The Shock Exchange had been hearing about the brilliance of activist investors like Bill Ackman for years. After the Financial Crisis these hedge fund managers sure got smart all of a sudden. The Shock Exchange assumed they were simply betting the the Fed and/or had stronger information on stocks than the general public. In the case of Valeant (VRX), former VRX CEO Mike Pearson and Pershing Square’s (PSHZF) Bill Ackman, strong information was not enough. They had to trade on inside information pursuant to a proposed hostile takeover attempt of Allergan (AGN).
In November 2015 Judge David O. Carter ruled they must face an insider trading suit:
The lawsuit was filed on behalf of investors who sold Allergan shares in the two months before the defendants on April 22, 2014 announced an unsolicited $51 billion bid for Allergan.
Pershing had by then quietly amassed a 9.7 percent stake in Allergan, which soared in value after the bid was announced. Investors said Pershing bought those shares knowing that Valeant was preparing a bid that could, and later did, become hostile … the judge, without ruling on the merits, found “serious questions” as to whether “substantial steps” had been taken toward a possible hostile bid, which would have required Valeant to disclose more or Ackman to stop his buying.
in December 2017 Judge Carter denied a request by Ackman and Valeant to throw out the allegations by Allergan shareholders. It likely set up a jury trial in January 2018. Market chatter suggested the focus on the trial might have been on the potential damages to be paid by the defendants:
The judge in his tentative decision appeared to agree with the shareholders that Ackman wasn’t a co-offeror in the Allergan bid and as such exempt from prohibitions against insider trading.
If so, that would mean that the judge may find Ackman and Valeant are liable for insider trading as a matter of law and the jury trial will focus only on the amount of damages they owe the Allergan shareholders.
