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Law360 (June 7, 2021, 8:47 p.m. EDT) – Executives at biotech company CytoDyn Inc. have been charged with a derivatives lawsuit in federal court in Washington alleging that the company hid its share price by exaggerating an alleged COVID-19 – Having bloated treatment while executives dumped millions of stocks.
Shareholder David Berndt said in Friday’s lawsuit that the company, which is focused on developing a drug with potential benefits for HIV patients, has “made a turnaround” and started touting that drug as a COVID-19 treatment, resulting in a significant increase in the company’s share price. While CytoDyn stock traded for less than $ 1 per share throughout 2019, the price peaked at more than $ 10 per share in June 2020, Berndt said.
The lawsuit names chairman Scott A. Kelly, president and CEO Nader Z. Pourhassan, CFO Michael Mulholland and directors Jordan G. Naydenov, Alan P. Timmins and Samir R. Patel. The Vancouver, Washington-based company is a nominal defendant.
Berndt claimed that “while the company’s share price was sufficiently bloated with the COVID-19 cure hype, longtime shareholders including Defendants Nader Z. Pourhassan and Michael Mulholland dropped millions of shares.”
In April 2020, Pourhassan sold more than 4.8 million shares in the company – approximately 85% of its total holding of company shares – for total proceeds of more than $ 15.7 million after selling shares at prices less than $ 1 each Berndt claimed that he had bought shares. That December, Mulholland sold more than 1.1 million shares for total proceeds of more than $ 5.8 million and a week later sold more than 711,000 shares for proceeds of more than $ 4.4 million, according to the lawsuit .
Berndt said the company made materially false and misleading statements in violation of the Federal Securities Act, including through an August 2020 press release announcing that it would receive an emergency approval from the U.S. Food and Drug Administration have requested. It would later emerge that the company had not filed such an application with the FDA, according to the lawsuit.
Brandt also claimed the company issued press releases describing the results of certain data on its drug Leronlimab, but hid a disclosure that “the study’s primary endpoint – reducing all-cause mortality on day 28 – was not statistically significant”.
According to the lawsuit, the company’s shares fell in the trading days following this data’s release, closing at $ 2.35 on March 9, 2021.
Berndt said the “executive schema began to disintegrate” when the Wall Street Journal reported on Aug. 25, 2020 that CytoDyn was not in for Operation Warp Speed, the federal initiative to accelerate the production of COVID-19 vaccines and treatments Was being considered and had only completed a pre-qualification to be accepted into the initiative. According to the lawsuit, the company’s shares fell more than 17% to $ 3.15 in the next two trading days.
Berndt also alleged that CytoDyn’s lender – Iliad Research and Trading LP, which is not a defendant in the case – acted as an unregistered securities dealer for CytoDyn.
“Through Iliad’s actions in relation to the Company, including entering into the Convertible Notes and amendments thereof, converting the Notes into newly issued shares of the Company, and trading those shares for profit, Iliad has acted as an unregistered securities dealer and made significant profits earned “, claimed Berndt.
According to the lawsuit, the Securities and Exchange Commission filed a lawsuit against Iliad and its affiliates in September 2020 alleging they violated the mandatory trader registration requirements of the federal securities act and called Iliad’s principal a “recidivist violation of federal securities laws.”
Berndt claimed the company had “aggressively used stock advertising companies that create misleading newsletters and internet postings to hype investments in CytoDyn and promote the use of Leronlimab as a COVID-19 treatment.”
Berndt’s lawsuit includes charges of breach of duty of loyalty, wasting company assets, unjust enrichment and violations of the Stock Exchange Act. He called on the court to order the defendants “to take all necessary steps to reform and improve corporate governance, risk management and internal operating procedures of the company in order to comply with applicable laws and keep the company and its shareholders from repeating.” to protect against rampant injustice ”. behavior described here. “
Berndt’s lawyer and most of the aforementioned defendants did not immediately respond to requests for comment on Monday. Patel was unavailable for comment and the company declined to comment.
Berndt is represented by Duncan C. Turner from Badgley Mullins Turner PLLC and Thomas J. McKenna and Gregory M. Egleston from Gainey McKenna & Egleston.
The defendants’ lawyer was unavailable on Monday.
The case is David Berndt v Scott A. Kelly et al., Case Number 3: 21-cv-05422, in the US District Court for the Western District of Washington.
– Editing by Andrew Cohen.
To have this article reprinted, please contact reprints@law360.com.
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