Client Alert

PH COVID-19 Client Alert Series: COVID-19 and Emerging Theories of Federal Securities Fraud

March 22, 2020

By The Securities Litigation Practice Group

Click here to read more from our Coronavirus series.

The increasing spread of the coronavirus (COVID-19) has created unprecedented challenges for companies across the globe. Although the impact of COVID-19 is still rapidly unfolding, U.S. securities lawsuits related to COVID-19 were largely expected to follow on the heels of the pandemic. Those expectations are now being realized. In particular, two purported class actions—one in U.S. District Court for the Eastern District of Pennsylvania and another in the U.S. District Court for the Southern District of Florida—were recently filed, marking the first securities fraud lawsuits arising from the coronavirus. The lawsuits underscore the care companies must exercise when issuing public statements regarding COVID-19, as well as the need for companies to carefully evaluate and assess how the potential financial and business impact of the coronavirus might affect their disclosures and performance guidance.

The Complaints

McDermid v. Inovio Pharmaceuticals, Inc. and J. Joseph Kim

On March 12, 2020, plaintiff filed a purported class action lawsuit in the Eastern District of Pennsylvania against Inovio Pharmaceuticals, Inc. (“Inovio”) and its CEO, J. Joseph Kim.1 The complaint, which asserted claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, arose from statements made by Mr. Kim concerning the company’s ability to produce a COVID‑19 vaccine.2 Specifically, plaintiff alleged that, during a Fox Business News program and subsequent news conference with President Trump, Mr. Kim stated that Inovio had developed a COVID‑19 vaccine within “three hours” and expected to start testing the vaccine in the coming months.3

Following these statements, Inovio’s stock price more than quadrupled.4 However, after one research outlet publicly challenged Mr. Kim’s claims, Mr. Kim later disclosed that Inovio did not possess a vaccine, but instead had “designed a vaccine construct”—a precursor to a vaccine. According to the complaint, Inovio’s stock price dropped 71% on this news.5

Douglas v. Norwegian Cruise Lines, et al.

On March 12, 2020, a securities fraud class action complaint was also filed in the Southern District of Florida against Norwegian Cruise Lines (“Norwegian”) and certain of its officers.6 Plaintiff alleged that, despite the looming and potentially drastic effects of COVID-19 on tourism and the cruise industry, Norwegian issued a series of disclosures in February 2020 that discussed a positive outlook for the company and “touted” the company’s procedures to protect the health and safety of guests and crew.7

Plaintiff claims these statements were false or misleading because Norwegian was allegedly “providing customers with unproven and/or blatantly false statements about COVID-19 to entice the purchase of cruises.”8 In support, plaintiff cited various news articles from the Wall Street Journal and other news outlets in early March.9 The articles, which purport to cite “leaked” documents from Norwegian, suggest the company directed its salesforce to lie to customers about COVID-19, including that the virus cannot live in the “tropical temperatures” and was an “overhyped pandemic scare.”10 Following these reports, Norwegian’s stock fell a total of approximately 60%.11


The outbreak of COVID-19 creates fertile ground for the latest wave of event-driven securities litigation. While companies are being forced to quickly navigate this rapidly growing pandemic, they must take care to ensure the accuracy of their public disclosures regarding COVID-19 and its potential effects on their business. Moreover, companies should carefully evaluate projections, risk disclosures, and forward-looking statements in light of COVID-19 and consider whether they should be enhanced or modified to account for the expected impacts of the outbreak.

1   Complaint for Violation of the Federal Securities Laws and Demand for Jury Trial at 1, McDermid v. Inovio Pharmaceuticals, Inc. and J. Joseph Kim, No. 2:20-cv-01402-GJP (E.D. Pa. Mar. 20, 2020).

2   Id. at 3.

3  Id.

4  Id. at 4.

5   Id.

6  Complaint for Violation of the Federal Securities Laws and Demand for Jury Trial at 1, Douglas v. Norwegian Cruise Lines, et al., No. 1:20-cv-21107-XXXX (S.D. Fla. Mar. 12, 2020).

7  Id. at 5-6.

8 Id. at 7.

9  Id.

10   Id. at 9.

11  Id. at 8-9.

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