Dismissal of Omnicare class action establishes guideline for when corporate misstatements are made
The U.S. Appeals Court for the Sixth Circuit has dismissed a proposed securities fraud class action against Omnicare, Inc., making clear when a corporation will be deemed to have knowingly made misstatements.
In their litigation, shareholders claimed Omnicare, a pharmaceutical care provider, and several of its executives committed securities fraud by making misrepresentations about the company’s compliance with Medicare and Medicaid regulations. The allegations stated the company was aware these statements were false based on internal audits that revealed evidence of fraudulent billing practices.
The court dismissed the proposed class action because plaintiffs had failed to plead in sufficient detail that the defendant knew the misstatements were false when they made them or failed to correct them; and there was intent to defraud the public. The decision also stated that shareholders failed to detail how the audit results were ever communicated to the executives or what those results were. It was not enough to plead that the corporation desired to earn money, because a link is necessary between the misstatement and a specific payment.
Read this Forbes article for more detail regarding the Omnicare decision.