Wyeth Settles Stock Drop Suit

Wyeth Inc. agreed to settle a class action stock drop lawsuit.

The pharmaceutical company will pay $2,000,000 to end the suit alleging it breached its fiduciary duty under the Employee Retirement Income Security Act (ERISA) by offering inflated company stock in three employee retirement plans.

The plaintiffs, Carlos M. Herrera and other plan participants, said the company should have known the stock was not a prudent investment and acted imprudently by not preventing further investment. While investors expected Wyeth to come to market with a drug called Pristiq, the plaintiffs alleged the company knew of clinical studies that called Pristiq’s effectiveness into question.

Wyeth’s stock tumbled after the company announced that the Food and Drug Administration had designated Pristiq as “approvable” for treatment of vasomotor symptoms – an intermediate step between the agency’s final approval and a rejection. On hearing the news, investors sent the company’s stock price down 10%, from $56 per share to $50, and it kept falling during the class period, to a low of $38.

A federal judge had tossed out the lawsuit in April 2010, but the plaintiffs appealed. (See “Wyeth Walks Off with Stock Drop Win.”)

The proposed settlement, given preliminary approval by the court January 3, is here.