Inovio Pharmaceuticals, a small biotech company based in the Philadelphia area, is facing a securities fraud class action lawsuit alleging the company and its CEO made false, misleading statements about its COVID-19 vaccine. Plaintiffs claim the company’s violation of the Securities Exchange Act of 1934 caused them to pay artificially-inflated prices for Inovio stock.
False Statements & Stock Inflation
The novel coronavirus took the world health stage in February 2020 and by March, was ravaging the United States. The race to find a vaccine began on March 13, 2020, when President Trump declared a national emergency, opening funds to combat the rapidly spreading virus.
But even before the emergency declaration, a vaccine was in the works. On February 14, Inovio CEO Joseph Kim appeared on a live Fox Business report, declaring that his company developed a vaccine just three hours after China made the COVID-19 gene sequence public. Kim went on to say that the vaccine would soon enter U.S. clinical trials, prompting the Fox commentator to ask why there was not greater awareness of this “big deal” at Inovio.
At the time of Kim’s Fox appearance, Inovio was trading at $4.15 per share. Less than two weeks later, the price had reached a high of $14.09. On March 9, 2020, Inovio started selling $50 million of common stock in the open-market at $18.72 per share. The following day, short-seller Citron Research said Inovio’s claim to have made a vaccine in three hours was “ludicrous and dangerous,” and called for an SEC investigation. By the closing bell, Inovio’s stock price had plummeted to $5.07.
Inovio quickly released a statement via Twitter explaining Citron’s claims were misinformed since their team did not understand vaccine science. Inovio further asserted that it had developed a “vaccine construct” within three hours of availability of the gene sequence. The company claimed it had produced the vaccine at small scale for preclinical January trials, and that this was a viable approach for combating the COVID-19 pandemic.
Shareholder Allegations Against Inovio
The class action complaint alleges Inovio and CEO Joseph Kim made three misleading statements that directly harmed shareholders. Firstly, Kim stated on national television that his team had developed a COVID-19 vaccine. Secondly, Kim stated that they had done it in three hours after obtaining the genetic sequence. Finally, Kim alleged that the company expected to rapidly bring the vaccine to market. At the heart of the complaint, the plaintiff claimed that the alleged misconduct resulted in his purchase of Inovio stock at “artificially inflated prices”, causing the plaintiff to suffer financial damages.
The complaint also explains that the plaintiff has filed the lawsuit on behalf of a “class of persons and entities that acquired Inovio common stock during February 14 – March 9, 2020.” In justifying a class action filing, the complaint alleges the impacted shareholders are so numerous that only a class action can efficiently adjudicate the matter.
The Class Action Terms
As the lawsuit proceeds, evaluating compensatory and punitive damages for class members will rely on the complexities of market performance and securities pricing. However, the complaint also postulates on how damages could be calculated. Starting on March 9, 2020, a “two-day drop wiped out approximately $643 million” in Inovio’s market capitalization, constituting a 71% decline from this class period’s stock price high. Further, the complaint claims the shareholders represented by the class action suit would not have purchased shares at all had Kim not made misleading statements.
If the class is certified, actual damages, if proven, could be quite high depending on how many shares class members purchased during the Class Period. Of note, the World Health Organization sees Inovio’s vaccine as among the top 3 of 70 vaccines now in active clinical trials on humans. However, even if a rising stock gives the class better upside potential, they will argue their potential returns would have been greater with a lower, uninflated purchase price. Ultimately, any actual damage awards will rest on whether class members purchased stock during the period under review and whether they did so with guidance from Kim’s inflammatory Fox News appearance.
Investment Market Experts To Consult
Economic experts will undoubtedly be called upon to consult on stock trading technicalities and offer advice on complex market trends. An investment advisor expert can also opine on the impacts and influence that an executive’s statements may have on market performance. Expert witnesses with the right professional qualifications can offer guidance through the economic facts to ultimately help award any compensatory and punitive damages.
