A few months ago Valeant (VRX) and Pershing Square (OTCPK:PSHZF) settled a lawsuit claiming they profited from insider trading in Allergan (AGN) shares. Judge David Carter ordered them to appear in court to examine the $290 million settlement and determine its fairness. Tuesday Judge Carter signaled he would approve the settlement:
A federal judge signaled Tuesday he would approve a $290 million settlement reached by Pershing Square Capital Management, Valeant Pharmaceuticals International Inc. and the shareholders of Allergan PLC who had alleged the two firms improperly profited from their failed attempt to buy the maker of Botox.
In a hearing Tuesday, the judge also said he intends to publicly issue a final version of his tentative opinion he had privately issued last month that rejected two key legal arguments Pershing Square and Valeant had made, saying he wanted his order to become part of legal case law, according to people familiar with the hearing.
The decision sounded like great news on the surface. Valeant will be on the hook for about $96 million while Pershing Square will pay about $194 million. This pales in comparison to the more than $2 billion in profits Ackman made from his AGN trade. Per Wells Fargo’s (WFC) David Maris the judge’s decision could have negative implications as well.
According to Shocking The Street, an investment service the Shock Exchange runs in conjunction with Seeking Alpha, the settlement has tail risks associated with it. VRX and PSHZF shareholders will eventually bear the brunt of that risk.
