Judge: Valeant and Bill Ackman can't dodge Allergan investors' insider trading suit
- A federal judge in California has rejected Valeant Pharmaceuticals and allied activist investor Bill Ackman's motion to dismiss an insider trading lawsuit brought forth against them on behalf of Allergan shareholders.
- The issue stems back to the epic 2014 M&A brawl between Valeant and Ackman (and his hedge fund Pershing Square) on one side and Allergan on the other. Valeant pursued a hostile $51 billion bid for Allergan—but in the months leading up to the initial unsolicited offer, Pershing Square had built up a 9.7% stake in Allergan.
- The investors represented in the suit, who sold Allergan shares in the months before the bid announcement (an announcement which caused Allergan's shares to appreciate by about $1.2 billion), claim that the hedge fund knew of the impending bid and snatched up about $3.2 billion in stocks and securities in order to take advantage of the groundswell in Allergan's value that it knew would follow the offer. Such behavior amounts to insider trading, the suit alleges.
Allergan issued a similar insider trading suit against Ackman and Valeant in the throes of the hostile bid drama, and was counter-sued by Ackman and Valeant for allegedly making false claims. Those suits were eventually dropped once Actavis bought Allergan, ending the takeover battle.
But a bevy of Allergan shareholders, who missed out on the opportunity to profit from the stock appreciation stemming from Valeant's bid, aren't letting the issue drop. Although Valeant, Ackman, and Pershing Square are claiming that everything was on the up-and-up and no improper information-sharing had taken place, Judge David Carter said that questions remained.
"Plaintiffs must plead defendants knew they were in possession of material nonpublic information at the time of the trade and that they acted with the intent to deceive, manipulate, or defraud," Carter wrote. "Plaintiffs have alleged both elements."
Unless a settlement is reached soon, this case will proceed, adding yet another legal headache to the embattled Valeant's plate. The company's stock is currently trading at less than $75 per share, comapred to about $244 on August 12.