INSIDE THIS ISSUE
On September 11, 2013, the United States District Court for the District of Massachusetts, denied a motion to dismiss allegations that certain drug manufacturers had engaged in anticompetitive conduct to inflate the price of the drug Nexium. Nexium is a proton pump inhibitor containing esomeprazole magnesium as its active ingredient. Prescribed to treat heartburn, Nexium is manufactured and sold by the drug manufacturer, AstraZeneca. Direct and indirect purchasers — including one of the lead plaintiffs represented by Scott+Scott — of Nexium brought allegations under state and federal antitrust and consumer protection laws, that AstraZeneca and several other drug manufacturers had entered into unlawful “reverse payment” settlements. The plaintiffs’ complaints were consolidated earlier this year in the District of Massachusetts, and captioned In re Nexium (Esomeprazole) Antitrust Litigation, No. 12-md-02409-WGY, (D.Mass.).
Under the federal patent laws, drug manufacturers are given over 14 years of market exclusivity on new brand-name drugs, to reflect the time and resources devoted to developing new pharmaceutical products. Generic drug manufacturers typically only enter the market with approved generic equivalents of the branded drugs, if they certify that their products do not infringe the brand’s patent, or the brand’s patent is invalid. To encourage the entry of less-expensive generic equivalents, the first manufacturer to bring a generic equivalent to market receives an additional 180-day market exclusivity period. The only competition that the generic faces during this period is from the brand manufacturer, through its branded product or the same product, but branded and priced as a generic (referred to as an “Authorized Generic”).
When a less-expensive generic equivalent enters the market on these terms, brand manufacturers will frequently institute patent infringement litigation to challenge the non-infringement certification and maintain their market exclusivity. In some cases, the brand manufacturers will settle the litigation by paying the generic manufacturer in exchange for the generic staying out of the market. The cost of such settlement to the brand manufacturer is outweighed by the monopoly profits they reap in being the only available drug on the market; often prolonging their lawful market exclusivity well beyond the expiry of their branded-drug’s patent. Such settlements, referred to as “pay for delay” agreements or reverse payment settlements, were the subject of the U.S. Supreme Court’s recent decision in FTC v. Actavis, Inc., 133 S. Ct. 2223 (2013), requiring that this conduct be subject to the application of the antitrust laws.
In Nexium, purchasers of esomeprazole magnesium products alleged that AstraZeneca instituted patent infringement litigation against three generic drug manufacturers — Ranbaxy, Teva, Dr. Reddy’s Laboratories — seeking to enter the market with lower-cost generic equivalents to Nexium. Each lawsuit resulted in settlement through some form of payment by AstraZeneca to the generic manufacturers, in exchange for their agreement to delay entering the market with generic Nexium products. AstraZeneca is alleged to have conferred as much as $1 billion to Ranbaxy, by way of cash payments and by AstraZeneca foregoing its ability to bring an Authorized Generic to compete with Ranbaxy during its 180-day exclusivity period. In return, Ranbaxy stayed off the market until 2014. In exchange for Teva’s delay, plaintiffs allege that AstraZeneca forgave the generic manufacturer’s contingent liabilities to AstraZeneca, for bringing to market, with its partner Impax, a generic version of AstraZeneca’s branded drug Prilosec. Such liabilities were potentially enormous because market entry was “at risk”; i.e., before the expiry of the Prilosec patent, and without the usual certification of patent non-infringement or invalidity. Like Ranbaxy, Teva agreed to stay off the market until 2014. Similarly, plaintiffs allege that AstraZeneca agreed to forgive Dr. Reddy’s contingent liability arising from Dr. Reddy’s “at-risk” production of a generic version of AstraZeneca’s product Accolate in November 2010. Dr. Reddy’s also agreed to stay off the market until 2014.
Defendants moved to dismiss all plaintiffs’ allegations on various grounds, including that plaintiffs had failed to allege anticompetitive effects, that the alleged payments were not in “cash” and could not constitute reverse payments, that the statute of limitations had run on the allegations and that the alleged agreements were subject to immunity from the antitrust laws because they concerned 1st Amendment-protected “petitioning” of the government. Specifically with respect to indirect purchasers, defendants argued that plaintiffs lacked standing to bring the claims, and several of their state law claims failed as a matter of law.
The court rejected defendants’ arguments, finding that plaintiffs had plausibly alleged the anticompetitive agreements, the 1st Amendment immunity did not apply to the patent infringement lawsuits, and the overcharges for Nexium constituted “continuous violations” of the antitrust laws, which had tolled the statutes of limitations. The court dismissed a small number of the indirect purchasers’ state law claims, but found that all the indirect purchaser plaintiffs had standing to bring the claims against defendants.
