Opinion ID: 786598
Heading Depth: 3
Heading Rank: 6

Heading: The Discovery of the Accounting Irregularities

Text: 38 Plaintiffs assert that the internal investigation of the accounting irregularities described by Alpharma would have taken a significant amount of time to complete and that the company must therefore have been aware of the accounting irregularities occurring in Brazil long before the public announcement on October 30. They further claim that employees in the company's New Jersey headquarters were notified of incidents of improper accounting by Paulo Andreoli, a technical sales manager in AHD's Brazil division. Andreoli allegedly was told that there would be no investigation into his allegations. However, plaintiffs contend that the information submitted by Andreoli was reviewed or available for review by all Defendants, and in particular, defendant Andrews, president of [AHD]. As an example of the activities occurring at Alpharma, plaintiffs allege that the Brazil division's December 1999 sales report contained nineteen fraudulent sales, eighteen of which occurred three days before the end of the quarter and reflected sales activity that was grossly out of line with the sales made during the rest of the month. 39 Quoting 17 C.F.R. § 229.303(a)(1)-3(3) and Instruction 3, plaintiffs further allege that defendants had a duty under applicable SEC regulations to disclose in periodic reports filed with the SEC `known trends or any known demands, commitments, events or uncertainties' that are reasonably likely to have a material impact on a company's sales revenues, income or liquidity, or cause previously reported financial information not to be indicative of future operating results. Additionally, plaintiffs assert that defendants had a duty `to make full and prompt announcements of material facts regarding the company's financial condition.' 5 They allege that these duties were violated by defendants' issuance of financial results that violated both GAAP and Alpharma's own revenue recognition policy. As noted by the District Court, this section of the Complaint is followed by additional allegations of scienter which add nothing of substance to the claims described above. 40 H. Plaintiffs' Rule 10b-5 and Section 20(a) Claims 41 The above-described allegations lay the groundwork for the two counts asserted in the Complaint. Count I is brought against all defendants pursuant to Rule 10b-5. In broad terms, it asserts that defendants acted both individually and collectively to defraud investors by making materially false or misleading statements in connection with the sale of the company's stock. Count II alleges that the individual defendants were controlling persons of Alpharma, and thus violated Section 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. § 78, et seq. (the Exchange Act), by causing the Section 10(b) violation described in Count I.