Will the huge, $500 million, provision recently made by Teva Pharmaceutical Industries Ltd. (NYSE: TEVA; TASE: TEVA) result in a derivative suit by the company's shareholders?
On November 15, Teva reported to the stock exchange that it had set aside a huge sum, $500 million, for a future arrangement with the US Department of Justice and Securities and Exchange Commission (SEC) for an investigations related to violation of the Foreign Corrupt Practices Act (FCPA).
A provision is a clause in a company's statements (profit and loss), which relates to expenses deducted from its assets, such as allowances for doubtful debt. Teva's provision had been made after the company had discovered that "work methods and certain deals that might have violated the FCPCA and/or local regulations" had been found in Russia, Ukraine and Mexico.
About two weeks after the provision, Teva shareholder Ra'bcca Technologies Ltd. filed a request to the Lod District Court to disclose information and documents, prior to the filing of a derivative action against Teva.
Ra'bcca, represented by advocates Ram Dekel, Ohad Antman and Michael Peterman, requests to receive information, including Teva board meeting protocols and control and enforcement plans aimed at preventing FCPA violations.
The request says, "Directors and executives responsible for the major damage sustained by Teva (reflected in its provision) and the expected damage to the respondent's reputation must answer for it."
The claimant says that it has contacted Teva and requested documents that will help it learn more than the limited information that had been revealed - but its request has not been answered, and will probably remain unanswered, as detailed in its request.
Ra'bcca says, "There is more than meets the eye in this affair, it has certainly caused huge damage to Teva. All of a sudden, the respondent announced that a huge fine is to be paid for corruption, which had probably taken place, including graft that the respondent had been complicit in. This is not only something that was just discovered, but a process that had taken place for several years and only a small part of which was disclosed to the public by Teva."
As a Teva shareholder, Ra'bcca says, "Since the Companies Law permits such a request - the claimant considers it prudent and responsible to receive as many documents as possible, which will support its request to acknowledge its suit as a derivative suit, before such a request is filed."
The claimant says that it considers directors, past or present, who were on Teva's board or the boards of its subsidiaries in 2007-2016 to be in its debt for the damage Teva has already sustained and will sustain from this affair.
The request says, "There are real concerns that, as mentioned, Teva executives were negligent, rash and turned a blind eye, while being aware or even clearly intending the issues being discussed. The information reported indicates that all or some of Teva executives probably failed to establish an effective anti-corruption and anti-bribery enforcement program, to oversee its implementation, and to enforce it in real time."
In addition, it claims that there are suspicions of an alleged breach of trust by the executives - including acting in conflict of interests, preventing Teva in general and board members in particular from receiving relevant information, or receiving illicit benefits from the FCPA violations. Teva admits to have 'discovered' that it is linked to instances of corruption in several countries. Ra'bcca claims that conduct, which includes graft, could not have taken place without Teva executives being aware.
The claimant says, "Teva has suffered (and will suffer) enormous damage from this affair. We are talking about $500 million! It is evident that functionaries should have established a compliance program (a mechanism to prevent illegal conduct) and oversight mechanism that would have prevent acts of corruption."
Ra'bcca also says, "Even if this sum ($520 million) would be the final sum Teva pays the US authorities, it will be the fourth highest payment ever paid (!) for FCPA violations."
Teva said, "Teva will respond to these claims during the legal proceedings in the right time and manner."
"FCPA violations would only result in fines"
In its disclosure request, the claimant refers to a part of the chain of events that resulted in Teva being forced to set aside $500 million for a future arrangement with the US Department of Justice.
Among other things, its describes how in 2015, an axed Teva employee Keisha Hall , former Latin America finance director and fraud examiner, pressed charges against Teva, asking to get her job back.
Ra'bcca says, "In her suit, Hall claimed that during her work she identified FCPA violations. For example - unauthorized payments to doctors in Chile, graft to officials, including doctors in government hospitals, insufficient oversight in Argentina, a large number of Teva 'consulting' contracts with doctors in Argentina, possible bribery (!) of government officials in Venezuela, overseas fund transfers, assistance with fraudulent payments (!) to the Mexican government and a local distributor, the responder's compliance office's disregard of this conduct and more."
The request also says that in 2011, Hall's manager was “not too concerned with the FCPA” because FCPA violations would “only result in fines.” Hall claims that "she had discussed this issue with various Teva functionaries, including Global Compliance Officer Michael Dearborn and met with representatives of US authorities."
According to Ra'bcca's request, "Hall's suit has recently been rejected due to other reasons (she filed an appeal against the verdict), but her suit clearly indicated - as we also show later on - that the FCPA violations, which she claimed took place, have indeed occurred."
Published by Globes [online], Israel business news - www.globes-online.com - on November 30, 2016
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