Prosecutors accuse Tanner of promoting Philidor to Valeant's leadership, and resisting efforts to reduce Valeant's dependency on Philidor, which ultimately led to Valeant negotiating an option to buy the specialty pharmacy.

"They had in effect illegally converted Valeant shareholders' money into their own personal nest eggs," Manhattan U.S. Attorney Preet Bharara said at a Thursday afternoon news conference.

The complaint said Tanner, who ended up being vice president of Valeant's "Access Solutions Team," helped "advance Davenport's interests" by having Valeant pay Davenport personally "over $40 million, and potentially tens of millions of additional dollars" in connection with an option to buy Philidor that Valeant purchased.

A criminal complaint accuses Phildor's former CEO Andrew Davenport of secretly paying Valeant exec Gary Tanner about $10 million in kickbacks to steer Valeant's business to and potentially acquire Philidor, where Davenport was the biggest shareholder.

Federal prosecutors in New York on Thursday charged a former top executive at big drugmaker Valeant Pharmaceuticals and the ex-CEO of the specialty pharmacy Philidor Rx Services in a multimillion-dollar fraud and kickback scheme.

They might be riding off to prison together — instead of "into the sunset together."

The complaint also said that in emails between Davenport and Tanner "concerning the scheme, Davenport, evoking images from the old Western Butch Cassidy and the Sundance Kid, talked about how they would 'ride into the sunset' together."



The complaint said Davenport "agreed to kick back a portion of the sums he obtained from Valeant."



Both were arrested Thursday morning: Davenport at his home in Philadelphia and Tanner at his Phoenix home.

"Tanner was a senior executive at Valeant, as such, he owed all of his duties to Valeant and its shareholders," Bharara told reporters.

"In violation of those duties, however, Tanner secretly agreed with Davenport to puff up Philidor's business. Why? So that eventually Valeant would pay $100 million for the right to buy Philidor," Bharara said.

"Tanner, we allege, did not do this out of loyalty to Valeant. He did it because he was expecting to get a secret $10 million kickback, and as the complaint alleges, he concealed this criminal self-dealing. He repeatedly lied, claiming he had no personal financial interest in Philidor, when he in fact had a huge interest."

Bharara also took a shot at the duo for the Butch Cassidy email exchange, in which Tanner had allegedly written Davenport that he would have to "keep playing the game" before they could ride off into the sunset together. Prosecutors believe Tanner's comment meant he would have to continue pretending to be acting solely in Valeant's interests.

"As of today, the game is up," Bharara said. "They will not be riding out into the sunset. ... Rather Tanner and Davenport will now face federal wire fraud and money laundering charges."

Tanner's attorney, Howard Shapiro, in an email to CNBC, said, "It was Gary Tanner's job at Valeant to grow and promote Philidor. He performed that job exceptionally well, greatly benefiting Valeant's shareholders, and regularly communicated to his superiors what he was doing."

"Today he has been charged with a crime for doing his job. We will demonstrate his innocence at trial," Shapiro said.

Bloomberg has reported that Manhattan federal prosecutors are also investigating Valeant's former CEO Michael Pearson and ex-Chief Financial Officer Howard Schiller.

Valeant, in a statement, said the company "continues to cooperate with all relevant authorities in this matter."

U.S Rep. Elijah Cummings, D-Md., ranking member of the House Committee on Oversight and Government Reform, issued a statement on the arrests, commending Bharara's office "for aggressively pursuing an investigation to hold these executives accountable for their corrupt business practices."

"I have repeatedly requested interviews with Mr. Tanner and several other Valeant employees to determine how deep their involvement was with Philidor, but Valeant refused to cooperate with Congress and prevented information about their relationship from coming to light sooner," Cummings said.

A Wells Fargo analyst, David Maris, in a research note after the arrests, said, "We continue to believe that the many legal cases against Valeant and its affiliated business partners could turn out to be a major risk for Valeant and investors."

"According to its most recent SEC filing, Valeant is currently facing 12 government and regulatory investigations,including an SEC investigation, Department of Justice investigations, and multiple states' Attorney's Generals investigations, as well as 3 U.S.shareholder class actions, 10 U.S. securities litigations (with investment groups including Janus, T. Rowe Price, and others), 8 Canadian securities class actions, 3 RICO suits, an IRS review, and an insider trading case, among other," Maris wrote.

"Several of these legal proceedings get underway in 2017 and we believe the mounting number of legal proceedings could pose significant financial risk to Valeant. We note that Valeant has not reserved for any potential legal liabilities."

A spokesman for Pershing Square, the firm headed by activist investor Bill Ackman and the biggest shareholder in Valeant, declined to comment on the charges. As of Thursday, Pershing Square had a 6.2 percent stake, or 21.6 million shares of Valeant stock— whose prices has plunged more than 75 percent in the past year.



Philidor, which was founded in 2013, went out of business earlier this year after Valeant's relationship with the specialty pharmacy came to light. Valeant last year drew attention for price increases of a number of its drugs, and then for the disclosure that it had an option to buy Philidor, which it was using to get reimbursement from insurers for its products.

Additional reporting by A.J. Vielma and Jim Forkin