Valeant Pharmaceuticals International Inc. and activist investor Bill Ackman must face a shareholder lawsuit over alleged insider trading involving a failed offer for Allergan Inc.
In the lawsuit led by the $69.6 billion Ohio State Teachers' Retirement System, Columbus, and $27.2 billion Iowa Public Employees' Retirement System, Des Moines, the plaintiffs claim Mr. Ackman and Valeant engaged in a “scheme that deprived a class of Allergan shareholders of billions of dollars of value in violation of the federal securities laws.”
Mr. Ackman's Pershing Square Capital Management is the third-largest shareholder of Valeant, which has fallen 70% since Aug. 5.
Mr. Ackman “agreed to secretly acquire nearly 10% of Allergan's stock and commit those shares to support Valeant's bid,” the shareholders said in court papers in June. The acquisition of that stake came as an “exchange for inside information” on Valeant's hostile takeover and tender offer for Allergan, the plaintiffs said.
The lawsuit, filed as a proposed class action, said Mr. Ackman “walked away with over $2.2 billion in pure profit.” The Allergan investors say they're owed for the losses avoided by the defendants, as well as any profit resulting from insider trading, according to the complaint.
Allergan rejected each offer Valeant made and agreed instead last year to sell itself to Actavis PLC. Allergan also accused Mr. Ackman and Valeant of insider trading in a separate lawsuit. That suit was dropped in April, according to court filings.
U.S. District Judge David Carter in Santa Ana, Calif., on Monday rejected Valeant and Mr. Ackman's bid to dismiss the investor suit. Allergan shareholders in the case had adequately alleged claims against Valeant and Mr. Ackman, Mr. Carter said.
“We acted at all times in consultation with our legal counsel and remain convinced that our actions complied with the securities laws,” Laurie Little, a spokeswoman for Valeant, said in an e-mailed statement. “While we are disappointed the court allowed the claims to continue following this preliminary motion, we look forward to presenting evidence to establish that we did nothing improper.”
Blair Nicholas, a lawyer for the plaintiffs, and Pershing Square spokesman John Pinette declined to comment on the ruling.
The lawsuit was brought as a class action on behalf of investors who sold Allergan shares from Feb. 25, 2014, to April 21, 2014.
“After the close of trading on April 21, 2014, Valeant disclosed its intention to acquire Allergan, along with Pershing's 9.7% position in the company,” the shareholders said in an amended complaint in June. “Upon this disclosure, Allergan's stock price increased by approximately $20 per share in one day, jumping 22% from its 'unaffected' price,” the investors said.