Every Company Needs a Plan for Defending Against Fraud Accusations After Investor Losses

Sara Randazzo reported yesterday at The Wall Street Journal Online that, “When pharmaceutical company Depomed Inc. of the U.S. said this month it is fielding federal and state inquiries over its marketing of opioid painkillers, a stock drop was likely to follow.

But it was less expected, legal experts say, that shareholders would then sue the company for securities-law violations, alleging that Depomed made false and misleading statements over a more than two-year period leading up to the Aug. 7 announcement in its earnings statement.

“Depomed, which is one of several pharmaceutical companies involved in the opioid probes, declined to comment Sunday.”

The Journal article noted that, “The Friday lawsuit comes after 131 class-action securities suits were filed in federal court in the first six months of the year, a historic high, according to data from Cornerstone Research and the Stanford Law School Securities Class Action Clearinghouse.

“The volume, which doesn’t include suits challenging mergers and acquisitions, is higher than in any equivalent period since the Clearinghouse began tracking data in 1996, after the passage of landmark securities-litigation legislation. Under securities laws, investors can sue to recoup losses after a stock drops by proving a company or its employees fraudulently misstated or withheld information that would have been material to buying or selling shares.

“‘What’s going on this year is absolutely without precedent,’ said Kevin LaCroix, an attorney who advises companies on directors and officers insurance.”

Yesterday’s article stated that, “Industry watchers say the rise is being driven by enterprising plaintiffs’ firms bringing more, arguably weaker cases under the perceived strategy that companies will settle early to make a case go away. Advisers are alerting clients that in the current era, every company, from small-cap firms to corporate giants, needs a plan for defending against fraud accusations after investor losses.”

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