In a rare move, Florida is considering taking on a large pharmaceutical company, alleging the state's pension fund lost more than $62 million in stock value because of federal security violations by the company.
The State Board of Administration, which includes Gov. Rick Scott and two Cabinet members, will decide next month whether to hire a New York-based law firm to pursue a “direct action” case against Valeant Pharmaceuticals International Inc., rather than joining a class-action lawsuit against the company.
Valeant has been accused of violating federal securities regulations by marking up drug prices and then selling the drugs through a pharmacy network, without disclosing the full scope of the transactions to the stockholders.
“In my view, if the SBA files a direct action, the SBA may be able to enhance its recovery above the class action recovery by double-digit millions of dollars,” Ash Williams, head of the State Board of Administration, said in a memorandum to Scott and Attorney General Pam Bondi and state Chief Financial Officer Jimmy Patronis, who also serve on the board.
Williams had recommended that the State Board of Administration hire the firm Bernstein Litowitz Berger and Grossmann to handle the Valeant lawsuit, which would be filed in federal court in New Jersey, where the company has its U.S. headquarters.
But Bondi on Tuesday asked for the decision to be delayed until next month while she reviews law firms that could handle the case. She said she did not disagree with the decision to file the suit but wanted to look at potential law firms “in a little more detail.”
In a report to the state, Bernstein Litowitz said Florida's $154 billion pension fund “incurred significant damages as a result of the fraudulent misrepresentations at Valeant.” The law firm identified at least $62 million in “potential recoverable damages,” based on Valeant stock transactions between January 2013 and August 2016.
In a review of records at the U.S. Securities and Exchange Commission, the law firm said the Florida losses were “among the largest of any public fund investor.”
About $7.5 million of the Valeant transactions were on the Canadian stock exchange, which is not expected to be the focus of the lawsuit.
In an indication of how much Florida might recover from the litigation, Bernstein Litowitz said it recovered 37.5 percent of investors' estimated damages in a securities lawsuit against the Cendant Corp. and 18.5 percent of investors' claims against the Biovail Corp.
Both were class-action lawsuits and Bernstein Litowitz noted it “has achieved substantially higher recovery percentages when selectively representing prominent institutional investors (including the SBA) in direct actions.”
Williams said the state “very rarely” opts out of class-action lawsuits in favor of direct action claims. But he said the state pension fund has a clear set of guidelines that allows for adirect claims, including cases of “egregious” behavior and where Florida wants to “make a statement for the benefit of the markets, that we don't like this kind of thing and we're not going to take it.”
In its report, Bernstein Litowitz said Florida's lawsuit would allow the state to hold Valeant accountable for losses and also provide a forum “to insist on meaningful corporate governance reforms as an important component of any direct resolution with the company.”
“Given Valeant's prominence in the pharmaceutical industry and the impact its practices have had on a strained American healthcare system, any corporate reforms achieved through this matter should have a lasting and meaningful impact,” the law firm said.
Valeant is facing numerous lawsuits, including an $80 billion claim filed in August by Lord Abbett & Co., a mutual fund company.