Class-action D&O suit filed against vaccine development firm


A putative class-action lawsuit has been filed against a vaccine development company that allegedly issued false information about its COVID-19 vaccine to boost its stock and earned a hedge fund investor $200 million.

In a separate lawsuit, a shareholder derivative litigation was filed last week against a software company charged with issuing false information about COVID-19 testing units to boost its share price.

Both lawsuits have been reported by the D&O Diary.

Vaccine development company, Vaxart Inc., based in South San Francisco, which was founded in 2004, has 14 full-time employees, a market capitalization of $17 million, and has never successfully developed a vaccine, according to the lawsuit filed Monday in U.S. District Court in San Francisco in Kirk Himmelberg v. Vaxart Inc.

In early 2020, the company began working on a vaccine for COVID-19.

Hedge fund Armistice Capital Inc., based in New York, which is a defendant in the litigation, has two directors on its board who are also defendants. Armistice held stock and warrants equaling about 30% of the company’s outstanding stock.

On June 8, 2020, Armistice’s existing warrant agreements were amended to allow it to potentially exercise its warrants on about 21 million shares of Vaxart immediately, and over the next week defendants also issued millions of dollars in favorable options to Vaxart’s most senior executives, according to the complaint.

On June 25, Vaxart announced it had reached an agreement with another company to enable production of at least a billion COVID-19 vaccine doses annually, and its stock nearly doubled in price. The following day, the company announced its vaccine had been selected for the federal “Warp Speed” vaccine study and its stock increased again.

Armistice exercised all of its warrant agreements, then sold 27.6 million Vaxart shares reducing its overall beneficial ownership in the company from 29% to 0.2% and earning a profit of about $200 million, according to the complaint.

Then a New York Times article that featured Vaxart prominently reported it was not among the companies selected to receive significant financial support for Warp Speed and its price dropped.

The lawsuit accuses the company of violating securities laws by announcing false and misleading information to artificially inflate its stock.

Spokesmen at Vaxart and Armistice could not be reached for comment.

In the second lawsuit, New York-based SCWorx Corp. announced April 13 that it had received a purchase order for two million antibody test kits priced at $17.50 per unit, and its stock price more than quadrupled in price, according to the lawsuit filed April 21 in U.S. District Court in New York against the company’s directors and/or officers in Josstyn Richter, derivatively, on behalf of SCWorx Corp. v. Mark S. Schessel, Charles K. Miller, Robert Christie, and Steven Wallitt.

The next day, a short seller firm published a report questioning the defendant’s credibility, and the stock dropped 30% in value. Three days later, a forensic financial research firm published a report that concluded the purchase order was “completely bogus” and the stock dropped another 17%.

The U.S. Securities and Exchange Commission suspended trading in the stock on April 21.

On April 30, the company announced it had terminated the purchase order because of “substantial concerns.”

The company said in its annual SEC Form 10-K report in June that the U.S. Attorneys’ Office in New Jersey and requested information and documents pertaining to its April 13 press release.

The lawsuit charges the company with breach of fiduciary duties, unjust enrichment, abuse of control, gross mismanagement and violations of the federal securities law.

A company spokesman could not be reached for comment.

More insurance and risk management news on the coronavirus crisis here.

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