By Jonathan Stempel
Nov 11 (Reuters) - A U.S. judge said Valeant Pharmaceuticals (N:VRX)
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 (N:AGN_pa) 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.
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.
Michael Shipley, a lawyer for Pershing and Ackman, declined
to comment. Allergan is not a defendant.
The lead plaintiffs are the State Teachers Retirement System
of Ohio, the Iowa Public Employees Retirement System, and
Allergan employee Patrick Johnson, court papers show. Their
lawyers did not immediately respond to requests for comment.
Allergan was bought in March by Dublin-based Actavis (N:AGN) Plc for
about $70.5 billion, the combined company announced at the time.
Actavis was renamed Allergan Plc AGN.N .
The next month, Allergan dropped its own lawsuit accusing
Valeant and Pershing of insider trading.
Pershing remains a large shareholder in Valeant, whose
shares have tumbled in recent months over concerns about its
financial practices and drug pricing.
The case is In re: Allergan Inc Proxy Violation Securities
Litigation, U.S. District Court, Central District of California,
No. 14-02004.