Opinion ID: 786598
Heading Depth: 3
Heading Rank: 3

Heading: Substantive Allegations

Text: 10 The primary basis for the proposed class action is plaintiffs' allegation that the financial results released by defendants during the class period were the product of accounting irregularities which caused Alpharma to report inflated revenue figures. These revenue figures, in turn, affected the accuracy of its net income and earnings per share calculations, thereby fueling an increase in the value of the company's stock during the class period. 11 More specifically, plaintiffs allege that the individual defendants violated both Generally Accepted Accounting Principles (GAAP) and Alpharma's own revenue recognition policy 2 by recording AHD sales as revenue even though the products sold were not shipped to customers until as long as six months after the purported sale. In practice, this meant that AHD customers had agreed to purchase Alpharma products but delayed receipt and payment until subsequent quarters. The purchased products were then put on customer hold and shipped to a warehouse until the customers were ready to receive and pay for them. These so-called pre-sales began when Andrews became president of the AHD in May 1997 and had allegedly become part of Alpharma's corporate culture by the beginning of the class period. As a result, plaintiffs allege that defendants either knew or recklessly disregarded the fact that (1) instances would arise in which customers would later refuse to receive and pay for orders already recognized as revenue in previous quarters, (2) they had failed to disclose that pre-sales essentially sapped future demand for the company's products, and (3) the use of pre-sales encouraged the creation of fictitious sales. 12 Alpharma restated its results for the full year 1999, each quarter during 1999, and the first two quarters of 2000 following the close of trading on the NYSE on October 30, 2000. In its press release, the company placed the blame for the overstatements on employees in the Brazil division of the AHD and noted that, after a full investigation, it was convinced that the problem had not spread beyond Brazil. 3 Prior to the announcement on October 30, the stock traded at $56.50. By the time the NYSE closed the following day, the value of Alpharma's shares had fallen to $38.81. 13 In placing the blame for this drop in share price on the individual defendants, plaintiffs allege in their complaint: Each of the Individual Defendants by virtue of his or her executive and managerial positions with the Company, directly participated in the daily management of the Company, and was directly involved in the day-to-day operations of the Company at the highest level, and was privy to confidential proprietary information concerning the Company and its business and operations, and revenue recognition policies. The Individual Defendants were involved or participated in drafting, producing, reviewing and/or disseminating the false and misleading statements alleged [in the Complaint]. 14 They further assert that the individual defendants had a duty to promptly disseminate truthful and accurate information with respect to Alpharma and to promptly correct any public statements issued by or on behalf of the Company that had become false or misleading. Plaintiffs allege this duty was violated when defendants knowingly or recklessly disregarded the fact that the misleading statements and omissions would adversely affect the integrity of the market for the Company's stock and would cause the price of the Company's common stock to become artificially inflated.