Medicis Pharmaceutical Corporation

Settlement

A settlement has been reached with Medicis Pharmaceutical Corporation (“Medicis” or the “Company”), certain of the Company’s executive officers, and the Company’s auditor Ernst & Young LLP, to resolve the securities class action pending in the United States District Court for the District of Arizona, In re Medicis Pharmaceutical Corporation Securities Litigation, No. CV-08-01821-PHX-GMS.

The settlement will benefit investors who purchased Medicis common stock, and also those who bought and/or sold options on Medicis common stock, between October 30, 2003 and September 23, 2008. Plaintiffs alleged that defendants engaged in deceptive revenue recognition practices that led to an overstatement of Medicis earnings and an artificial inflation of the Company’s share price.

According to the terms of the settlement, Medicis will pay $11 million and Ernst & Young will pay $7 million to the Class. Regarding the settlement, Pomerantz partner Jeremy Lieberman commented, “We are very pleased to have achieved this settlement, which represents a recovery of a substantial portion of the damages suffered by the class.”

Background

The complaint filed against the company specifically alleges that on September 24, 2008, the Company announced that its Audit Committee concluded that the Company's financial statements for fiscal years 2003 through 2007 and the first and second quarters of 2008, would need to be restated due to improper return reserve calculations. Medicis admitted that it had improperly "accrued returns at replacement cost rather than deferring the gross sales price," and that it would have to revise "its reserve calculations to defer the gross sales value of the returned product." On this news, Medicis' stock dropped $2.34 per share to close at $15.58 per share, a one-day decline of 13%. As a result of the challenged statements Medicis' common stock tr

The case was filed in U.S. District Court, District of Arizona (Phoenix Division). The docket number is 2:08-cv-01821-GMS.

On August 9, 2010, Judge Snow of the United States District Court for the District of Arizona,denied defendants' motions to dismiss in In re Medicis Pharmaceutical Corp. Securities Litigatiton.The court found that the complaint alleged facts supporting the claim of intentional or reckless misconduct, including the "relative simplicity and obviousness of" the Company's accounting error, and misleading statements the company had made about these errors.  The Court also found that the allegations against the Company's auditors, E&Y, were sufficient, in light of the significance of the relevant accounting provision to the Company's financial statements.  According to the Court, the fact "that Medicis employed an accounting methodology that allowed the Company to easily manipulate the timing of revenues should have at least raised red flags (to E&Y) regarding the propriety of Medicis' accounting treatment".

On March 11, 2009, Pomerantz's client was appointed as Lead Plaintiff in the case. The appointment was unique in that the Lead Plaintiff purchased and sold put options during the class period, and did not purchase or sell any common stock. To our knowledge, this is the first case where an options trader has been appointed sole lead plaintiff of a class that includes common stock since the passage of the Private Securities Litigation Reform Act of 1995.