Friday, February 10, 2012

The Full Amended ENHANCE-Era Putative Securities Class Action Complaint: 234 Pages Of PDF Goodness

Since the opinion allowing the same was entered two days ago, the plaintiffs have now filed the "as newly amended" complaint. It weighs in at 234 pages. Paragraphs 356 and 357 were the last two that the defense was trying to prevent being added. The court said otherwise, so now we have the full complaint as an 890 Kb PDF file. And just one bit, here:

. . . .240. Also on January 24, 2008, Senator Charles Grassley, ranking member of the Senate Committee on Finance, opened his own probe into Merck’s and S-P’s conduct, sending a letter to Merck’s CEO, Richard Clark, and to S-P’s CEO, Fred Hassan, requesting documents and the answers to questions regarding the delay in releasing the results of ENHANCE. Senator Grassley wrote that “there is no apparent gain in health benefits from using Vytorin over the much cheaper generic statin, simvastatin” but the Companies had the study results since April 2006, more than 20 months before releasing them. Senator Grassley also wrote to ACC President James Dove, AHA CEO M. Cass Wheeler, and SEC Chairman Christopher Cox to express his concerns about the extraordinary delay in releasing the ENHANCE study results. . . .

My take: This one is simply going to have to settle (given that personal liability is at stake for the legacy Schering-Plough, and legacy Merck, officers and directors, from that era) -- and it is likely to settle for boxcar-style numbers.


Anonymous said...

Condor, I thought there were new provisions put into place at the start of the year shielding officers of the company, and legacy entities, from personal liability for past, present and future acts. I agree KF will likely push to settle but I'm curious on my understanding of the new corporate resolutions.

Condor said...

There were new by-law indemnities adopted at year end, 2011 -- you are quite right, Anon.

Here is that post.

The general rule in America, though, is against ex post facto laws (and corporate by-laws).

Simply put, American law doesn't allow a company to take away a right that shareholders had previously enjoyed, without the affirmative consent of the shareholder. In this case, it was, and is, the shareholders' right to hold directors and officers personally liable for allegedly knowingly false and material statements about the stock (like the wild optimism about ENHANCE, when the officers and directors had reason to know ENHANCE was a null result -- all allegedly, of course).

On the other hand, the new by-law will in fact protect former officers and directors to the fullest extent that New Jersey corporate law will allow, but a private or public company's corporate by-law cannot hope to amend an existing state corporate statute -- and it cannot ever retroactively amend such a statute.

Doubly so, a federal statute like the Securities Exchange Act of 1934.

So, if violations of the Sarbanes-Oxley CEO signing (and verification) duties are proved (from the signatures in the relevant Merck/Schering-Plough SEC Forms 10-Q and 10-K), CEOs like Fred Hassan and Dick Clark may be held personally liable for the falsehoods.

That is why -- even with the New Merck by-law change -- this is likely to get settled.

Great question!