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Glaxo Smith Kline plc (ADR) (NYSE:GSK) Sex Tape Fuels Chinese Bribery Scandal

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The sex tape that sparked the Chinese corruption scandal at Glaxo Smith Klineplc (ADR)

(NYSE:GSK) has finally emerged.

The pharmaceutical company has been engulfed by a bribery scandal. It all started March 16th of last year, when a video of Mark Reilly, then head of GSK’s China business, having sex with his Chinese girlfriend was emailed to senior GSK executives last year in an apparent bribery attempt. Mr. Reilly, who is separated from his wife, has since stepped down as head of GSK’s China business.

Chief executive of GSK, Sir Andrew Witty, was one of the senior GSK executives who received the footage from unidentified sources. GSK spent £20,000 of the company’s money to hire a private investigator, Peter Humphrey, to discover the perpetrators of the sting, which is believed to be a part of a wider attempt to subject the pharmaceutical giant to punitive action by Chinese authorities.

Mr. Humphrey’s findings, dubbed “Project Scorpion,” did not uncover who was responsible for the sex tape. He studied the emails, sent by an unidentified source called “g s k whistleblower” last January to 13 senior GSK executives as well as two employees at an independent auditor, PwC. These emails, Mr. Humphrey believes, are “totally credible”. The Serious Fraud Office announced a formal criminal investigation into GSK’s commercial practices in May of this year.

However, his probing led to Chinese authorities launching and major investigation into corruption at GSK a few months later. In May, Mr. Reilly was found to have ordered his subordinates to form a massive bribery network that resulted in higher drug prices and illegal revenue of £88million (over $150 million).

“We have zero tolerance for any kind of corruption in our business. We take action against any breaches,” a company spokesman said.  GSK stated that it has “committed significant resources to find out what happened in China” and has already begun an independent legal review. Additonally, the company is fully cooperating with the Chinese authorities and their ongoing investigation into Mr. Reilly’s bribery network.

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