The case has proceeded to discovery and class certification, which has been fully briefed and argued before the court.
On September 25, 2013, the U.S. Commodity Futures Trading Commission and U.K. Financial Conduct Authority announced that ICAP PLC will pay $87 million to resolve a civil probe concerning the brokerage firm’s involvement in the global interest rate rigging of the London interbank offered rate, or Libor. ICAP is the first broker implicated in the scandal. Regulators have previously reached settlements with Barclays PLC, UBS AG, and Royal Bank of Scotland PLC. Barclays paid $450 million in penalties in June 2012, UBS paid $1.5 billion in December 2012, and the Royal Bank of Scotland paid $612 million in February 2013. Other brokers and major investment banks remain under investigation. Regulators expect to reach settlements or bring charges against a dozen other firms this year.
Libor is a benchmark interest rate that is critical to pension funds and investors. It is the primary benchmark for short-term interest rates around the world and is set by the world’s largest banks. Over the last decade in particular, Libor has become critical to anyone who participates in the financial markets. With the banks responsible for Libor holding it out as the most reliable interest rate benchmark, Libor has been incorporated into almost every type of financial instrument, from bonds to asset-backed securities and interest rate swaps. The investigations have revealed that Libor was anything but reliable. The banks and their brokers manipulated Libor in order to benefit their trading positions and to mask their liquidity problems at the height of the financial crisis.
The ICAP settlement reveals that brokers were an important player in the scheme. ICAP is an interdealer broker, which brokers deals between large banks looking to purchase or sell financial instruments that are not heavily traded or available on exchanges. ICAP exploited this middleman role to expand Libor rate manipulation from a small group of traders into a global scandal that distorted interest rates in countless financial instruments, according to regulators. Documents released in connection with the settlements reveal, for example, that brokerage employees inputted false prices in computer systems that then flashed the phony information to banks, which then relied on the false data to set Libor.
The DOJ separately charged three former ICAP executives with wire fraud and conspiracy for their roles in rigging the Yen Libor to favor clients, including UBS’s Japanese subsidiary, at the expense of UBS’s counterparties and the integrity of the markets. The UBS trader involved in the Yen Libor rigging scandal is also facing criminal charges. Attorney General Eric Holder said these executives “were supposed to be honest brokers, but instead, they put their own financial interests ahead of that larger responsibility.” “And as a result,” Holder added, “transactions and financial products around the world were compromised, because they were tied to a rate that was distorted due to the brokers’ dishonesty.”
Libor manipulation has harmed investors in many ways. As one example, investors received lower interest payments than they should have on instruments that incorporated Libor rates. For a similar reason, investors overpaid for instruments tied to Libor. Given the many Libor instruments in circulation, the harm to investors is significant.
Scott+Scott continues to investigate Libor as more information becomes available and to pursue remedies for investors. Please contact David R. Scott (email@example.com or 800-404-7770) if you have questions about the impact of Libor manipulation on your portfolio.
On September 19, 2013, JPMorgan Chase & Co. admitted that it violated various federal securities laws and agreed to pay approximately $920 million to American and British regulatory agencies. JPMorgan admitted that its senior management did not properly monitor traders in London and attempted to conceal a $6.2 billion trading loss from the investing public. Furthermore, JPMorgan’s senior management knew back in April 2012 that its Chief Investment Office (“CIO”) in London was using aggressive valuations that hid $750 million in losses.
JPMorgan entered into the $920 million settlement with the United States Securities and Exchange Commission (“SEC”), Office of the Comptroller of the Currency, Federal Reserve, and the United Kingdom Financial Conduct Authority. The United States Department of Justice, Commodity Futures Trading Commission (“CFTC”), and Commonwealth of Massachusetts are still investigating JPMorgan, and these additional reviews could lead to more fines or settlements. JPMorgan announced that it has already been notified that the CFTC intends to recommend enforcement action. Other state attorneys general may launch new or additional probes, especially in light of JPMorgan’s admission that it violated federal securities laws.
The $920 million settlement resolves many of the claims relating to the “London Whale” incident revealed by JPMorgan in 2012. As part of the settlement, JPMorgan admitted that its senior management did not have proper accounting controls in place to ensure that traders in its CIO were properly valuing the suspect portfolio. This lack of controls led to spreadsheet miscalculations that caused large valuation errors and the use of subjective valuation techniques—making it even easier for traders to misstate the portfolio. A spokesperson for the Federal Reserve elaborated that JPMorgan “exercised inadequate oversight over the CIO and failed to implement adequate controls to ensure the full and adequate disclosure of relevant information to senior management” and its board of directors.
