Appeals court reinstates KV investors' $1.5B lawsuit

KV Pharmaceuticals will have to fight an investor class action after all. A U.S. appeals court resuscitated a $1.5 billion securities fraud lawsuit dismissed back in 2010, Reuters reports. And KV isn't the only drugmaker that should be worried about the court's ruling, the investors' lawyer says.

The securities-fraud suit claims KV misled FDA and investors about manufacturing problems that later triggered recalls and government probes. That's not unusual in a shareholder suit. What is unusual, according to lead lawyer Javier Bleichmar, is that it's the first time FDA inspection records were determined to be material under securities law.

KV shareholders compared FDA inspection records--aka Form 483 reports--with the company's public statements. In the suit, they allege KV leadership misled investors about its FDA compliance problems. And those problems, they say, led to the spate of recalls that began in 2008. It suspended drug shipments at the end of 2008, and the stock price dropped by 90%.

It's far from the first legal trouble KV has had since then. KV subsidiary Ethex pleaded guilty to two felony counts of criminal fraud and agreed to pay $27.6 million in fines and restitution. Then, last March, former CEO Mark Hermelin pleaded guilty to violating drug-labeling laws.

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