Pharmaceutical companies have received both positive and negative news coverage over the past couple of years. A recent headline reveals a record $420 million dollar settlement the company reached with its shareholders.
According to reporting from Reuters, Teva reached the settlement to bring an end to a generic drug price-fixing scheme. The settlement is instructive for business leaders who work in highly scrutinized industries, as it highlights the significance of exercising due diligence when complying with reporting obligations.
Allegations of securities violations
Teva shareholders alleged the company had violated securities law by fixing prices of generic drugs across the industry. The price-fixing, according to shareholders, increased the cost of some generic medications by as much as 1,000%. While the company did not disclose the scheme to its shareholders, the alleged result was an artificial inflation of common stock value.
Despite settling the matter for $420 million, Teva admitted to no wrongdoing. Still, the settlement was one of the largest since the 1995 enactment of the Private Securities Litigation Reform Act.
The importance of due diligence
One of the shareholders’ claims was that company leaders had held secret and informal meetings, potentially skirting their due diligence and reporting requirements by eliminating paper trails.
Corporations that conduct business in highly regulated sectors, such as pharmaceuticals or biotechnology, can learn from Teva’s costly mistake. Specifically, trying to conceal unscrupulous activities is likely to draw more scrutiny and pressure from both shareholders and government regulators.
Ultimately, by having comprehensive audit and reporting policies, savvy executives know when to conduct thorough investigations into potential violations of U.S. securities law.
The information contained in this publication should not be construed as legal advice. Should further analysis or explanation of the subject matter be required, please contact the lawyer with whom you normally consult. No attorney-client relationship is created by this post.
For more information or advice concerning your corporate and regulatory compliance efforts, please contact Alex Lindgren, Karl Lindgren, Daniel TeJumson, or any member of the firm’s corporate and securities regulatory practice.