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(212) 838-7797 Meisenkraft@Cohenmilstein.Com Case 3:18-cv-00032 Document 1 Filed 01/02/18 Page 1 of 166 PageID: 1 Michael B. Eisenkraft Steven J. Toll (pro hac vice forthcoming) ID: 016532004 Julie Goldsmith Reiser (pro hac vice COHEN MILSTEIN SELLERS forthcoming) & TOLL PLLC S. Douglas Bunch (pro hac vice forthcoming) 88 Pine Street / 14th Floor Adam H. Farra (pro hac vice forthcoming) New York, NY 10005 COHEN MILSTEIN SELLERS Tel. (212) 838-7797 & TOLL PLLC [email protected] 1100 New York Avenue, N.W. / 5th Floor Washington, D.C. 20005 Tel. (202) 408-4600 [email protected] [email protected] [email protected] [email protected] Counsel for Plaintiffs NEW YORK CITY EMPLOYEES’ RETIREMENT SYSTEM, 335 Adams Street / Suite 2300 Brooklyn, NY 11201 THE NEW YORK CITY POLICE PENSION FUND, 233 Broadway / 19th Floor New York, NY 10279 THE BOARD OF EDUCATION RETIREMENT SYSTEM OF THE CITY OF COMPLAINT NEW YORK, DEMAND FOR JURY TRIAL 65 Court Street / 16th Floor Brooklyn, NY 11201 THE TEACHERS’ RETIREMENT SYSTEM OF THE CITY OF NEW YORK, 55 Water Street New York, NY 10041 THE TEACHERS’ RETIREMENT SYSTEM OF THE CITY OF NEW YORK VARIABLE ANNUITY PROGRAM, 2299502.11 Case 3:18-cv-00032 Document 1 Filed 01/02/18 Page 2 of 166 PageID: 2 55 Water Street New York, NY 10041 THE NEW YORK CITY FIRE DEPARTMENT PENSION FUND, 9 MetroTech Center / 6th Floor Brooklyn, NY 11201 THE NEW YORK CITY FIRE OFFICERS’ VARIABLE SUPPLEMENTS FUND, 9 MetroTech Center / 6th Floor Brooklyn, NY 11201 THE NEW YORK CITY FIRE FIGHTERS’ VARIABLE SUPPLEMENTS FUND, 9 MetroTech Center / 6th Floor Brooklyn, NY 11201 THE NEW YORK CITY DEFERRED COMPENSATION PLAN, 40 Rector Street / 3rd Floor New York, NY 10006 Plaintiffs, v. VALEANT PHARMACEUTICALS INTERNATIONAL, INC., 400 Somerset Corporate Blvd. Bridgewater, NJ 08807 J. MICHAEL PEARSON, 74 Village Road New Vernon, NJ 07976 HOWARD B. SCHILLER, 40 Montview Avenue 2299502.11 Case 3:18-cv-00032 Document 1 Filed 01/02/18 Page 3 of 166 PageID: 3 Short Hills, NJ 07078 ROBERT L. ROSIELLO, 55 Davis Hill Road Weston, CT 06883-2003 TANYA CARRO, 231 Ronan Way Branchburg, NJ 08853-4184 PRICEWATERHOUSECOOPERS, 300 Madison Avenue New York, NY 10017 BARCLAYS CAPITAL INC., 745 Seventh Avenue New York, NY 10019 and DEUTSCHE BANK SECURITIES INC. 60 Wall Street New York, NY 10005 Defendants. 2299502.11 Case 3:18-cv-00032 Document 1 Filed 01/02/18 Page 4 of 166 PageID: 4 TABLE OF CONTENTS TABLE OF CONTENTS ................................................................................................................ 1 INTRODUCTION .......................................................................................................................... 2 JURISDICTION AND VENUE ..................................................................................................... 7 PARTIES ........................................................................................................................................ 8 A. Plaintiffs .................................................................................................................. 8 B. Defendants .............................................................................................................. 9 THE ENTERPRISE ...................................................................................................................... 12 A. The Valeant Enterprise Members ......................................................................... 13 1. Valeant ...................................................................................................... 13 2. Michael Pearson ........................................................................................ 14 3. Howard Schiller ........................................................................................ 15 4. Robert Rosiello ......................................................................................... 16 5. Tanya Carro .............................................................................................. 16 6. Gary Tanner .............................................................................................. 16 7. Additional Valeant Employees Who Facilitated the Enterprise ............... 18 8. Philidor ...................................................................................................... 19 9. Andrew Davenport .................................................................................... 20 10. Matthew Davenport .................................................................................. 21 B. Valeant Board Members and Audit Committee.................................................... 21 C. PwC ....................................................................................................................... 