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Valeant Enron-Like Scheme Securities Fraud Class Action


Valeant Pharmaceuticals International, Inc. is a specialty pharmaceutical and medical device company that develops, manufactures, and markets a range of branded, generic, and branded generic pharmaceuticals, over-the-counter products, and medical devices, such as contact lenses, intraocular lenses, ophthalmic surgical equipment, and aesthetics devices.

Who Is Affected?

This federal securities fraud class action is brought on behalf of a class consisting of all persons and entities who purchased or otherwise acquired the securities of Valeant between February 23, 2015 and October 20, 2015, inclusive, seeking to pursue remedies under the Securities Exchange Act of 1934.  Valeant is headquartered in Bridgewater, New Jersey and is incorporated in British Columbia, Canada.  Its shares trade on NYSE under the ticker symbol “VRX.” 

Procedural History

This class action lawsuit was filed on October 22, 2015 and is captioned Laura Potter, et al. v. Valeant Pharmaceuticals International, Inc., et al.  It was filed in the New Jersey District Court and its civil docket number is 3:15-cv-07658.  The class period runs from February 23, 2015 through October 20, 2015, inclusive.

The allegations in the complaint are centered around Valeant’s utilization of a network of specialty mail-order pharmacies to prop up sales of its high-priced drugs and prevent patients and insurance companies from switching to less costly generic counterparts.  The complaint questions the nature of the relationship Valeant has with these specialty pharmacies, the use of which was never before disclosed by Valeant management.  Since February 22, 2015, Valeant’s CEO, Mr. Pearson, and CFO, Mr. Schiller, have issued quarterly and year-end releases updating its shareholders on the financial performance and prospects.  Never once, not in its form 10-K, nor Prospectus Supplement, nor earnings conferences with shareholders, had Mr. Pearson disclosed the existence of or the nature of the relationship Valeant had with its specialty pharmacies, Philidor and R&O. 

It was not until October 19th, when for the first time Valeant shed light on the direct relationship between Valeant and Philidor.  The complaint cites several news articles, including The New York Times, Bloomberg, and an investigative report issued by Citron, alleging that Valeant is using its secretive relationship with Philidor to store inventory and record those transactions as sales, and that Valeant uses phantom accounts to fool auditors and investors.  The Citron report asserts that Philidor and another specialty pharmacy tied to Valeant, R&O, are actually the same company with the same management.

As a direct result of Valeant’s disclosure and the investigative reports following it, Valeant’s shares fell more than 30% within a trading day.  On October 21, 2015, trading in Valeant shares was halted because of the rapid price decline.  When trading resumed, Valeant shares fell nearly 40%, at which point trading was again suspended.

After the collapse of Valeat’s stock, BMO Capital Markets issued a release stating “we find Valeant’s arrangements with specialty pharmacy Philidor as not just aggressive, but questionable.”

Defendants’ statements regarding Valeant’s financial performance and expected earnings were false and misleading and lacked a reasonable basis when made.  As a result of Defendants’ false statements and omissions, Valeant stock traded at artificially inflated prices during the Class Period. After the above revelations were revealed to the market, however, the price of Valeant stock declined significantly causing the Plaintiffs damages.

Current Case Status: 

This case is in the notice period. When a shareholder brings suit under certain federal securities laws, generally that shareholder must give notice via a press release. This notice starts a sixty-day period of time when any shareholder can investigate the underlying claims of the lawsuit and then elect to bring suit as well. At the end of this sixty-day period, the court appoints one shareholder (or a group of shareholders) to prosecute the securities litigation. We will review the docket again in December and update this page as warranted.

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