The $159 billion Florida Retirement System’s board of administration has voted to sue pharmaceutical company Valeant over $62 million in losses that it alleges was due to company fraud.
As a result of the vote, the state board of administration (SBA) will opt-out of a class-action case against Valeant, and file a direct action against the company in US District Court in New Jersey. The SBA said it was hit by losses of $62 million on shares of Valeant that were purchased between 2013 and 2016, and alleges that the losses are legally recoverable damages.
“In my view, this is a highly meritorious case and the SBA will significantly and substantially enhance its recovery by opting out of the class case and pursuing a direct action,” wrote Maureen Hazen, Florida SBA’s general counsel in a letter to CIO Ashbel Williams. “If the SBA files a direct action, the SBA may be able to enhance its recovery above the class action recovery by double-digit millions of dollars.”
In an analysis of the SBA’s individual claims for recovery of damages from Valeant, law firm Bernstein Litowitz, Berger and Grossman (BLBG) determined that the SBA “incurred significant damages as a result of the fraudulent misrepresentations at Valeant.” The firm also said that SEC documents indicate that the SBA’s losses are among the largest of any public fund investor.
BLBG said the litigation strategy will not only allow the SBA to hold Valeant and its senior executives accountable for the losses they caused, but should lead to meaningful corporate governance reforms.
“Valeant’s repeated promises to improve transparency were empty, and it has yet to take any meaningful responsibility for its deception,” said BLBG. “Given Valeant’s prominence in the pharmaceutical industry and the impact its practices have had on a strained American healthcare system, any corporate reforms achieved through this matter should have a lasting and meaningful impact.”
The law firm cited a recent analysis on securities class action settlements by NERA Economic Consulting that showed a median settlement of just 0.6% of estimated losses for securities fraud class action lawsuits involving market capitalization losses over $10 billion. Based on this data, BLBG estimated the SBA would only likely recover approximately $390,500 if it remained part of the class action.
The SBA contends fraud was perpetrated by Valeant and its top executives by using a secret network of “captive pharmacies” to shield the company’s drugs from competition, fraudulently inflate the prices of its products, and artificially boost sales. The firm alleges Valeant and its “secret pharmacy network” provided a platform through which the pharmaceutical firm implemented a host of fraudulent practices to improperly inflate the reimbursements for Valeant drugs paid for by Medicare and Medicaid, private health insurers, and pension healthcare funds.