Decision Diagnostics Corp., a diagnostic testing company, has been named as the defendant in the first coronavirus-related securities lawsuit of the new year. The case may also be the first coronavirus-related lawsuit filed in the wake of an SEC enforcement action against the same company.
The Shareholders’ Claims
A shareholder filed the claim on behalf of all similarly situated shareholders of Decision Diagnostics who purchased shares between March 3 and December 17, 2020. The complaint outlines allegations that during 2020, “Defendants claimed that the Company had developed a finger-prick blood test that could detect COVID-19 in less than one minute.” The plaintiff also alleges that Decision Diagnostics made representations indicating it had made progress toward receiving emergency use authorization from the U.S. Food and Drug Administration (FDA) for the finger-prick test.
According to the plaintiff, these and other statements made by Decision Diagnostics and CEO Keith Berman were “materially false and misleading.” In fact, the plaintiff asserts that Decision Diagnostics had developed no such COVID-19 test, could not meet the FDA’s testing requirements for emergency use authorization, and misrepresented the amount of time the company needed to bring a COVID-19 test to market.
The SEC Complaint
This shareholders’ lawsuit against Decision Diagnostics was preceded by a Securities and Exchange Commission (SEC) complaint against the company filed in December 2020. In that complaint, the SEC alleges that Decision Diagnostics announced, via press release, that it had developed a finger-prick test for COVID-19 that produced results in under one minute. This, according to the SEC, was a false claim. “While Berman and Decision Diagnostics portrayed its product as something that would change the landscape of the COVID-19 pandemic paralyzing the world, the truth was that the Company did not have a test, only an idea that had not materialized into a product,” the SEC complaint states.
By doing so, the SEC alleges, Decision Diagnostics and Berman violated Section 10(b) and Rule 10b-5 of the Securities Exchange Act. Following this complaint, Decision Diagnostics’ common share price fell by 60%. Per the shareholder complaint, this drop in value is alleged to have caused monetary losses for the plaintiff and similarly-situated plaintiffs in the lawsuit.
The Role of Experts in the Case
Like many other COVID-19 related securities suits, the claim against Decision Diagnostics alleges, in essence, that a company made claims about a coronavirus-related product on which it could not deliver, resulting in harm to shareholders. In addition, many of these lawsuits focus on claims made in the early months of the pandemic. Again, the Decision Diagnostics case is no exception: both the SEC complaint and the shareholders’ class action complaint focus primarily on claims made between March and June 2020.
This case is likely to focus at least in part on what Decision Diagnostics knew about its finger-prick test’s development and at what time. To unpack this question, expert witnesses who can speak to how COVID-19 tests are developed and what the FDA demands in terms of evidence will be essential to the case.
Expert witnesses able to discuss how news of a test, or of an SEC filing, affect the market value of shares in a particular company may also be asked to opine on the connection between the SEC’s complaint and the subsequent drop in share prices—a key factor in shareholders’ claim of harm.