The first year of the worldwide reckoning with COVID-19 saw the biotech and pharmaceutical industries get hit hardest by investor actions tied to the pandemic, though the chances of the virus spawning a broader wave of securities litigation seem to be slimming.
The early months of the pandemic, marked by steep market declines and uncertainty about the virus' impact on the global economy, brought wide speculation about a possible surge in investor litigation in line with historical trends of securities cases spiking around crises and stock market turbulence.
Some major cases were filed in those early months — two targeting major cruise operators and a handful of others accusing companies of either misrepresenting their efforts to help fight the coronavirus or concealing known effects the pandemic would have on their financial outlooks.
But after 12 months, only about 25 proposed securities class actions tied to the pandemic remain active in federal courts, according to an analysis by Law360. Six of those have come in 2021, suggesting that the flow of such cases may continue, but not at the level some may have anticipated early on.
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"The majority of pandemic-related cases initially involved allegations that the defendant company had made false and misleading claims of drug, vaccine or [personal protective equipment] efficacy or misrepresented its prospects of developing an approved COVID-19 vaccine or treatment," Cohen Milstein Sellers & Toll PLLC partner Laura Posner told Law360.
In April, for instance, investors accused health care supplier SCWorx Corp. of claiming it would sell millions of COVID-19 rapid testing kits in a deal that turned out to be backed by alleged fraudsters and convicted felons. The following month, Sorrento Therapeutics Inc. was hit with a securities suit over statements its CEO made to Fox News referring to Sorrento's COVID-19 treatment research as a "cure."
Other types of pandemic-related securities suits emerged in the spring as well, including actions accusing companies of either concealing operational deficiencies that were exposed by the pandemic, as is the case in an ongoing suit from April against Zoom Video Communications Inc., or using the pandemic to explain away other shortcomings, as a proposed class of investors in cannabis company iAnthus Capital Holdings Inc. claimed that same month.
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The cases filed since last spring have indeed been company-specific, and with few exceptions, have tended to include allegations echoing those made in that earlier spate of suits.
Investors have continued to take companies in the health care sector — like Vaxart Inc. and, more recently, AstraZeneca — to federal court over public statements about their respective vaccine developments, while issuers such as Tyson Foods Inc. and private prison operator GEO Group Inc. have been accused of misrepresenting their responses to the pandemic.
Attorneys who spoke to Law360 were split on how long the flow of investor actions is likely to continue, but the lack of a more substantial uptick in suits hasn't come as a surprise to plaintiff-side securities litigators. Avi Josefson of Bernstein Litowitz Berger & Grossmann LLP said his firm "never saw the pandemic as driving a wave of securities cases."
Cohen Milstein's Posner similarly said it was primarily the defense bar that speculated about COVID-19 being a significant driver of securities fraud class actions, which has "largely not come to fruition." She told Law360 that the influx of virus-related securities suits seen so far is unlikely to continue, even against the health care industry, "given where the country is in drug development relating to COVID-19."
"There may be a few more cases involving allegations that a company's projections or revenue and income representations were false and misleading, but assuming that the economy picks up as expected and we begin to return to a more 'normal' lifestyle, I think those cases will grow even less common as well," she said.
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