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Securities Regulation, Keyed to Choi
In re Merck & Co., Inc. Securities Litigation
Citation:
432 F.3d 261 (2005)Facts
Merck & Co., a global pharmaceutical company, announced in January 2002 its plan to conduct an initial public offering of its wholly owned subsidiary, Medco Health Solutions, a pharmacy benefits manager. Medco had been recognizing customer co-payments as revenue, though it did not handle these payments directly. This revenue-recognition policy was not disclosed in Merck’s earlier SEC filings. Merck filed its first Form S-1 registration statement on April 17, 2002, which disclosed for the first time that Medco recognized co-payments as revenue but did not disclose the total amount. On June 21, 2002, The Wall Street Journal published an article estimating that Medco had recognized $4.6 billion in co-payments in 2001, causing Merck’s stock to drop $2.22. Merck subsequently disclosed the full amount of co-payments recognized ($12.4 billion over three years) and postponed and ultimately canceled the IPO. Union Investments, representing a class of Merck stockholders, filed suit alleging securities fraud under Section 10(b), material misstatements in registration statements under Section 11, and controlling person liability under Section 20(a).
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