A U.S. judge said Valeant Pharmaceuticals International Inc (VRX.TO) (VRX.N) and activist hedge fund manager William Ackman must face a lawsuit accusing them of insider trading in Allergan Inc before making an unsuccessful takeover bid for the maker of Botox.
In a Nov. 9 decision, U.S. District Judge David Carter in Santa Ana, California, rejected arguments by Valeant, Ackman and Ackman’s Pershing Square Capital Management that the lawsuit should be dismissed because their activity was not fraudulent.
The lawsuit was filed on behalf of investors who sold Allergan shares in the two months before the defendants on April 22, 2014 announced an unsolicited $51 billion bid for Allergan.
Pershing had by then quietly amassed a 9.7 percent stake in Allergan, which soared in value after the bid was announced. Investors said Pershing bought those shares knowing that Valeant was preparing a bid that could, and later did, become hostile.
Valeant and Ackman said there was no intent to defraud, and that they breached no duties by sharing information before the takeover bid became public.
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But the judge, without ruling on the merits, found “serious questions” as to whether “substantial steps” had been taken toward a possible hostile bid, which would have required Valeant to disclose more or Ackman to stop his buying.
“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.”
Valeant spokeswoman Laurie Little said the Laval, Quebec-company was disappointed with the decision, and believes it complied with securities laws. “We look forward to presenting evidence to establish that we did nothing improper, ” she added.
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