The Norfolk Pension Fund has won a court case against an American pharmaceutical company and the company’s CEO and board chairman, with a jury finding them liable for securities fraud.
The local authority fund, which looks after occupational pensions for 200 organisations in the region including colleges and town councils, was the lead plaintiff in a class action suit against Puma Biotechnology Inc, listed on the Nasdaq, and Alan H Auerbach, who is both chief executive at the company and chair of its board.
Puma falsified minutes of a meeting with the US Food and Drug Administration – the regulatory body responsible for protecting public health – exaggerating figures in the documents to give the impression that the breast-cancer drug Neratinib, sold commercially in the US under the name of Nerlynx, was more effective than it is, court documents filed by Norfolk and others alleged. On February 4 a jury in the US District Court for the Central District of California, in Santa Ana, California, ruled in favour of the plaintiffs.
The fight to improve governance and integrity within boardrooms globally will be advanced significantly if more fraud cases are vigorously prosecuted by investors such as Norfolk
Mark Solomon, Robbins Geller Rudman & Dowd
Puma’s share price was inflated by $4.50 (£3.45) a share as a result of the fraud. In mid-2014 the company's shares had peaked at over $270, but since crumbled. The company now trades at a 10th of that figure.
Compensating investors may cost Puma and Auerbach up to £100m when all claims are counted, according to lawyers acting for Norfolk. After four years of litigation and a three-week trial, the defendants are now liable to compensate investors who purchased Puma shares between July 22 2014 and May 13 2015 at prices inflated by Puma misconduct.
Puma did not respond to a request for comment, but a statement on its website claimed the outcome of the trial as a victory, as only one of four statements it made to investors was found to be "false and misleading" and only one of two drops in share price was attributed to the company.
Investors win liability verdict
Norfolk was the investor that suffered the most losses, and as the lead plaintiff it took the case forward on behalf of all the other investors, according to lawyers.
Judy Oliver, chair of the Norfolk Pension Fund, said: “We are pleased with the jury’s findings in favour of investors, that a financial recovery in which Norfolk Pension Fund will participate has been won, and that this verdict may bring significant improvement to Puma’s management. It is important that asset owners hold companies and executives to account when securities fraud is discovered.”
Norfolk's funds had been invested on behalf of the pension scheme by Capital International, an American financial services company.
Prosecution helps boost governance
Mark Solomon, a founding partner in US law firm Robbins Geller Rudman & Dowd, who represented Norfolk, said: “The jury verdict underscores that cheating executives can be held to account for their actions.
"The fight to improve governance and integrity within boardrooms globally will be advanced significantly if more fraud cases are vigorously prosecuted by investors such as Norfolk.”
Mr Solomon added that UK pension schemes are exposed to the American market, so it is important they understand where there might be losses, and schemes should be aware of what strategies are available to them to be able to recover their money.
