A group of Johnson & Johnson shareholders has filed suit against the company, alleging that its directors ignored “red flags” foreshadowing product recalls and government probes of manufacturing defects and marketing practices. The shareholders have asked a judge to find that directors and top executives mismanaged J&J and to order them to pay damages. The Plaintiffs also want J&J to “improve its corporate governance and internal procedures.” The Complaint was filed in federal court in Trenton, N.J. Any money recovered would go to the company and not to individual investors.
J&J, the world’s largest maker of health-care products, recalled more than 40 types of medicines this year because of contamination and incorrect labeling. U.S. lawmakers began investigating J&J after a recall of batches of children’s Tylenol in April forced the company to suspend operations at a Pennsylvania plant. The probe uncovered the use of contractors to buy defective Motrin painkiller.
J&J also faces government investigations into whether it illegally marketed drugs and devices for uses not approved by the Food and Drug Administration and paid kickbacks. Shareholders have amended their derivative lawsuits that seek to force directors and officers to pay the company. It’s alleged that while J&J once set “the gold standard for integrity and excellence,” the directors’ “utter disregard for their fiduciary duties, including permitting and fostering a culture of systemic, calculated and widespread legal violations has destroyed J&J’s hard-earned reputation.”
It’s further alleged that the board received “years of red flag warnings of systemic misconduct.” These red flags came in the form of federal and state regulatory investigations, subpoenas and requests for documents, FDA Warning Letters, news articles and the recall of products accounting for hundreds of millions of dollars in corporate losses, according to the Complaint. J&J got three letters from shareholders last year demanding that it “investigate a variety of alleged issues and take appropriate action.” The suing shareholders include the Minneapolis Firefighters’ Relief Association and the Hawaii Laborers Pension Fund.
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