In re Baxter International, Inc. Securities Litigation

Court: United States District Court for the Northern District of Illinois
Case Number: 19-cv-7786
Class Period: 02/21/2019 - 10/23/2019
Case Contacts: James A. Harrod, Alexander T. Payne

This is a securities fraud class action on behalf of a class of persons and entities who purchased common stock of Baxter International, Inc. (“Baxter” or the “Company”) between February 21, 2019 and October 23, 2019, inclusive. On January 31, 2020, the Honorable Sara L. Ellis appointed Louisiana Municipal Police Employees Retirement System as co-Lead Plaintiff and BLB&G as co-Lead Counsel for the Class.

Baxter, a Delaware corporation headquartered in Deerfield, Illinois, provides a broad portfolio of essential healthcare products, including acute and chronic dialysis therapies, sterile intravenous (IV) solutions, infusion systems and devices, parenteral nutrition therapies, inhaled anesthetics, generic injectable pharmaceuticals, and surgical hemostat and sealant products. The complaint alleges that throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts, about the Company’s business and operations.

Specifically, Defendants misrepresented and/or failed to disclose that: (1) the Company entered certain intra-Company transactions solely for the purpose of generating foreign exchange gains or avoiding foreign exchange losses after the related exchange rates were already known; (2) the Company used a foreign exchange rate convention for the measurement and subsequent remeasurement of foreign exchange transactions and foreign currency denominated money assets that was not in accordance with U.S. Generally Accepted Accounting Principles; (3) the Company lacked effective internal control over financial reporting; (4) as a result, the Company’s financial statements were misstated and would likely require correction or amendment; (5) due to the Company’s internal investigation, Baxter would not be able to file its quarterly report for the period ending September 30, 2019, with the SEC on Form 10-Q in a timely manner; and (6) as a result of the foregoing, Defendants’ statements about the Company’s business and operations lacked a reasonable basis.

Investors began to learn the truth of Baxter’s misleading statements about its accounting of foreign exchange transactions when on October 24, 2019 the Company disclosed that it was commencing an internal investigation into “certain intra-Company transactions undertaken for the purpose of generating foreign exchange gains or losses.” The Company also notified investors that it would not be filing its Form 10-Q for the quarter ending September 30, 2019 on time. On the same day as this announcement, the market price of Baxter common stock fell sharply by over 10%.

On February 13, 2020, Baxter filed a Form 8-K with the SEC apprising the market of the results of its internal investigation into its accounting practices. As a result of the investigation, Baxter admitted, “[t]he Company previously had applied a longstanding convention for the initial measurement of foreign exchange transactions and the subsequent remeasurement of foreign currency denominated monetary assets and liabilities that was not consistent with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”). Beginning years after the adoption of that convention, certain intra-Company transactions were undertaken, after the related exchange rates were already known, solely for the purpose of generating non-operating foreign exchange gains or avoiding foreign exchange losses.”

Further, in the February 13, 2020 Form 8-K, Baxter disclosed that in consultation with its independent auditor, PricewaterhouseCoopers LLP, the Company determined that the Company’s consolidated financial statements should not be relied upon “because of misstatements to the Company’s previously reported foreign exchange gains and losses” for the statements as of December 31, 2018 and 2017, for the years ended December 31, 2018, 2017 and 2016, as of and for the interim periods within the years ended December 31, 2018 and 2017 and the interim periods ended June 30 and March 31, 2019.  

On March 17, 2020, Baxter filed an amended Form 10-Q for the period ending September 30, 2019 and an amended Form 10-K for the fiscal year ending December 31, 2019 which restated its previously issued consolidated financial statements. In these filings, Baxter disclosed “[u]nder our historical exchange rate convention, all foreign currency transactions in a given month were initially measured using exchange rates from a specified date near the middle of the previous month. Additionally, all foreign currency denominated monetary assets and liabilities were subsequently remeasured at the end of each month using exchange rates from a specified date near the middle of the then current month.” As Baxter acknowledged, this convention did not comply with U.S. GAAP. The Company reiterated its finding that “[b]eginning years after the adoption of our historical exchange rate convention, certain intra-company transactions were undertaken, after the related exchange rates were already known, solely for the purpose of generating non-operating foreign exchange gains or avoiding foreign exchange losses.” The amended Form 10-K also disclosed that, as a result of the wrongful practices, income was “overstated by $ 59 million and $ 113 million, respectively, for the years ended December 31, 2018 and 2017.”

As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s common stock, the Lead Plaintiff and other members of the Class have suffered significant damages.

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