Shareholders in a proposed class action have asked a New York Federal Court for preliminary approval of a $210 million settlement to end a lawsuit accusing Salix Pharmaceuticals Ltd. of inflating stock prices by knowingly misrepresenting the company’s wholesale inventory levels. The motion asks U.S. District Judge Kimba M. Wood to certify the class of people and entities that held Salix stock between November 2013 and November 2014, and to approve as class representatives PWCM Master Fund Ltd., Pentwater Equity Opportunities Master Fund Ltd., Oceana Master Fund Ltd., Pentwater Merger Arbitrage Master Fund Ltd., LMA SPC on behalf of the MAP98 Segregated Portfolio, and the City of Fort Lauderdale General Employees’ Retirement System.
The exact size of the class is unknown, but it’s estimated to comprise thousands of members. Salix had 62 million shares of common stock, with average daily trading volume in the millions of shares per week during the class period.
The class representatives and their lawyers say the proposal “represents an excellent result and is in the best interests of the settlement class,” which they allege was hurt by the gastrointestinal drug company’s misrepresentations. The motion said:
The proposed $210 million settlement represents a substantial percentage of the maximum damages that lead plaintiff reasonably believed could be established at trial. This significant benefit to the settlement class must be considered in the context of the serious risks that further protracted litigation might lead to no recovery, or to a smaller recovery, from defendants in this action.
The suit arises from two putative securities class actions filed in New York federal court immediately after Salix’s stock declined in November 2014. The suits were consolidated in March 2015. It was alleged that Salix violated the Securities and Exchange Act when it made false statements about its inventory to inflate its common stock during the class period. When Salix reported on Nov. 6, 2014, that it had as much as nine months’ worth of inventory on its top four products, that the complaint alleged the revelation of the “glut” caused the stock price to fall dramatically.
The motion said the proposed settlement was the result of extensive litigation, including 2.7 million pages of documents proffered by Salix and 13 depositions. The filing also argued that a trial would have been risky. It was difficult to prove the misleading statements amounted to an intentional plot to defraud investors, the motion said, since the errors were due to best estimates of inventory. The motion also argued that calculating damages would prove difficult, because it would require breaking down how much of the stock price drop was due to the alleged fraud and how much was a result of other factors, like the company’s pending acquirement by Valeant Pharmaceuticals International Inc.
The class is represented by Salvatore J. Graziano, John Rizio-Hamilton and Katherine M. Sinderson of Bernstein Litowitz Berger & Grossmann LLP and Samuel H. Rudman, David Rosenfeld and Mark S. Reich of Robbins Geller Rudman & Dowd LLP. The case is In Re Salix Pharmaceuticals Ltd. (case number 1:14-cv-08925) in the U.S. District Court for the Southern District of New York.
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