The U.S. District Court for the Southern District of New York has dismissed a complaint that fiduciaries of Sanofi’s defined contribution (DC) retirement plan violated their fiduciary duties under the Employee Retirement Income Security Act (ERISA) by continuing to offer a company stock fund in the plan during an investigation into an illegal marketing scheme and not disclosing the investigation to participants.
In his opinion, U.S. District Judge P. Kevin Castel noted that the court previously granted a motion to dismiss a purported securities class action brought by holders of American Depository Receipts (ADRs) of Sanofi. The plaintiffs had alleged that Sanofi engaged in an illegal marketing scheme to artificially boost sales of its diabetes product line and hid the scheme from investors while extolling the product line’s dramatic sales growth and Sanofi’s commitment to corporate integrity. One of the grounds on which the court dismissed the complaint was the failure to plausibly allege that the undisclosed “illegal kickback scheme had a significant impact on the market for Sanofi’s drugs in the first instance,” or how ending the alleged scheme impacted Sanofi’s stock price.
In the ERISA suit, Castel granted Sanofi’s motion to dismiss the complaint and denied the motion to amend on the grounds that lead plaintiff Joseph D. Forte does not have standing to bring his claim because he never purchased or sold ADRs of Sanofi during the alleged period of artificial price inflation. According to Castel’s opinion, the plan provides several investment options from which participants may choose, including the stock fund, which provides for investments in ADRs of Sanofi.
Forte alleged that Sanofi never disclosed the whistleblower’s allegations about an illegal marketing scheme or that an internal investigation was conducted into those allegations. He also alleges that during the class period, Sanofi terminated its CEO and that the price of Sanofi’s shares fell “almost 20%.” The complaint said, “In short, Sanofi concealed facts material to investors from which they could infer that the company had a systematic problem or insufficient internal controls, and this concealment artificially inflated Sanofi’s stock price.” NEXT: Claims in the case