Since the outset of the coronavirus outbreak, a relatively modest number of COVID-19 related securities suits have been filed. However in the past two days, two additional coronavirus-related securities suits were filed, bringing the total number of coronavirus-related securities suits to nine, so far. The two new suits were filed against Sorrento Therapeutics, a biopharma company, and Carnival Corporation, a cruise ship line. The Sorrento complaint can be found here and the Carnival Corporation complaint can be found here.
Sorrento Therapeutics Lawsuit
Sorrento researches human therapeutic antibodies for treatment of cancer, inflammation, and infectious disease. In a May 8, 2020 press release (here) , the company announced that it had entered a collaboration with Mount Sinai Health System for the purpose of “generating antibody products that would act as a ‘protective shield’ against SARS CoV-2 coronavirus infection, potentially blocking and neutralizing the activity of the virus in naïve at-risk populations as well as recently infected individuals.”
In a May 15, 2020 press release (here), the company announced that it had discovered an antibody that had “demonstrated 100% inhibition of SARS-CoV-2 virus infection.” According to the subsequently filed securities lawsuit complaint, that same day the company’s CEO referred in an interview to the discovered antibody as a “cure.”
On the company’s news release about the antibody, its share price rose 281.7% from the end of trading the day prior to the announcement to an interday high price on May 18, 2020.
On May 20, 2020, online research firm and short seller Hindenburg Research issued a report highly skeptical of Sorrento’s claims about the development of the antibody, among other things referring to the claims as “sensational,” “nonsense” and “too good to be true.” The report’s author claimed to have spoken to researchers at Mount Sinai, who said that Sorrento’s announcement about the antibody was “very hyped” and that “nothing in medicine is 100%.”
The same day as the Hindenburg Research report, Sorrento’s CEO appeared on Yahoo! Finance (here), in order to rebut the report. Among other things, the CEO said that investors who thought Sorrento was just “another pump and dump” were wrong, saying that “when you see a virus is not infecting a healthy cell, you know you have the real deal” and “eventually the market will catch up.”
On news of the Hindenburg Research report and the CEO’s rebuttal, the company’s share price declined 43%.
Finally, on May 22, 2020, Biospace published an interview with Sorrento company officials, in which they “insisted that they did not say it was a cure,” and saying further that “if you get through safety studies, if it demonstrates efficacy, it potentially is a cure – if you have the antibody in the blood and it prevents infection. After virus infection, if it blocks the virus from replicating in healthy cells continuously, you might have a cure. We cannot cure the late-stage patients, on ventilators, because of all the other comorbidities and complications. Those are not the job of the antibodies.”
On May 22, 2020, Sorrento’s share price closed 49.4% down from the class period high.
On May 26, 2020, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of California against Sorrento and certain of its directors and officers. The complaint purports to be filed on behalf of investors who purchased the company’s securities between May 15, 2020 and May 22, 2020 (inclusive). The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The complaint seeks to recover damages on behalf of the class.
The complaint alleges that the defendants misrepresented or failed to disclose that “(i) the Company’s initial finding of ‘100% inhibition’ in an in vitro virus infection will not necessarily translate to success or safety in vivo, or in person; (ii) the Company’s finding was not a ‘cure’ for COVID-19; and (iii) as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.”
The Carnival Corporation Lawsuit
Carnival Corporate is the world’s largest cruise ship company. On May 27, 2020, a plaintiff shareholder filed a securities class action lawsuit in the Southern District of Florida against the company and certain of its directors and officers. The complaint purports to be filed on behalf of a class of investors who purchased securities of the company between January 28, 2020 and May 1, 2020. The complaint alleges that the defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934. The complaint seeks to recover damages on behalf of the class.
The complaint alleges that the defendants “made a series of false and misleading statements and concealed material information relating to the Company’s adherence to its health and safety protocols in the wake of the COVID-19 pandemic, Carnival’s role in facilitating the transmission of the virus, and the Company’s violations of port-of-call regulations.”
