U.S. judge orders Valeant, Ackman to face insider trading suit

Bill Ackman

Valeant ($VRX) currently has its hands full with price-hike backlash from politicians, allegations that it used its relationship with specialty pharmacy Philidor to inflate its top line, the search for a new specialty pharmacy arrangement to replace the one it terminated with Philidor, and a stock price in the doldrums.

But remember last year, when it was squarely focused on a hostile pursuit of Allergan ($AGN)? A California judge does--and he's ordering the drugmaker and takeover partner Bill Ackman to face a lawsuit accusing the pair of insider trading.

U.S. District Judge David Carter has rejected arguments from Valeant, Ackman and Ackman's hedge fund, Pershing Square Capital Management, to dismiss the suit, filed on behalf of investors who sold Allergan shares in the two months before the duo announced a bid for the Botox maker, Reuters reports.

By the time Valeant and Ackman went public with the pursuit, Pershing Square had built up a 9.7% stake in Allergan, whose value skyrocketed when they went public with their $51 billion proposal. And while the two say they didn't intend to defraud, Carter found "serious questions" as to whether "substantial steps" had been taken toward a potential hostile takeover effort, which would have required Valeant to disclose more information or Ackman to halt his share purchasing.

Valeant, for one, stands by the belief that it complied with securities laws, with spokeswoman Laurie Little telling Reuters the company looks "forward to presenting evidence to establish that we did nothing improper."

The plaintiffs in the current case--led by the State Teachers Retirement System of Ohio, the Iowa Public Employees Retirement System, and Allergan employee Patrick Johnson--aren't the first to allege that Valeant and Ackman violated Securities and Exchange Commission (SEC) laws. Allergan itself sued Valeant last year as part of its defense, but it dropped that suit after closing a $70 billion-plus deal with white knight Actavis, which later took on Allergan's name.

Valeant has had a troubling couple of months--and so, by extension, has Ackman, who still holds a hefty stake in the drugmaker. Lawmakers have been calling on the company to account for large price hikes it made on a pair of heart meds it purchased this year from Marathon Pharmaceuticals, and the company has received a trio of recent subpoenas. Last month, its stock price sank lower when short-seller Citron Research claimed it had used Philidor to create "phantom sales."

Pershing Square, for its part, has recorded a 19% loss so far this year.

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