Franklin Templeton Investments announced that they decreased their stake in Taro Pharmaceuticals Ltd. (OTC:TAROF) today from 13% to 11.9% in a 13D/A filing with the Securities and Exchange Commission. The investment fund said it was concerned with the effect on the value of its investment management clients’ investment in TARO, along with the failure of the company to timely file its financial statements for the fiscal year ended December 31, 2005 and the consequential delisting of the ordinary shares from The Nasdaq Global Select Market (formerly "TARO").

Templeton also said that they have met with other shareholders to discuss ways in which they could recoup their losses through conventional or legal means. On October 18, 2006, lawyers for this group sent a letter to the company demanding that it immediately setup a shareholders' meeting to discuss the situation. On December 24, 2006, the group's lawyers sent another letter to the company demanding that they exercise all of their rights against officers of the company, against members of the audit committee, against the company’s internal auditor, against members of the board of directors and against any other person in order to recover their damages and losses incurred by their acts and omissions that fall under any contract or law. Specifically, the fund noted the following:

• Breach of duty of care pursuant to section 252 of the Companies Law.
• Breach of duty to act with proficiency and in a reasonable manner pursuant to section 253 of the Companies Law.
• Breach of fiduciary duty pursuant to section 254 of the Companies Law.
• Breach of the duty to act upon discovery of a deficiency pursuant to section 257 of the Companies Law.
• Breach of statutory duties pursuant to section 63 of the Civil Wrongs Ordinance.
• Breach of the employment agreements with Mr. Kevin Conley and the other employee who was a member of the Company's financial team.

Under section 196 of the company law, Taro has 45 days to respond to this request. If these actions result in a successful lawsuit, it could provide grounds for a larger class action lawsuit that would help recoup losses for the larger investment community. Read more about the issue here. Meanwhile, the stock's delisting and low price has led to speculation that Taro may be a buyout target by a larger pharmaceutical player looking to get into the OTC pharma and API markets. Although this is a long-shot given the company's lack of financials, it remains a possibility in the medium to long term.

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