JPMorgan also admitted that it failed to inform its audit committee about the losses sustained by the CIO. Furthermore, JPMorgan’s senior management admitted that it attempted to conceal its valuation losses by rewriting the CIO’s valuation control policies before filing its first quarter 2012 report with the SEC, even though some executives “expressed reservations” at signing off on this quarterly filing. By July 2012, JPMorgan had to reduce its earnings for that quarter by around $459 million.
“JPMorgan failed to keep watch over its traders as they overvalued a very complex portfolio to hide massive losses,” said George S. Canellos, the co-director of the SEC’s Enforcement Division. Canellos continued, “JPMorgan’s senior management broke a cardinal rule of corporate governance and deprived its board of critical information it needed to fully assess the company’s problems and determine whether accurate and reliable information was being disclosed to investors and regulators.”
In a related criminal action, a federal grand jury indicted two former JPMorgan traders, Javier Martin-Artajo and Julien Grout, for allegedly manipulating and inflating the value of a trading position “to hide the true extent of significant losses in that trading portfolio.” Martin-Artajo was the boss of Bruno Iksil, dubbed the “London Whale.” Iksil already entered into a non-prosecution agreement with the Department of Justice.
On September 26, 2013, the Department of Justice (“DOJ”) announced that nine Japan-based automotive suppliers and two former executives agreed to plead guilty and pay a total of more than $740 million in fines for their roles in separate conspiracies to fix the prices of different parts installed in several types of cars. These companies and executives engaged in various price fixing schemes by rigging bids, setting prices, and allocating the supply of auto parts sold to car manufacturers. The indictments detail several measures taken by the conspirators, including using code names and meeting in remote locations.
Including these recent pleas, 20 companies and 21 executives have been charged in the DOJ’s Antitrust Division’s ongoing investigation into price fixing and bid-rigging in the auto parts industry. The 20 companies that have pleaded guilty have agreed to pay more than $1.6 billion in criminal fines. Seventeen of the 21 executives have been sentenced to serve time in U.S. prisons or have entered into plea agreements calling for significant prison sentences. The DOJ’s investigation is being coordinated with competition authorities from Japan, Canada, Mexico, Korea, Australia, and the European Commission. The investigation began as early as February 2010 when the European Commission, Japanese competition authorities, and the FBI conducted surprise raids on several companies.
The investigation originally started with wire harnesses, a component of cars’ electrical systems, but has mushroomed to encompass several additional parts like starters, alternators, compressors, panels, radiators, bearings, windshield wipers, and seatbelts. The price-fixed automobile parts affected cars that were made by Chrysler, Ford, General Motors, as well as the U.S. subsidiaries of Honda, Mazda, Mitsubishi, Toyota, and Subaru. Several of the price fixing conspiracies lasted in excess of 10 years. The first guilty plea was announced in September 2011 when Furukawa agreed to pay a $200 million fine in connection with the wire harness conspiracy.
“These international price-fixing conspiracies affected more than $5 billion in automobile parts sold to U.S. car manufacturers, and more than 25 million cars purchased by American consumers were affected by the illegal conduct,” said Attorney-General Eric Holder. “The Department of Justice will continue to crack down on cartel behavior that causes American consumers and businesses to pay higher prices for the products and services they rely upon in their everyday lives.”
“No system of regulation can safely be substituted for the operation of individual liberty as expressed in competition.”
Brandeis: A Free Man's Life
Louis D. Brandeis,
United States Supreme Court Justice
Conferences and Educational Seminars
+September 29th – October 2, 2013
PGA National Resort
The FPPTA Certification Program for Public Pension
Plan Trustees run by the FPPTA, the
+October 1st -4th , 2013
Grand Geneva Hotel
“Preparing Pension Funds for Tomorrow”
+October 5th - 9th, 2013
National Council on Teacher Retirement (NCTR)
The National Council on Teacher Retirement
organization celebrates its 91st Annual Convention. The NCTR is a
national alliance of teachers, paraprofessionals, and service provider members
which was created to meet the needs of its membership. The annual convention is
dedicated to serve as the national voice of concerns and issues that affect
many facets of the teaching profession from legislation, curriculum and
benefits to pension issues related to investments and economic policy,
actuarial analyses, healthcare policies and political affiliations. Meredith
Williams formerly of the
+October 6th – 9th, 2013
National Association of State Treasurers (NAST)
Each year more than a hundred private sector firms take advantage of the prosperous public-private partnership with NAST through the Corporate Affiliate Program, founded in 1986. These finance and legal professionals are nationally recognized for their expertise, experience and quality business practices. They understand the complex needs of state treasurers- ranging from investment and pension fund management including corporate governance to debt and cash management functions and are often the first to provide services to states.
