Between BlackRock and a Hard Place: Valeant Faces Fraud Suit

Stay up-to-date with the latest developments in securities law through access to both news and all statutes and regulations. Find relevant corporate filings through a searchable EDGAR database. And...

By Jennifer Bennett

Valeant Pharmaceuticals faces a BlackRock Inc. lawsuit alleging the company misled it and other investors about illegal ties to a mail-order pharmacy that led to a massive drop in stock prices.

BlackRock said it suffered a 90 percent drop in the price of its Valeant shares when an alleged kickback scheme between Valeant Pharmaceuticals International Inc. and Philidor Rx Services executives was uncovered.

BlackRock brought the lawsuit on behalf of over 80 investment funds it manages or advises in the U.S. District Court for the District of New Jersey.

According to the Jan. 9 complaint, Valeant concealed critical information from BlackRock and other investors about its relationship with Philidor. The alleged relationship included Valeant employees working at Philidor and engaging in “deceptive practices” such as refusing to substitute generics for Valeant drugs, the complaint said.

U.S. prosecutors have indicted Gary Tanner, a former senior director at Valeant, and Andrew Davenport, the former CEO of Philidor, over the alleged fraud. Tanner is accused of driving business and funding from Valeant to Philidor in return for millions of dollars in kickbacks. The pair February 2017 pleaded not guilty in the U.S. District Court for the Southern District of New York.

Valeant also faces several other shareholder suits based on the alleged scheme. Valeant representatives didn’t immediately respond to requests for comment.

Investor Losses

According to BlackRock’s complaint, the fraudulent practices artificially boosted Valeant’s revenues and stock prices. Valeant stock lost almost all its value when the Philidor connection and other “rampant misconduct” became public, leading to large investor losses, it said.

Valeant also billed itself as using a “lower risk, output-focused research and development model,” according to the complaint. Instead, Valeant’s allegedly shady practices opened the company up to more costly investigations, sanctions, and criminal charges, it said.

The case is BlackRock Glob. Allocation Fund Inc. v. Valeant Pharm. Int’l Inc. , D.N.J., No. 3:18-cv-00343, 1/9/18 .

To contact the reporter on this story: Jennifer Bennett in Washington at jbennett@bloomberglaw.com

To contact the editor responsible for this story: Seth Stern at sstern@bloomberglaw.com

Copyright © 2018 The Bureau of National Affairs, Inc. All Rights Reserved.

Request Securities & Capital Markets on Bloomberg Law