A class action has been filed against Watson Pharmaceuticals Inc. (NYSE: WPI) and certain of its officers and directors by stockholders who purchased the company's common stock between November 2, 1999, and November 13, 2001. The action claims that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market over this time period, thereby artificially inflating the price of the company's securities. The stockholders seek to recover compensatory damages for the loss of value of their stock.

The action alleges that the defendants failed to disclose, or misrepresented, that Watson was materially overstating its financial results due to failing to write down the value of its inventory and certain assets, and that Watson was experiencing increased competition and manufacturing problems with its generic drugs. Based on the foregoing, the defendants allegedly lacked a reasonable basis to make these statements.

On November 13, 2001, Watson rocked the market when it announced its third quarter financial results for 2001, which dramatically missed expectations. At that time the company announced that it was writing off $20 million in additional impaired inventory. In response to the negative preannouncement, the price of Watson common stock plummeted, trading down approximately $20 per share to close at $28.54 per share, on volume nearly 20 times its average volume.