Cases

Controlled Substances Violations: Walgreen Co.

A breach of fiduciary duty may occur when directors knowingly allow employees to engage in unlawful activities for the company’s own financial benefit. When the unlawful actions are discovered and penalized, shareholders can consider initiating a shareholder derivative action for the purpose of securing corporate governance reforms that are designed to prevent the reoccurrence of such misconduct.

In re Walgreen Co. Derivative Litigation

On June 11, 2013, Walgreens announced that it had reached an $80 million settlement* with the Drug Enforcement Administration (DEA) – the largest in the agency’s history.

According to the DEA, Walgreens had committed an “unprecedented number” of record keeping and prescription dispensing violations and had exhibited a “staggering disregard” for its obligations as a DEA registrant by allowing prescription painkillers “to be diverted for abuse.” Following that announcement, a group of institutional investors filed a derivative complaint against members of the Walgreens board of directors seeking the implementation of a series of governance reforms.

Under the settlement, which was approved in December 2014, Walgreens agreed to extend certain compliance-related commitments—including maintaining a Department of Pharmaceutical Integrity composed of personnel with pharmacy-related training and managerial personnel who will coordinate compliance efforts related to controlled substances. The company also agreed to maintain periodic reporting of significant DEA-related matters to the Board’s Audit Committee, which in turn will periodically review its compliance program and its resources and receive quarterly reports from the company’s Chief Compliance Officer. Walgreens also agreed to ensure that all new company directors will receive, as part of their orientation program, information from Walgreens’ management regarding: (i) risk management issues facing the Company; and (ii) Walgreens’ compliance programs.

Motley Rice served as co-lead counsel in this case, working with our clients to achieve appropriate governance reforms.

The case is In re Walgreen Co. Derivative Litigation, No. 1:13-cv-05471 (N.D. Ill.).

If you have questions regarding cases similar to In re Walgreen Co. Derivative Litigation or if you would like to discuss a potential case, contact securities attorneys Gregg Levin or Bill Norton by email or at 1.800.768.4026.

*Prior results do not guarantee a similar outcome.

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