Valeant really wanted its CEO to stop putting his shares up as collateral for loans

On Thursday, Goldman Sachs sold 1.3 million shares of Valeant Pharmaceuticals that the company's CEO had put up as collateral for a $100 million loan.

The sale surely contributed - a little - to the stock's massive selloff that day. The shares dropped 14%..

"Since joining Valeant, I have not sold any shares provided to me as compensation, and it was not my desire that shares be sold now," Michael Pearson said in a statement.

For that reason, Valeant's board may be kicking itself right now. The company disclosed earlier this year that it no longer wanted Pearson to use the company's stock as collateral, and that in fact they wanted him to buy some of that collateral back. This is from its annual proxy statement (emphasis ours).

Valeant has adopted a policy generally disallowing future pledges and is permitting Mr. Pearson to sell shares, which may reduce the level of pledging. The 2015 Employment Agreement permits Mr. Pearson to sell 3,000,000 net shares without regard to the restrictions described above plus transfer an additional 1,000,000 net shares in charitable contributions.

This document was filed on April 9th, when Valeant's stock was at $206. By the end of the period for which it was filed, May 19th, share price was up to $227.

By the time the trading session closed on Thursday, when Goldman sold, the stock was down to $78.75 - collapsing under the pressure of attacks on its business model and the revelation of its close relationship with a shady specialty pharmacy called Philidor.

Here's what Valeant's stock looks like since the date of the filing - down over 60%:

In January Pearson agreed to forego a salary and receive compensation only in the form of cash and stock tied to performance. With the shares plunging, that's not a comforting thought for the people who have loaned out money to Pearson.

We know they're out there because according to filings Pearson pledged over 2 million shares as collateral to lenders. That represented about 20% of what he was holding, and more than the board usually allowed (emphasis ours).

Because of the expansive share ownership requirements applicable to Mr. Pearson, the Board has permitted Mr. Pearson to pledge certain of his shares.

In addition, as of March 20, 2015, Mr. Pearson had pledged 2,028,516 shares, representing approximately 20.19% of his shares beneficially owned (including purchased shares, shares received in settlement of equity compensation awards, and shares underlying vested but undelivered awards and vested but un-exercised options).

The Valeant shares held by Mr. Pearson that are not subject to pledging arrangements far exceed the Company's general share ownership guidelines (requiring executives to hold shares with a value equal to or greater than two times the combined amount of their base salary and target annual cash bonus).

According to Valeant, Pearson used these loans for "among other things, financing charitable contributions, including to Duke University, and helping to fund a community swimming pool, purchasing Valeant shares, and meeting certain tax obligations related to the vesting and payment of Valeant compensatory equity awards."

Valeant's problems are far from over. On December 13th, the US Senate will hold its first hearing in an investigation into price gouging in the pharmaceutical industry. Valeant is one of the companies that legislators have started digging into and it is supposed to provide documents they requested by December 2nd.

The market tends to dislike Senate hearings a subpoenas, so if Valeant's stock starts falling again, Pearson may be getting more uncomfortable calls on his pledged shares pretty soon.