The founder and chairman had sold a large chunk of his stock in November, after the company learned that federal regulators had rejected the company’s effort to use its trademark drug Virazole to treat the contagious liver disease hepatitis C. But the company didn’t release news of the rejection until mid-February.

Directors explained their decision by citing the special committee’s findings that Panic had decided to sell the shares and expressed his intention “to others, including individuals outside the company,” long before the U.S. Food and Drug Administration notified the company about the rejection.

Company executives would not discuss details of the special committee’s findings beyond the news release because of pending lawsuits over the actions of Panic and the company.

ICN shareholders angrily dismissed the board’s decision.

“It’s clear that there was not a complete investigation but rather a continuation of Mr. Panic’s total control” of company affairs, said Neil M. Goldstein, a Santa Monica lawyer who owns about 7,000 shares. Goldstein said investors will push to elect a board member this year to give them a greater voice in company affairs.

Rafi Khan, an investor who launched an unsuccessful proxy battle for the company two years ago, called the board’s report an “an absolute whitewash,” describing the board’s explanation for its inaction as an “insult to the intelligence of all ICN shareholders.”

“The board has not performed its true fiduciary duty to ICN shareholders,” Khan asserted. “Just because Milan Panic told some individuals he was going to sell ICN shares does not make it legal to sell those shares after he received the negative letter from the FDA.”

The federal agency sent the company a letter Nov. 25 stating that it wouldn’t approve Virazole for treating hepatitis C, but the letter didn’t stop Panic from selling 55,000 shares on Nov. 29 and 30. The company issued a news release Dec. 5 saying that it would provide more information to the FDA to win approval for hepatitis C treatment. But the FDA sent another letter in December telling the company to halt its testing.

The company, in its statement Tuesday, said its news releases describing the FDA’s position were “not intended to mislead investors, but rather intended to inform them.”

The Feb. 17 news release, the only one to disclose the rejection, sparked an uproar.

In six days of trading, ICN’s stock value plummeted 42% to $13.25 on the New York Stock Exchange. It closed Tuesday, before the company divulged the board’s decision, at $16.125 a share.

In addition, shareholders began filing lawsuits against the company, the board, Panic and other company officers. Altogether, they filed 18 lawsuits alleging that the company made deceptive and untrue statements and omissions in connection with information it received from the FDA, according to an ICN filing with the Securities and Exchange Commission.

Plaintiffs also allege that Panic and other company officers traded on insider information.

Investors also were upset with the board’s recent decision to extend Panic’s contract temporarily. The contract, which expired Nov. 30, was extended to Sept. 30, according to the SEC filing. Under the arrangement, Panic receives a $535,000 annual salary and, upon retirement, lifelong consulting fees of up to $535,000 a year.

Panic asked the board to set up a special committee of outside directors to investigate his actions. The committee was headed by Stephen D. Moses, a former real estate manager at Boise Cascade Corp. Moses has said that he had taken on an active role in ICN affairs in recent weeks.

The other two committee members were Norman Barker Jr., a former chairman of First Interstate Bank of California, and Alan F. Charles, a retired UCLA vice-chancellor.