An investigation of Sanofi’s U.S. Group Savings Plan is underway, in light of possible violations of the Employee Retirement Income Security Act (ERISA), according to employee stock drop case litigator Jake Zamansky, leader of Zamansky LLC.
Zamansky says his firm has commenced an investigation to determine if fiduciary duties to prudently manage and invest plan assets were violated by Sanofi, which continued offering its company stock while it allegedly knew it was violating federal anti-kickback laws.
The investigation stems from a whistleblower lawsuit filed against Sanofi by a former paralegal, Diane Ponte, as reported by Bloomberg on December 4, 2014. At the time, Ponte alleged that in an attempt to get the company’s diabetes drugs prescribed and sold, Sanofi’s senior officers and executives, including former CEO Christophe Viehbacher, conducted an illegal kickback scheme. In addition, she alleged that she was fired in retaliation for raising questions about the legality of the scheme.
Zamansky says these allegations come two years after similar claims that Sanofi gave doctors free samples of arthritis medicine to encourage prescriptions. It paid $109 million to settle illegal kickbacks claims with the U.S. Justice Department in that case.
Zamansky claims the Sanofi’s Board knew of the most recent allegations for some time before disclosing in October 2014 that it had commenced an investigation. On October 29, 2014, the board dismissed CEO Viehbacher, resulting in Sanofi’s stock falling from $56 per share to less than $45. Additionally, the company was the subject of shareholder lawsuits under federal securities laws.
Zamansky says employees who purchased and held company stock through the plan since at least December 19, 2012, have suffered losses to their retirement savings which could have been at least partially avoided had plan fiduciaries prudently dropped the company stock as an investment option. He further alleges Sanofi’s dismissal of its CEO and the whistleblower allegations raise serious issues over the prudent monitoring and oversight of the plan under ERISA for artificial inflation of the stock price.
The path forward for stock drop litigation against Sanofi could be impacted by the U.S. Supreme Court’s 2014 decision in Fifth Third Bancorp v. Dudenhoeffer, which determined fiduciaries offering employer stock as an investment option do not have any special presumption of prudence. The decision also instructed the 6th U.S. Circuit Court of Appeals to review on remand whether plan participants alleging stock drop violations can state a legitimate claim by applying the pleading standard as discussed in Ashcroft v. Iqbal and Bell Atlantic Corp. v. Twombly, considering that where an employer’s stock is publicly traded, allegations that a fiduciary should have recognized on the basis of publicly available information that the market was overvaluing or undervaluing the stock are generally implausible and thus insufficient to state a claim.
The pleading standard requires that to state a claim for breach of the duty of prudence, a complaint must plausibly allege an alternative action that the defendant could have taken, that would have been legal, and that a prudent fiduciary in the same circumstances would not have viewed as more likely to harm the fund than to help it.