A participant in two 401(k) plans of Allergan PLC sued corporate and plan executives, alleging they breached their fiduciary duties because the plans continued offering “artificially inflated” company stock as an investment option.
“Defendants knew or should have known that material facts about Allergan's business had not been disclosed to the market, causing Allergan stock to trade at prices above which it would have traded had such facts been disclosed,” said the complaint filed March 7 in U.S. District Court in Newark, N.J.
“Defendants were empowered as fiduciaries to remove Allergan stock from the plans' investment options or to take other measures to help participants, yet they failed to do so,” said the complaint in Ormond vs. Allergan PLC et al.
The lawsuit was filed by Andrew Ormond, a participant in the Allergan Inc. Savings and Investment Plan and the Actavis Inc. 401(k) Plan. The latter plan was initiated in 1988 by Watson Pharmaceuticals, a drug company that was later acquired by Actavis and the Watson plan name was changed in January 2013 to Actavis Inc. 401(k) Plan. Actavis acquired Allergan Inc. in March 2015, and then changed its corporate name in June 2015 to Allergan PLC.
The plans had combined assets of $2.18 billion as of Dec. 31, 2015, according to 11-K statements filed with the Securities and Exchange Commission. The lawsuit said the plans' executives could have taken “numerous actions” to protect participants when Allergan's stock fell amid a federal government investigation of alleged price-fixing among generic drug companies.
For example, the lawsuit said plan executives could have closed the company stock fund to new contributions, and they could have “directed contributions be diverted … into prudent investments options based on participants' instructions.”
Also, fiduciaries could have hired outside experts “to serve either as advisers or as independent fiduciaries,” the lawsuit said. Instead, “defendants allowed Allergan's stock to be hyped instead of protecting the plan.”
Representatives of Allergan did not respond to a request for comment.