According to a press release dated August 23, 2007, an appeals court refused to hear a bid by three pension funds to head a potential class in a securities fraud lawsuit against Watson Pharmaceuticals Inc., ruling the aspiring lead plaintiffs were nothing more than hypothetical class members in an uncertified case. In an opinion published last Thursday, the Ninth Circuit judges ruled the funds, whose counsel from veteran plaintiffs' firm Lerach Coughlin Stoia Geller Rudman & Robbins LLP had neither filed a complaint nor formally moved to intervene in the case, lacked standing to appeal. The funds—Employers-Teamsters Local Nos. 175 & 505 Trust Fund, the International Union of Operating Engineers Pension Plan and West Virginia Laborers' Pension Trust Fund—had pursued their case after the Los Angeles district court granted a motion by lead plaintiffs Anchor Capital Advisors to dismiss the securities suit against the drug maker.
According to the Company's FORM 10-K For The Fiscal Year Ended December 31, 2004, on August 30, 2004, the lead plaintiff in the federal consolidated action notified the court that it did not intend to file an amended complaint in response to the court's order granting the defendants' motion to dismiss. On September 2, 2004, the District Court entered a judgment of dismissal in favor of the defendants. On October 1, 2004, one of the non-lead plaintiffs in the consolidated action filed a Notice of Appeal of the dismissal of the action with the United States Court of Appeals for the Ninth Circuit. (Pension Fund v. Watson Pharmaceuticals, Inc., USCA Docket No. 04-56791).
As reported by the same SEC filing, beginning in November 2003, several securities class action lawsuits were commenced in the United States District Court for the Central District of California against Watson and certain of its present and former officers and directors. On February 9, 2004, the federal court issued an order consolidating all of the federal actions. (In re: Watson Pharmaceuticals, Inc. Securities Litigation, Case No. CV-03-8236 AHM) In addition to the federal consolidated actions, two shareholder derivative actions were filed in California Superior Court for the County of Riverside. (Philip Orlando v. Allen Chao, et al., Case No. 403717; and Charles Zimmerman v. Allen Chao, et al, Case No. 403715). These federal and state cases all relate to the drop in the price of the Company's common stock in November 2001, and allege generally that the Company failed to timely advise investors about matters such as falling inventory valuations, increased competition and manufacturing difficulties, and therefore, the Company's published financial statements and public announcements during 2000 and 2001 were false and misleading. The shareholder derivative actions were dismissed without prejudice on November 16, 2004. On August 2, 2004, the United States District Court for the Central District of California court granted the defendants' motion to dismiss the federal consolidated action, and allowed plaintiffs until August 30, 2004 to file an amended complaint.
The original complaint alleges that Watson and certain of its officers and directors violated Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934,
and Rule 10b-5 promulgated thereunder, by issuing materially false and
misleading statements concerning the Company's business. In particular, the
Complaint alleges that defendants' statements were materially false and
misleading because they failed to disclose and misrepresented the following
material facts: (a) that Watson was materially overstating its financial
results by failing to write down the value of its inventories and the value of
certain of the Company's assets; (b) that Watson was experiencing significantly
increased competition for generic drugs and was also experiencing manufacturing
difficulties; and (c) that based on the foregoing, defendants' positive
statements about the Company were lacking in a reasonable basis at all times
and were therefore materially false and misleading. Prior to the disclosure of
the true facts about the Company, defendants used millions of shares of Watson
common stock to acquire other businesses.
On November 13, 2001, Watson shocked the market when it announced its financial
results for third quarter 2001 which were well below expectations. Furthermore,
the Company announced that it was writing off almost all of its investment in
Dilacor XR and that the Company was writing off over $20 million in additional
impaired inventory. In response to this negative announcement, the price of
Watson common stock plummeted, trading down almost $20 per share, to close
trading at $28.54 per share, compared to the prior day's close of $47.15 per
share, on tremendous volume of over 15.3 million shares traded -- almost 20
times the average trading volume for Watson shares.