An Israeli Association Formed by Lawyers Suit filed for NIS 241 Million ($66.5 Million) against the American Giant Perrigo Co.
/ By Itshak Dannon /
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A lawsuit was filed with the Tel Aviv District Court — together with an application for its certification as a class action — against the American Corporate Giant Perrigo Co. (one of the S&P 500), seeking NIS241 Million (about $66.5 Million) in damages.
Perrigo is the largest manufacturer of private label over-the-counter pharmaceuticals in the U.S. and is traded both on the NASDAQ and — as a result of a merger with Israel’s Agis Industries (1983) — on the Tel Aviv Stock Exchange. It is one of the TA-25 Index, the only non-Israeli company on it.
Perrigo develops, manufactures and markets pharmaceuticals, consumer healthcare products, generic prescription drugs, active pharmaceutical ingredients and consumer products, such as food supplements, primarily in the U.S., Australia, Israel, Europe, India and Mexico. It has been traded on the Tel Aviv Stock Exchange since 2005.
The introductory portion of the suit states: “We are facing a serious case of intentionally withholding information from the investing public, which has caused them a substantial harm.” It is asserted that Perrigo “delayed, for many months, the release of information that would have had an adverse effect on the value of securities it held. Consequently, during that period the public had purchased the company’s stocks at an inflated price.” According to plaintiff, Hatslaha – the Consumer Movement for the Promotion of a Fair Economic Society (a non-profit association formed by a group of legal professionals) of Ramat Gan, Perrigo held in 2008 ARS (Auction Rate) securities which grant the holder a long term right to receive payments plus interest from institutional entities. These securities, with a nominal value of $18 million, were auctioned, once every few weeks, in a process that determined their interest rate. These securities were issued by the now defunct Lehman Brothers who, thereafter, also handled the auctions. The auctions were set to provide liquidity, i.e., the opportunity to sell the securities at issue.
Plaintiffs maintain that the liquidity created as a result of the auctioning, had a material effect on the value of the securities and it depended, among other factors, on the stability of the underwriter/auctioneer, i.e., Lehman Brothers.
It further states that during 2008 a momentous deterioration of the securities’ liquidity took place as a result of the world economic crisis and then again, in September 2008, as Lehman Brothers went into liquidation. At that juncture, alleges the plaintiff, it became clear that no more auctions will take place and their sale had come to an end. Such circumstances, claims the suit, greatly affected the value the ARS securities held by Perrigo.
That notwithstanding, the plaintiff claims, the periodical financial statement issued by the corporation on 6 November 2008 utterly failed to make a corresponding reduction of its value and continued to rely on valuations it was provided by the defunct Lehman Brothers while withholding from the public the fact that it was Lehman Brothers itself who conducted the auctions and, thus, as the financial services firm went under, the ARS securities’ value and liquidity were adversely affected.
Only in February 2009, the suit avers, after months of trading its stocks on the Tel Aviv Stock Exchange at a volume of NIS1.4 billion (about $386, 750, 000 at today’s rate), did the defendant bother to disclose the relevant data, at which time a substantial reduction was made in its books, reflecting the true state of its ARS securities.
The disclosure resulted in an immediate drop of 17% in the company’s stock’s value, the claim states. The plaintiff’s initial estimate is that, based on analysis of the data, the buyers of the company’s stock during the relevant timeframe suffered a loss of about NIS241 Million ($66.5 Million), caused by reliance on the erroneous data published in the company’s reports, on which the affected buyers relied to their detriment.
The claim avers that a number of Israeli institutional bodies who bought Perrigo’s stocks have already submitted an application to an American court, seeking class action certification there. It further states that the U.S. court limited the class to those investors who had purchased the company’s stocks on an American stock exchange. Subsequently, the institutional entities decided to forego filing a corresponding suit in an Israeli court and the plaintiff stepped into the breach, in order to provide Israeli investors with a legal avenue for redress and have their day in court.
Plaintiff seeks to include in the class investors who, on 2 February 2009, held Perrigo’s shares, purchased on the Tel Aviv Stock Exchange on any day following 11 November 2008, for these, allegedly, are the ones who paid an inflated price for the securities and incurred the loss.