22 D. Other Enterprise Members .................................................................................... 24 THE CRIMINAL SCHEME ......................................................................................................... 25 A. Valeant’s Deceptive Business Model ................................................................... 25 1. Growth by Acquisition .............................................................................. 25 2. Price Gouging ........................................................................................... 26 3. Inflation of Sales Through a Secret Network of Captive Pharmacies ................................................................................................ 29 4. Manipulation of Patient Assistant Programs and a Specially Designed PR Campaign ............................................................................ 31 1 2299502.11 Case 3:18-cv-00032 Document 1 Filed 01/02/18 Page 5 of 166 PageID: 5 5. Through Philidor, the Enterprise Creates a National Network of Captive Pharmacies ................................................................................... 34 6. Valeant Formalizes Control Over Philidor ............................................... 38 B. Defendants’ Accounting Violations ...................................................................... 40 1. Defendants’ Accounting Violations .......................................................... 40 2. PricewaterhouseCoopers’ GAAS Responsibilities ................................... 43 3. Valeant and PwC’s Violations of GAAP and GAAS ............................... 46 C. The Enterprise’s Material Misrepresentations and Omissions ............................. 50 1. Misrepresentations about Valeant’s Business Model and Growth ........... 53 2. Misrepresentations about Philidor ............................................................ 68 a. Misrepresentations about the Alternative Fulfillment Program ......................................................................................... 68 b. Misrepresentations about Philidor before the December 2014 Purchase Option Agreement ................................................ 70 c. Misrepresentations about Philidor after the December 2014 Purchase Option Agreement ......................................................... 74 d. Misrepresentations about Revenue Recognition ........................... 76 e. Misrepresentations about Valeant’s Compliance with GAAP ............................................................................................ 82 f. Misrepresentations about Valeant’s Internal Controls .................. 83 g. Misrepresentations in PwC’s 2014 Audit Opinion ....................... 86 3. Misrepresentations as the Enterprise’s Criminal Scheme Began to Unravel ...................................................................................................... 88 4. Misrepresentations in Valeant Debt Offering Documents ...................... 113 THE SCHEME’S CONNECTIONS TO NEW JERSEY ........................................................... 116 SCIENTER ................................................................................................................................. 116 A. The Individual Defendants’ Role in Valeant’s Unsustainable Business Model .................................................................................................................. 117 B. The Individual Defendants’ Control of Philidor ................................................. 121 C. Valeant’s Refusal to Pursue Remedies Against Wrongdoers ............................. 126 D. Executive Departures .......................................................................................... 128 2 2299502.11 Case 3:18-cv-00032 Document 1 Filed 01/02/18 Page 6 of 166 PageID: 6 E. Executive Compensation .................................................................................... 129 F. Inflating Valeant’s Stock Price to Facilitate Acquisitions .................................. 133 RELIANCE ................................................................................................................................. 133 A. The Fraud on the Market Presumption ............................................................... 133 B. Affiliated Ute ....................................................................................................... 135 C. Direct Reliance.................................................................................................... 135 LOSS CAUSATION ................................................................................................................... 137 NO SAFE HARBOR .................................................................................................................
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