+October 6th – 9th, 2013
+October 7th – 9th, 2013
15th Annual Endowment and foundation Forum (produced by Opal Financial Group)
The Endowment & Foundation Conference will provide a forum for the free exchange of ideas concerning portfolio planning and investment strategies. Rather than focusing on a particular investment style, this conference will tackle the issues that are most relevant to the nation’s endowments and charitable foundations by examining critical investment topics. Participants and delegates will speak on a range of issues, including the necessity for non-profit governance for endowments, methods of choosing money managers, problems of ethics, liability in fiduciary planning and reporting requirements.
+October 19th, 2013
I.U.P.A. Attorney and Leader Conference is
specifically designed for labor attorneys and local leaders representing the
law enforcement community members. Topics will include internal affairs, role
of the association and association attorney, including civil cases. The
+October 20th – 23,rd 2013
59th Annual International Foundation Education Benefits Compensation Conference (IFEBP)
Las Vegas, Nevada
The Annual Employee Benefits Conference provides four days of education, roundtable discussions and networking events. Taft-Hartley and public sector fund trustees, administrators, business managers and association leaders as well as service providers to the funds will be in attendance to learn the most recent reporting requirements, latest legislation and legal developments in the pension fund and financial areas. Fiduciary roles are growing in complexity as more legislation such as the pension reform act which directly affects plans. Continuing education credits will be earned for all sessions.
+October 23rd – 25tt,, 2013
National Association of
Securities Professionals (NASP)
The Westchester Marriott Hotel
The New York Chapter of the National Association of Securities Professionals presents the 17th Annual Trustee Education Conference. For more than two decades NASP has been the premier non-profit organization advocating for women and people of color in the financial services industry since 1986. NASP’s annual Pension and Financial Services Conference has evolved into one of the industry’s most respected and influential educational forums.
+October 27th – 30th, 2013
The Public Safety Employees Pension & Benefits Conference (PSEP&BC) sponsored by NCPERS
For more than 30 years the Public Safety Employees Pension & Benefits Conference has been the premier forum bringing together pension administrators, trustees, union leaders and representatives for the financial community to discuss issues related to retirement and other benefits for public safety employees. As an affiliate of NCPERS this conference is the ideal venue to exchange information, learn examples of best practices and the latest strategies in investment and management.
+October 27th – 30th, 2013
10th Annual Public Pension Financial Forum 9th Annual Conference (P2F2)
Public Pension Financial Forum (P2F2) is the only professional organization specifically organized for and by public pension finance professionals. It was designed s that all finance-related employees of public pension systems would have a forum that specifically provides a platform for professional growth, education, and networking. Nearly 100 different pension systems are represented by its 170 members. Members may earn up to 27 continuing professional education (CPE) units by attending tis years conference. P2F2 is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors.
Government Finance Officer’s Association Conferences
+October 3-5, 2012
+October 7th – 9th, 2013
+ October 8th – 11th, 2013
Ramkota Hotel and
+October 9th,- 10th, 2013
Embassy Suites, La
+October 9th – 11th , 2013
Red Lion Colonial Hotel,
+October 10-12, 2012
+October 13th – 16th , 2013
Marriott Grande Dunes,
+October 16th – 18th, 2013
+October 24th, - 25th , 2013
Embassy Suites Hotel and
+October 24th - 25th, 2013
+October 25th, 2013
+October 8th – 11th, 2013
Association of Municipal
Scott + Scott LLP is a nationally recognized law firm headquartered inConnecticut with offices in New York City, Ohio and California. The firmrepresents individual as well as institutional investors who have suffered from corporate stock fraud. Scott+Scott has participated in recovering billions of dollars and achieved precedent-setting reforms in corporate governance on behalf of its clients. In addition to being involved in complex shareholder securities and corporate governance actions, Scott+Scott also has a significant national practice in antitrust, ERISA, consumer, civil rights and human rights litigation. Through its efforts, Scott+Scott promotes corporate social responsibility.
Scott+Scott’s PT+SM System is the firm’s proprietary investment portfolio tracking service. Carefully combining the firm’s proprietary computer-based portfolio monitoring software with Scott+Scott’s hands-on approach to client relations is a proven method for institutional investors and their trustees to successfully
- Monitor their investment portfolios
- Identify losses arising from corporate fraud
- Consider what level of participation any given situation requires
- Recover funds obtained on their behalf through investor litigation action
To obtain more information about Scott+Scott’s PT+SM services or to schedulea presentation to fund trustees, fund advisors or asset managers, please contact: David R. Scott + Toll Free: 800.404.7770 email: firstname.lastname@example.org + UK Tel: 0808.234.1396