gavel1Here at The D&O Diary we generally review securities class action lawsuit complaints as they come in. The complaints pretty reliably make for interesting reading but every now and there are specific complaints that particularly catch our eye. Among the host of new securities class action lawsuit filings this past week, there were two that were of particular interest.


The ImmunoCellular Lawsuit

On May 1, 2017, a plaintiff filed a securities class action lawsuit in the Central District of California against ImmunoCellular Therapeutics, Ltd. and certain of its directors and officers. ImmunoCellular is a developmental stage company seeking to develop certain imaging diagnostic solutions. The complaint alleges that the defendants engaged in a scheme to “manipulate and artificially inflate” the company’s stock price. A copy of the plaintiffs’ complaint can be found here.


Specifically, the complaint alleges that beginning in September 2011 that the ImmunoCellular hired a company called Lidingo “to pump up the value of Immuno Cellular stock price.” The effort involved “a campaign of planting phony analyst reports and news articles that fawned over the company.” These articles allegedly failed to disclose that they were the result of paid promotions and that ImmunoCellular had complete editorial control over the articles.


There have been securities class action lawsuits before alleging that companies used stock promotion firms to drive up their share prices. What makes this ImmunoCellular lawsuit interesting is that the recent lawsuit follows on and quotes extensively from the cease-and-desist orders that the SEC announced on April 10, 2017 involving ImmunoCellular (refer here) and ImmunoCellular’s CEO (here), as well as a complaint the agency filed against Lidingo (here).  The SEC enforcement orders specifically refer to and detail these actors’ stock promotion activities. The recently filed securities class action lawsuit complaint refers extensively to the SEC’s cease-and-desist orders.


For example, the complaint express cites the CEO’s acknowledgement in the cease-and-desist order that he participated in “a stock-touting scheme” where he “edited and approved articles, directed writes should publish articles and directed when and where those articles should be published” and “directed Lidingo not to use writers who disclosed compensation.”


While these developments involving ImmunoCellular are interesting enough, the SEC’s actions with respect to the use of stock promotion firms were in fact more comprehensive than the activities of just one company.


The SEC announced on April 10, 2017 that it has initiated enforcement actions against 27 individuals and entities behind various stock promotion schemes. The SEC announcement included the information that it had filed fraud charges against three public companies and seven stock promotion or communications firms as well as two company CEOs, six individuals at the firms, and nine writers.


ImmunoCellular is not the only company caught up in the SEC’s investigation of stock promotion activities to get hit with a securities lawsuit.


For example, another company that entered a cease-and-desist order with the SEC in connection with alleged stock promotion activities is Lion Biotechnologies (as discussed here). On April 14, 2017, a plaintiff filed a securities class action lawsuit against Lion and certain of its directors and officers in the Northern District of California (a copy of the complaint can be found here), in which the plaintiff alleges that the defendants had used a stock promotion firm to manipulate its stock. The Lion complaint specifically references and quotes extensively from the SEC cease-and-desist order.


Interestingly, at various times Manish Singh acted as CEO of both ImmunoCellular and Lion Biotechnologies. He entered a cease-and-desist order with the SEC in connection with his activities at both companies. Singh was named as a defendant in both the securities class action lawsuit filed against ImmunoCellular and the securities suit filed against Lion.


A third company that was among the companies involved in the SEC’s April 10 investigation announcement was Galena Biopharma. Galena also entered a cease-and-desist order with the SEC (refer here). Galena has previously been hit with a securities class action lawsuit involving its use of a stock promotion firm, as discussed here. The company’s use of a stock promotion firm was first publicized in an article published on the Internet in 2014.


The KBR Lawsuit

On May 3, 2017, a plaintiff filed a securities class action lawsuit in the Southern District of Texas against the global construction firm, KBR, Inc., and certain of its directors and officers. A copy of the plaintiff’s complaint can be found here. The complaint’s filing follows on the heels of the April 28, 2017 announcement of the UK Serious Fraud Office (here) that the SFO has opened an investigation of KBR’s United Kingdom subsidiaries and their representatives for “suspected offences of bribery and corruption.” The SFO press release states further that the KBR investigation is related to the agency’s ongoing investigation of Unaoil. As discussed here, the Unaoil investigation itself follows news reports last year that alleged widespread bribery by Unaoil on behalf of multiple oil-and-gas companies.


The recently filed securities class action lawsuit complaint specifically references the SFO announcement and alleges further that the KBR defendants “made materially false and misleading statements regarding the Company’s business, operational and compliance policies.”


As I have noted in numerous past blog posts (for example here), it is not uncommon for corporate and securities litigation to follow in the wake of announcements of bribery or corruption investigations. What make the new KBR lawsuit of particular interest (at least to me) is that the lawsuit follows on the announcement of a bribery investigation in the U.K. under the U.K.’s Bribery Act. While this may or may not be the first time this has happened (and I welcome the information if any reader wants to point out any prior time when this has occurred), it certainly is distinct and different.


Because the U.S. regulators and enforcement agencies historically have been so much more active in enforcing the U.S. anti-bribery laws, the far more typical pattern for these kinds of follow-on actions has been the arrival of a lawsuit following the announcement of a U.S. corruption investigation under the FCPA.  To be sure, there have been many occasions where follow on litigation has arisen where there has been collaboration or cooperation between U.S. and U.K authorities (as well as authorities from other countries). But from my perspective, this sequence of events seems to be the first or at least one of the first occasions when there has been a follow on civil lawsuit following on the announcement of an investigation specifically by the U.K. regulators acting under U.K. law.


There have of course been occasions when follow on civil lawsuits have arisen in the U.S. following the announcement of corruption investigations in other countries; for example, there has also been a plethora of follow-on lawsuits in the U.S. arising in the wake of corruption investigations in Brazil (as part of the Lavo Jato corruption investigation), and in other Latin American countries.  There have also been U.S. securities class action lawsuit lawsuits filed in the wake of the corruption crackdown in China, as discussed here. So there is plenty of precedent for corporate and securities litigation to arise in the U.S. following the announcement of anti-corruption enforcement activities in other countries.


What makes the KBR case interesting and noteworthy is that the lawsuit follows on in the wake of activity of the U.K. regulator acting under U.K. law. For some time, there has been speculation and even anticipation that the U.K. regulator might step up its anti-corruption enforcement, given the reach of the U.K. Bribery Act. This latest lawsuit suggests that if the U.K. regulator were to step up its activities, one result might be a raft of follow on civil litigation.


In any event, the filing of follow on securities litigation in the wake of the announcement of a corruption enforcement investigation was one of the many significant factors that contributed to the heightened levels of securities litigation activity in 2016. Signs are that this trend is continuing in 2017.