CytoDyn, Inc. and its CEO and CFO face a proposed class action over what investors call the publicly traded biotech company’s “aggressive” hyping of its potential HIV therapy Leronlimab as a possible treatment for COVID-19.
The 27-page lawsuit alleges that while CytoDyn’s stock price was “sufficiently pumped” amid the hyping of Leronlimab as a potential COVID-19 treatment, certain long-term shareholders, including the CEO and CFO defendants, “dumped millions of shares,” reaping millions in proceeds in the process.
Prior to its “pivot to hyping” Leronlimab as a potential COVID-19 treatment, CytoDyn’s stock “traded for less than $1.00 per share,” the suit says. Once the defendant shifted gears, however, CytoDyn stock prices “skyrocketed,” peaking when they reached upward of $10 per share on June 30, 2020, the lawsuit states.
“CytoDyn issued numerous press releases, conducted conference calls, participated in interviews, and aggressively utilized several third-party investor relations and stock newsletter services to tout Leronlimab as a potential treatment for COVID-19 and to pump up the stock price of CytoDyn while executives aggressively sold shares,” the case alleges.
Further, the complaint, filed in Washington federal court, alleges CytoDyn, in addition to “overstating the viability of Leronlimab as a COVID-19 treatment,” also engaged in a wrongful scheme with its lender, non-party Iliad Research and Trading L.P., and its principal whereby the entities operated as an unregistered securities dealer for CytoDyn. More specifically, Iliad, the lawsuit alleges, obtained a convertible promissory note from CytoDyn and converted the note into newly issued shares in the company and then sold these shares into the public market for profit, “in violation of the dealer registration requirements of the federal securities laws.”
According to the lawsuit, CytoDyn’s CEO made over $15.7 million in total proceeds after selling more than 4.8 million shares in the company on April 30, 2020. CytoDyn’s CFO, in December 2020, sold more than 1.1 million shares to the tune of more than $5.8 million before selling more shares later that month in exchange for more than $4.4 million, the lawsuit claims.
As the case tells it, the truth began to emerge on August 26, 2020 when the Wall Street Journal reported that CytoDyn was not being considered for Operation Warp Speed, the public-private partnership initiated by the federal government to facilitate the development, manufacturing and distribution of COVID-19 vaccines. Per the suit, a senior Trump administration official interviewed by the WSJ relayed CytoDyn had “only completed a preliminary qualification for being included in the initiative,” and confirmed technical experts, upon reviewing the company’s information submissions as to the possible viability of drugs and therapeutics that may be effective against COVID-19, opted not to proceed with CytoDyn.
CytoDyn shares dropped more than 17 percent, from $3.81 to $3.15 per share, upon the publication of the WSJ article, the complaint says. According to the lawsuit, this stock drop preceded a September 3 lawsuit filed by the Securities Exchange Commission against Iliad, its principal and several related entities over the alleged purchase of convertible promissory notes and their conversion into newly issued stock shares that were then rapidly sold to the public for profit.
According to the complaint, these events preceded another stock drop in March 2021 linked to accusations that CytoDyn “massag[ed] the data” and squeezed good news out of a failed study involving Leronlimab’s efficacy against COVID-19.
“While the trial involved severe to critically ill patients, the Company touted that mechanically ventilated, critically ill patients saw a 24% reduction in all cause-mortality between the Leronlimab and placebo arms, without breaking down the number of deaths in either group,” the suit says.
The case looks to represent all persons and entities who bought or otherwise acquired CytoDyn common stock between March 27, 2020 and March 9, 2021.
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