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In re Connetics, Inc. Securities Litigation
(Northern District of
California)
This case is a securities fraud class action filed on behalf of all individuals and
entities who purchased or acquired the securities of Connetics, Inc. (“Connetics” or “the Company”) during the
period from January 27, 2004 through July 9, 2006 (the “Class Period”).
On December 14, 2006, BLB&G’s client, the Teachers’ Retirement System of
Oklahoma (“Oklahoma Teachers”), was appointed as Lead Plaintiff and BLB&G as Lead Counsel. On February 14,
2007, BLB&G and Oklahoma Teachers filed the Consolidated Class Action Complaint on behalf of the Class. On June 28, 2007, BLB&G filed an Amended Consolidated Class Action
Complaint following the transfer of the case from the United
States District Court for the Southern District of New York to the Northern District of California.
The case is
now being heard by Judge Illston.
On August 13, 2007, Defendants filed motions to
dismiss the Amended Complaint and a motion to strike. Lead Plaintiff filed oppositions
to the motions on September 17, 2007. The Court issued an Order on January 29,
2008, granting the motions, and granted Lead Plaintiff leave to amend. Lead
Plaintiff filed its Second Amended Complaint on March 14, 2008. Click
here to view the Second
Amended Complaint.
Background
The Complaint alleges that Connetics and certain other defendants actively misled
investors regarding the business results and prospects of the Company during the Class Period, including (1)
concealing and misrepresenting the safety and approvability of the Company’s marquee development-stage product,
an acne medication called Velac Gel, which, unbeknownst to investors, had failed a critical pre-clinical safety
test by causing cancerous tumors in 56% of laboratory mice that were exposed to the drug; (2) certain Defendants
used their insider knowledge about the grave issues surrounding Velac Gel to execute a number of “short” sales in
the Company’s securities in order to profit from the artificial inflation of Connetics’ securities prices; and (3)
the Company engaged in a fraudulent “channel-stuffing” scheme designed to artificially inflate the Company’s
reported financial results, in violation of Generally Accepted Accounting Principles.
The SEC has filed a civil enforcement action in the United States District Court for
the Southern District of New York against Defendants Alexander J. Yaroshinsky, a former Connetics vice president
responsible for the Company’s drug development and clinical trials, and Victor E. Zak, an acquaintance of Yaroshinsky.
The SEC charged Yaroshinsky and Zak with illegally trading on the basis of material non-public information about the
FDA's concern about the results of cancer tests of Velac.
Firm partners
David Stickney and
Chad Johnson, Senior Counsel
Niki Mendoza and
associates Matthew Siben and
Takeo Kellar are
responsible for prosecuting this action.
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