The U.S. Supreme Court will use a case involving nursing-home pharmacy Omnicare Inc. to resolve lower court disagreement over lawsuits that accuse companies of deception when they sell stock to the public.
The justices today said they will rule on the types of allegations investors must include in their complaint when they sue over securities registration statements filed with federal regulators.
A federal appeals court said a lawsuit could go forward against Omnicare. The suit contends that when the company sold 12.8 million shares in December 2005, it misled purchasers by saying it was operating within the law.
Since that time, Omnicare has reached a series of settlements with state and federal officials to resolve allegations involving illegal kickbacks. In an accord announced by the Justice Department in 2009, the company agreed to pay $98 million to settle accusations it paid kickbacks to obtain business and received them for recommending drugs. The agreement didn’t include any finding of wrongdoing by the company, which is based in Covington, Kentucky.
In its appeal, Omnicare argues that the investors shouldn’t be able to sue unless they contend company officials didn’t believe their statement that the company was complying with the law.
The Cincinnati-based 6th U.S. Circuit Court of Appeals said it was enough that the statement was false. Other federal appeals courts have applied the standard Omnicare is advocating.
The justices will consider the case during the nine-month term that starts in October. In the current term, they are considering a securities-fraud case that tests a more frequently used section of the 1933 Securities Act. That case, which involves Halliburton Co., could undercut the ability of shareholders who buy stock on the open market to press class-action fraud suits against companies.
The new case is Omnicare v. Laborers District Council Construction Industry Pension Fund, 13-435.