New York-based insurer Alleghany Corp. joined the T. Rowe Price securities fraud case, which claims the investors relied on Valeant’s misrepresentations and omissions. Valeant is facing investigations from Congress and the U.S. Securities and Exchange Commission. The Wall Street Journal reported last week that federal prosecutors are investigating potential fraud.
Valeant engaged in a “growth by acquisition strategy” and continually reported revenue and earnings growth while shielding the secret network of controlled pharmacies and other practices from investors, exposing it to “massive risks,” said in the lawsuit, filed in Trenton on Aug. 15. The company’s U.S. unit is based in Bridgewater, New Jersey.
The company declined on Thursday to immediately comment on the lawsuit.
T. Rowe Price owned 1.48 million shares of Valeant as of June 30, down 31 percent from the previous quarter, according to data compiled by Bloomberg. Valeant shares fell 2.5 percent to $29.25 at 3:22 p.m. in New York trading. The stock hit a high of $262.52 on Aug. 5, 2015.
Valeant severed its ties with Philidor in October, following reports about tactics the mail-order pharmacy allegedly used to gain more insurance reimbursements for Valeant medicines. They included submitting claims using other pharmacies’ identification numbers and altering codes on some doctors’ prescriptions. Valeant didn’t originally reveal its full relationship with Philidor, which included shared staff and an option to acquire the business.
Ex-CEO Sued
Beyond Valeant, the complaint cites six current and former executives as defendants, including former Chief Executive Officer Michael Pearson and former interim CEO Howard Schiller.
According to the complaint, Valeant hired former Medco Health Solutions Inc. executive Laizer Kornwasser in 2013 to oversee its relationship with Philidor. Kornwasser, who left Valeant last year, received $8.8 million in cash and stock awards in his first year, according to the complaint, which didn’t cite the source of its information.
Valeant put a 30-person team inside Philidor “with instructions to show doctors how to direct patients to Valeant products,” according to the complaint. “At different points in Philidor’s evolution, Valeant employees were responsible for performing a variety of key business functions for the pharmacy, including interviewing Philidor job applicants and overseeing the pharmacy’s billing operations,” the complaint said.
The case is T. Rowe Price Growth Stock Fund Inc. v. Valeant Pharmaceuticals International Inc., 16-cv-05034, U.S. District Court, District of New Jersey (Trenton).