Private action plays key securities enforcement role

DARREN J. ROBBINS, ROBERT R. HENSSLER, JR. AND CHRISTOPHER R. KINNON, Robbins Geller Rudman & Dowd LLP

Imagine a high-stakes chess game played with the likes of superhero Peter Parker and action hero Jack Reacher, where clandestine networks reposition life-saving products. Welcome to the world of racketeering in the pharmaceutical industry, where truth really is stranger than fiction.

As the scandal within Valeant Pharmaceuticals unfolded in 2015-16, it was referred to as a "pharmaceutical Enron," by attorney Darren J. Robbins of San Diego, who led a national team of attorneys at Robbins Geller Rudman & Dowd LLP to achieve a $1.21 billion settlement from Valeant (now Bausch Health Companies) in January 2021.

The securities class action against the pharmaceutical manufacturer ended with a settlement 50% higher than the company's reported cash balance, according to Robbins. The matter was the ninth largest recovery in history under the Private Securities Litigation Reform Act of 1995.

"Private securities enforcement actions like this are an essential supplement to government enforcement actions like those by the SEC or the DOJ," said attorney Robert R. Henssler, Jr. of Robbins Geller, who was a California-based member of the trial team. "It really makes the point of what the Supreme Court has said, that these private enforcement actions are critical to maintaining the integrity of our financial markets."

According to Robbins, the "carefully orchestrated" pattern of misconduct and fraudulent activity at Valeant was reminiscent not only of Enron but also of the Tyco International scandal. Like Enron, which used coded Star Wars terminology, he said, so Valeant used chess terms like "Isolani" and "Lucena," involving a secretive network of pharmacies revolving around the mail-order pharmacy Philidor--the name of a famous opening move in chess.

"People tend to forget that [Michael Pearson, former CEO of Valeant], who sat at the center of this vortex, was a close adviser to Mr. [Dennis] Kozlowski at Tyco in orchestrating a similar pattern of ... misconduct that almost sunk Tyco 20 years ago," Robbins said. ""Then Mr. Pearson became the CEO and engaged in very troubling conduct while at the head of Valeant."."

Valeant employees worked at Philidor under aliases such as Peter Parker and Jack Reacher, using deceptive maneuvers to block alternative generic medications from competing with Valeant's more expensive brand-name drugs, the Wall Street Journal reported.

For instance, after purchasing a portfolio of products from Marathon Pharmaceuticals, Valeant immediately hiked the prices on two life-saving heart medications: Isuprel skyrocketed by 525% and Nitropress went up 212%, according to the New York Times. Meanwhile, as Bloomberg reported, a drug called Jublia, which Valeant had developed to treat toenail fungus, sold for $1,000 per 8-milliliter bottle until CVS placed restrictions on its sale in 2016.

According to Vanity Fair, such price-gouging was standard fare for Valeant, which emphasized acquisitions, firings and price hikes while simultaneously avoiding expensive research and development.

What the Securities and Exchange Commission in a press release labeled "misleading disclosures" regarding its financial performance ultimately led to Valeant's downfall, including the undisclosed mail-order pharmacy, which inflated Valeant's earnings. Replacing most of its directors and senior management, Valeant changed its name to Bausch Health Companies Inc. in 2018.

Philidor executive Andrew Davenport and Valeant executive Gary Tanner were convicted by a federal jury and sentenced to prison for an illegal kickback scheme, which involved money-laundering through secret shell companies, according to the New York Times.

While the Department of Justice investigated Valeant, investors assisted by utilizing the Private Securities Litigation Reform Act and the acumen of the Robbins Geller firm.

Justice Ruth Bader Ginsburg "had written in a couple of decisions about how important it was for investors to be able to have their own protections as opposed to relying on governmental regulators," Robbins said, "and I think this case bears that out."

Robbins Geller has another case pending against PricewaterhouseCoopers, the accounting firm for Valeant.

Robbins attributes the stunning settlement with Valeant to the commitment of the lead plaintiff and the dedication of the team of attorneys, several of whom are also CPAs, including attorney James E. Barz, a partner with Robbins Geller, who led the national team out of the Chicago office.

"It's that kind of unwavering commitment to excellence which yielded the outcome," Robbins said.

--Kathryn Stelmach Artuso