HGT Law Commences Securities Fraud Action Against Valeant Pharmaceuticals and its Senior Officers

On January 10, 2018, HGT Law commenced a shareholder “opt-out” lawsuit (“Lawsuit”) on behalf of the investment funds Commonwealth Global Shares Fund 1, Commonwealth Global Share Fund 13 and Commonwealth Specialist Fund 34 (collectively, “Plaintiffs” or the “Funds”) against Valeant Pharmaceuticals International, Inc. (“Valeant” or the “Company”) and its senior officers for violations of federal securities laws.  Previously, on June 24, 2016, a class action complaint was filed in the U.S. District Court for the District of New Jersey, on behalf of a class consisting of all purchasers of the common stock of Valeant (“Class Action”).  The Funds have opted out of the Class Action to directly pursue their own claims.

The Lawsuit alleges that Valeant (a specialty pharmaceutical and medical device company) and its senior insiders perpetrated a fraudulent scheme to inflate the Company’s revenues and profits.  Under this fraudulent scheme, Valeant and its insiders engaged in a number of deceptive practices through a network of secretly controlled pharmacies centered around Philidor Rx Services (“Philidor”), in order to shield the Company’s branded drugs from generic competition, allowing Valeant to charge exorbitantly high prices for its products.  Valeant’s fraudulent scheme also involved accounting fraud, which included the improper early recognition of revenues.  While this scheme was being perpetrated, Valeant and its senior officers repeatedly, falsely reassured investors that the Company’s dramatic growth in revenues and profitability was attributable to Valeant’s superior marketing, sales teams and leadership, and was not dependent on the dramatic price increases for acquired drugs.  As a result, Valeant’s stock price soared nearly 350%, from just over $60 to a high of over $260 on August 5, 2015.

The truth about Valeant’s fraudulent scheme was gradually revealed starting in the fall of 2015 through, among other things, Congressional hearings and investigations.  On August 10, 2016, the full extent of Valeant’s fraudulent scheme was revealed when The Wall Street Journal reported that federal prosecutors were investigating Valeant for criminal fraud.  On January 26, 2017, the U.S. Attorney’s office in New York indicted Gary Tanner, a senior executive at Valeant, and Andrew Davenport, Philidor’s former CEO, for violations of the wire and mail fraud statutes and money laundering.  Valeant also withdrew its financial statements and acknowledged them to be false, restated its revenue for fiscal year 2014, reduced its revenue and profitability guidance for 2015 and 2016, and admitted the Company’s disclosure controls and internal controls regarding financial reporting had been inadequate.

As a result, Valeant’s stock price fell from the high of over $262 per share to less than $25 on August 10, 2016, a decline of more than 90%.  Valeant’s shareholders suffered over $76 billion in market capitalization losses.

A copy of the complaint filed by HGT Law on behalf of the Funds can be found here.  For more information on opt-out lawsuits, see our publication here.

For more information on how to join the opt-out lawsuit against Valeant, please contact us at (646) 453-7288 or via email at info@hgtlaw.com.

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