Activist hedge fund manager Bill Ackman has failed to escape a shareholder class action alleging he used inside information provided by Valeant Pharmaceuticals to purchase a stake in Allergan before Valeant made a bid for the drug maker.

A California judge rejected arguments by Valeant, Ackman, and Ackman’s Pershing Square Capital Management that the case should be dismissed, finding two pension funds had adequately alleged their claims of securities fraud.

“Plaintiffs must plead defendants knew they were in possession of material nonpublic information at the time of the trade and that they acted with the intent to deceive, manipulate, or defraud,” U.S. District Judge David O. Carter ruled. “Plaintiffs have alleged both elements.”

The ruling means the pension funds can proceed with discovery in the case, which was filed on behalf of investors who sold Allergan shares in the two months before Valeant on April 22, 2014, announced its unsolicited $51 billion bid for Allergan.

Pershing had by then quietly amassed a 9.7% stake in Allergan that soared in value after the bid was announced. Investors claim Pershing bought those shares knowing Valeant was preparing an offer and agreed to commit the shares to support the bid.

“Defendants’ conduct violates provisions of the securities laws specifically designed to prevent the exact type of insider trading practices employed here,” the plaintiffs said in opposing the defendants’ motion to dismiss the case.

After Valeant disclosed the takeover bid and Pershing’s stake, Allergan’s stock price jumped 22% in one day and, according to the suit, Ackman “walked away with over $2.2 billion in pure profit.”

Allergan rejected Valeant’s advances, eventually agreeing in March to be acquired by Actavis Plc for about $70.5 billion.

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