Walmart faces a proposed class action over drops in stock price an investor alleges are linked to “false and/or misleading statements” and/or non-disclosures concerning the mega-retailer’s filling of opioid prescriptions issued by so-called “pill-mills.”
The 22-page lawsuit says Walmart shareholders were harmed financially upon the release of news that the company was hit with a U.S. Department of Justice lawsuit for alleged violations of the Controlled Substances Act and its role in the nationwide opioid epidemic.
According to the complaint in Delaware federal court, Walmart made false and/or misleading statements and/or failed to disclose to proposed class members that it had knowingly filled thousands of prescriptions issued by so-called “pill-mill” prescribers, prescriptions that displayed “obvious red flags” given they were a “highly-dangerous cocktail of drugs,” and that its pharmacy revenues were “inflated” as a result of the filling of “thousands of invalid prescriptions” in violation of Controlled Substance Act dispensing requirements.
The complaint says Walmart and its CEO and CFO withheld from investors that the aforementioned conduct “would subject the company to regulatory scrutiny” and that, as a result, the defendant’s statements about its “business, operations, and prospects” were materially false and/or misleading and/or lacked a reasonable basis.
The timeline presented in the complaint dates back to March 30, 2016, when Walmart filed its annual Form 10-K for the year that ended January 31, 2016. In the report, Walmart allegedly stated that 11 percent of its total merchandise sales came from within its “health and wellness” category, a segment that includes revenues from its pharmacy business.
Around the same time the following year, Walmart, in another Form 10-K filing, relayed the “generic risk” concerning its pharmacy business, stating, in part:
“If the supply of certain pharmaceuticals provided by one or more of vendors were to be disrupted for any reason, our pharmacy operations could be severely affected until at least such time as we could obtain a new supplier for such pharmaceuticals. Any such disruption could cause reputational damage and result in a significant number of our pharmacy customers transferring their prescriptions to other pharmacies.
One or a combination of such factors may adversely affect the volumes of brand name and generic pharmaceuticals we sell, our cost of sales associated with our retail pharmacy operations, and the net sales and gross margin of those operations, result in the loss of cross-store or -club selling opportunities and, in turn, adversely affect our overall net sales, other results of operations, cash flows and liquidity.”
In a form 10-K filed the following year, in 2018, Walmart largely echoed the statements in its previous filing, this time adding statements about the regulatory requirements faced by its pharmacy business in addition to the “generic risks.” Form 10-K filings in 2019 and 2020 were largely in line with prior years, the case states.
What the defendants failed to disclose to investors, the suit says, was that the company knowingly filled opioid prescriptions issued by “pill-mill” prescribers and thousands of suspicious subscriptions while managers “made it difficult” for Walmart pharmacists to comply with their legal obligations by pressuring them to fill as many prescriptions as possible. As a result, the case says, the company’s pharmacy revenues were inflated and its conduct would be subject to regulatory scrutiny, unbeknownst to investors.
On December 22, 2020, the U.S. Department of Justice sued Walmart over alleged violations of the Controlled Substances Act and the retailer’s alleged role in the opioid epidemic, the lawsuit relays. Upon the release of this news, Walmart’s stock price fell nearly two percent over the next two trading days, according to the suit.
In a press release, the DOJ wrote, in part (emphasis in the complaint):
“The result of a multi-year investigation by the department’s Prescription Interdiction & Litigation (PIL) Task Force, the complaint filed in the U.S. District Court for the District of Delaware alleges that Walmart violated the CSA in multiple ways as the operator of its pharmacies and wholesale drug distribution centers. The complaint alleges that, as the operator of its pharmacies, Walmart knowingly filled thousands of controlled substance prescriptions that were not issued for legitimate medical purposes or in the usual course of medical practice, and that it filled prescriptions outside the ordinary course of pharmacy practice. The complaint also alleges that, as the operator of its distribution centers, which ceased distributing controlled substances in 2018, Walmart received hundreds of thousands of suspicious orders that it failed to report as required to by the DEA. Together, the complaint alleges, these actions helped to fuel the prescription opioid crisis.
If Walmart is found liable for violating the CSA, it could face civil penalties of up to $67,627 for each unlawful prescription filled and $15,691 for each suspicious order not reported. The court also may award injunctive relief to prevent Walmart from committing further CSA violations.”
The plaintiff alleges Walmart investors have suffered “significant losses and damages” as a result of the defendants’ “wrongful acts and omissions, and the precipitous decline in the market value of the Company’s common shares.”
The lawsuit looks to cover anyone who bought or otherwise acquired publicly traded Walmart securities between March 30, 2016 and December 22, 2020.
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