(Reuters) - CVS Health Corp (CVS.N) reached a $48 million settlement of a lawsuit accusing the U.S. drugstore operator of fraudulently concealing a big loss of revenue in its pharmacy benefits manager business, culminating in a plunge in its stock price.
The all-cash settlement with investors led by three Massachusetts public pension funds was disclosed in a Monday filing with the federal court in Providence, Rhode Island.
CVS’ share price tumbled 20.1 percent on Nov. 5, 2009, after the company, then known as CVS Caremark, revealed the loss of contracts representing about $4.5 billion of annual revenue.
Shareholders said this disclosure blindsided them, after CVS officials had repeatedly assured them that the company was doing an excellent job integrating the former Caremark Rx Inc and retaining clients.
CVS bought Caremark in March 2007 and changed its name to CVS Health last September.
The settlement requires court approval and awaits class-action certification for shareholders from Oct. 30, 2008, to Nov. 4, 2009. CVS denied wrongdoing.
CVS spokeswoman Carolyn Castel said the payment will be covered by insurance and that the Woonsocket, Rhode Island-based company settled to avoid the “burden, uncertainty and expense of continuing litigation.”
In April 2014, CVS agreed to pay $20 million to settle U.S. Securities and Exchange Commission civil charges related to the PBM business, and its accounting for an unrelated acquisition.
The $48 million is just 1 percent of CVS’ annual profit, but the plaintiffs’ lawyers in court papers called the accord “a very good recovery,” given the risks of continued litigation.
They estimated the sum at 5.33 percent of the potential $900 million of “recoverable damages” in the litigation.
The lead plaintiffs are the City of Brockton Retirement System, Norfolk County Retirement System and Plymouth County Retirement System.
Their lawyers, led by Robbins Geller Rudman & Dowd and Labaton Sucharow, plan to seek legal fees of up to 30 percent of the settlement amount, court papers show.
The case, which has a different named plaintiff and defendant, is Medoff v. CVS Caremark Corp et al, U.S. District Court, District of Rhode Island, No. 09-00554.
Reporting by Jonathan Stempel in New York; Editing by Lisa Von Ahn and Alan Crosby