Shareholders of Perrigo Company recently filed suit in the United States District Court for the Southern District of New York against Perrigo, a pharmaceutical manufacturer and distributor and seven of its directors and officers, alleging violations of Section 10(b) and Rule 10b-5 of the 1934 Securities Exchange Act. See Warner v. Perrigo Co., No. 09-CV-2255 (March 11, 2009).
The plaintiffs allege that Perrigo and certain of its directors and officers issued materially false statements regarding at least $18 million in Auction Rate Securities (“ARS”) purchased by Perrigo. According to the complaint, auctions of the ARS began to fail in January and February of 2008, limiting the ability of holders to sell these securities. As the investment banks that underwrote and issued the ARS began to collapse, so did the ARS market. Nonetheless, Perrigo continued to report that it expected to redeem its $18 million in auction rates even after Lehman Brothers Holdings, Inc. (“Lehman”), the bank that underwrote and sold the ARS to Perrigo, declared bankruptcy on September 15, 2008.
Furthermore, according to the complaint, the defendants reported the “fair value” of the ARS as $14.5 million, but failed to disclose that Lehman had underwritten and sold the ARS to Perrigo. The plaintiffs assert that on February 3, 2009, the defendants revealed Lehman’s role in their purchase of the ARS and informed shareholders that the company would be writing off the entire value of the ARS, which in turn eliminated over a third of Perrigo’s earnings. Following the announcement, Perrigo’s stock price fell 18 percent. The plaintiffs seek class action certification, unspecified damages and attorneys’ fees and costs.
Although most of the ARS-related lawsuits filed thus far have been against the investment banks and brokers who sold the ARS to investors, the Perrigo suit is one of growing number of shareholder actions targeting companies that invested in ARS.