Ohio Attorney General Mike DeWine announced a settlement of $290 million in the insider-trading lawsuit against William A. Ackman, his hedge fund Pershing Square Capital Management LP, pharmaceutical company Valeant Pharmaceuticals International, Inc., and related defendants, on allegations that the defendants violated the insider-trading laws and reaped illicit profits by buying up billions of dollars of shares from unsuspecting Allergan, Inc. investors who were not privy to Valeant’s plans to acquire Allergan at a significant premium.
DeWine filed the case on behalf of the Ohio State Teachers Retirement System (STRS), which was a co-lead plaintiff in the case along with a public employee retirement system in Iowa. The amount that Ohio STRS will receive from the settlement will be determined as part of the claims administration process.
“We filed this case to send a message that all investors have to play by the same rules,” said Attorney General Mike DeWine.
Allergan stockholders alleged that in February 2014, Valeant tipped Pershing Square founder William “Bill” Ackman about its plan to launch a hostile bid for Allergan. Armed with this nonpublic information, Pershing then bought 29 million shares of Allergan stock from unsuspecting investors, who were unaware of the takeover bid that Valeant was preparing in concert with the hedge fund. When Valeant publicized its bid in April 2014, Allergan stock shot up by $20 per share, earning Pershing $1 billion in profits in a single day. Valeant’s bid spawned a bidding war for Allergan. The company was eventually sold to Actavis PLC for approximately $66 billion.
The federal securities laws expressly prohibit anyone from trading on nonpublic information about an upcoming tender offer. The purpose of those laws is to establish a level playing field so that hedge funds and corporate raiders with material inside information about upcoming corporate transactions do not take unfair advantage of investors who do not have access to that inside information.