PH COVID-19 Client Alert Series: COVID-19 and Emerging Theories of Federal Securities Fraud
March 22, 2020
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.
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.
Following these statements, Inovio’s stock price more than quadrupled.
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.
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.”
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.