Andy Davenport, the CEO of Philidor. YouTube Andy Davenport, the CEO of Philidor, the secret pharmacy whose discovery led to a crisis at Valeant Pharmaceuticals, has been arrested and charged with "engaging in a multimillion-dollar fraud and kickback scheme."

He was arrested at about 9 a.m. ET on Thursday, people familiar with the matter told Business Insider.

Gary Tanner, a former Valeant executive who went on to work for Philidor, was also arrested Thursday morning.

The US attorney for the Southern District of New York said in an email at 9:32 a.m.:

"There will be a press conference today to announce charges against Gary Tanner, a former executive at Valeant Pharmaceuticals International, Inc., and Andrew Davenport, the former Chief Executive Officer of Philidor Rx Services LLC, for engaging in a multi-million dollar fraud and kickback scheme."

The charges allege:

Tanner and Davenport "engaged in an illegal, concealed kickback scheme that they hoped would yield them tens of millions of dollars in personal profits."

"Tanner, even though at all relevant times a Valeant executive, secretly worked with Davenport to promote Philidor's business, with the goal of ultimately consummating a purchase option agreement between Valeant and Philidor that resulted in tens of millions of dollars for Davenport personally ... and close to ten million dollar in secret kickback payments to Tanner."

"Tanner advanced the interests of Philidor and Davenport in a variety of ways, including by: (i) establishing and growing Philidor using Valeant human and financial resources; (ii) resisting efforts by Valeant's senior leadership to enter into business relationships with Philidor's competitors, thereby increasing Valeant's dependence on Philidor; (iii) securing favorable treatment of Philidor by Valeant."

In exchange for these efforts, "Davenport agreed to kickback to Tanner a portion of the sums he obtained from Valeant."

When Valeant purchased an option to buy Philidor, Davenport personally obtained $40 million. Davenport kicked back $10 million to Tanner.

"The kickbacks payments were made in secret and laundered through a series of shell companies and transactions designed to conceal the illicit source, nature, ownership and control of the funds."

Valeant's shares fell by 5.5% after news of the arrests.

US prosecutors are separately investigating former Valeant CEO Michael Pearson and CFO Howard Schiller, Bloomberg News has reported.

Valeant said in a statement this morning:

"The company, former CEO, former CFO, and current executives have not been charged at this time. Gary Tanner ceased to be a Valeant employee on September 13, 2015, and Andrew Davenport has never been an employee of the Company. The counts issued today include allegations that the charged parties engaged in actions to defraud Valeant as a company. Valeant continues to cooperate with all relevant authorities in this matter."

Philidor is at the heart of the scandal that erased 90% of Valeant Pharmaceuticals' market value. Valeant hadn't told investors about the pharmacy, which Valeant had an option to acquire and which accounted for at least 5% of the company's sales. After the pharmacy's existence came to light, and accusations that it was using fraudulent tactics to push Valeant's drugs quickly followed, the company was quick to break off the relationship.

The relationship between Valeant and Philidor was exposed by the Southern Investigative Reporting Foundation in October of last year.

Though Valeant initially tried to downplay the role of Philidor, the company had a detailed sales plan dubbed the "Philidor strategy," and company documents show that Valeant used the pharmacy to increase the volume of shipments for two of its drugs, Solodyn and Jublia.