The complaint recounts that on February 5, 2020, the Diamond Princess, a cruise ship owned by a unit of Carnival, was quarantined. By March 5, 2020, seven of the company’s cruise ships accounted for 49 of the then-70 cruise ship coronavirus-related fatalities.
On April 16, 2020, at a time when the company still had two cruise ships at sea, Bloomberg Businessweek published an article entitled “Carnival Executives Knew They Had a Virus Problem, But Kept the Party Going” (here), which, according to the complaint “revealed that Carnival may have failed to adequately protect passengers from COVID-19 on a series of cruise voyages and indeed continued to operate new cruise departures despite knowledge of the proliferation of COVID-19.”
Then on May 1, 2020, the Wall Street Journal published an article titled “Cruise Ships Set Sail Knowing the Deadly Risk to Passengers and Crew” (here). According to the complaint, the article detailed how cruise ships, including Carnival ships, facilitated the spread of COVID-19. The article also included information from an investigation in Australia that showed that Carnival and its cruise ships may have misled shore officials by concealing those exhibiting COVID-19 symptoms before docking. That same day, a Congressional committee initiated a records request to Carnival.
The complaint alleges that the defendants failed to disclose to investors during the class period that “(1) the Company’s medics were reporting increasing events of COVID-19 illness on the Company’s ships; (2) Carnival was violating port of call regulations by concealing the amount and severity of COVID-19 infections on board its ships; (3) in responding to the outbreak of COVID-19, Carnival failed to follow the Company’s own health and safety protocols developed in the wake of other communicable disease outbreaks; (4) by continuing operate, Carnival ships were responsible for continuing to spread COVID-19 at various ports throughout the world; and (5) as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects, were materially misleading and/or lacked a reasonable basis.”
As I noted at the outset, the addition of these two new lawsuits brings the total number of coronavirus-related securities class action lawsuit filings so far to nine. The lawsuit filed against Sorrento is the second securities suit – the first was against Inovio (here) – in which the alleged misrepresentations relate to the defendant company’s ability to provide a medical treatment or therapy in response to the coronavirus. The lawsuit filed against Carnival is second securities suit – the first was against Norwegian Cruise Lines (here) – involving allegations against cruise ships lines.
Like several of the previously filed coronavirus outbreak-related securities suit, the lawsuit against Sorrento proposes a very short class period. The class period proposed in the Sorrento case is only seven days long (inclusive of only five trading days). The class period in the coronavirus-related securities suit filed against SCWorx is only four days long. The relatively short class periods are a reflection of the fact that the coronavirus lawsuits are not, like many securities suits, based on long past statements about the company and its prospects, but rather are based on relatively recent statements that were made only after the coronavirus outbreak arose.
Carnival is incorporated in Panama. It is the third non-U.S. company to be hit with a coronavirus related securities suit. The first two were iAnthus Capital Holdings (a Canada-based cannabis-related business holding company) and Phoenix Tree Holdings Ltd. (a Chinese residential real estate company).
While there are now a total of nine coronavirus-related securities class action lawsuits, even with the addition of two lawsuits in a couple of days, the number of lawsuits remains relatively modest. Even though the suits are accumulating, the rising number hardly constitutes a wave of lawsuits. The accumulation has been fairly gradual, almost certainly because in most instances there are not a lot of prior statements that plaintiffs’ lawyers can try to seize on to support claims of fraud. My expectation is that at least initially there will not be a huge wave of coronavirus-related securities suits (though there does seem to be an increased amount of momentum in the past few days). Once we are past the initial health crisis and we have moved into dealing with the economic downturn that seem likely to follow, further lawsuits seem likely to arise, based on alleged misrepresentations about financial condition and operational readiness.
In any event, with now nine securities suit filed, we clearly can say that the coronavirus outbreak-related securities suits represent a distinct phenomenon, one that will have a significant impact on the total number of securities suits filed this year.