‘Pump and Dump’: Lawsuit Alleges Vaxart Spread ‘False and Misleading’ COVID-19 Vaccine Information to Boost Stocks

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Vaxart, Inc. and its top execs face a proposed class action centered on their alleged announcement of “false and misleading” information concerning an oral COVID-19 vaccine candidate, including the company’s apparent involvement in the government-funded vaccine development initiative dubbed “Operation Warp Speed. 

The 26-page securities lawsuit, filed in California federal court, looks to represent those who bought or otherwise acquired Vaxart securities between June 25 and July 25, 2020, and also names as a defendant Armistice Capital LLC, a long-short equity hedge fund and longtime major shareholder of Vaxart who’s alleged to have also taken part in what the suit calls “a classic pump and dump” scheme.

The complaint describes Vaxart as a clinical-stage company focused on the discovery and development of oral vaccines for a variety of diseases. To date, however, Vaxart has never successfully developed a vaccine, and had only 14 full-time employees at the start of 2020, the lawsuit says. 

After commencing work early in the year, Vaxart has periodically announced positive news regarding its efforts to develop a COVID-19 vaccine, causing the company’s stock price to skyrocket, the complaint relays. Though Vaxart shares started the year at just $0.35 per share, they closed at $2.92 per share on June 2, 2020, according to the suit.

As of June 3, Armistice held stock and warrants amounting to roughly 30 percent of Vaxart’s outstanding stock, the case says, adding that several Armistice executives also serve as directors on Vaxart’s board. On June 8, the defendants amended Armistice’s existing warrant agreements to allow the company to potentially exercise warrants on around 21 million Vaxart shares immediately, a move not possible under Armistice’s original warrant agreements, the lawsuit says. 

Per the case, the defendants issued over the next week millions of dollars in favorable stock options to Vaxart’s most senior executives. On June 25, the case goes on, Vaxart announced it entered into a memorandum of understanding with Attwill Medical Solutions Sterilflow, LP to enable production of “a billion or more tablet COVID-19 [doses] annually.” In the press release, Vaxart’s CEO said the deal would “enable large scale manufacturing and ultimate supply of our COVID-19 vaccine for the U.S., Europe and other countries in need,” according to the complaint.

Following the announcement, Vaxart’s stock price on June 25 nearly doubled, opening at $3.61 per share and closing at $6.26 per share, the lawsuit says. On June 26, the suit relays, stock prices rose even higher after the defendant issued a second press release concerning the company’s apparent selection for Operation Warp Speed, claiming Vaxart’s vaccine had been selected to take part in a non-human challenge study organized and funded by the government. 

With Vaxart share prices at a high of $14.30, defendant Armistice took full advantage of its warrant agreements with the company and exercised all 20.8 million warrants, the lawsuit says. Between Friday, June 26 and Monday, June 29, Armistice offloaded 27.6 million shares, a move that cut its ownership in Vaxart to 0.2 percent but pulled in profits of approximately $200 million, according to the complaint.

On July 25, however, the truth of the defendants’ alleged “pump-and-dump” scheme began to emerge after the New York Times published a report on suspiciously timed stock bets made by execs and board members at companies in the race to develop COVID-19 vaccines and treatments, the lawsuit says. 

“Vaxart was featured prominently in the article,” the complaint relays, sharing that Vaxart’s stock price sank sharply to $11.16 on July 27, financially injuring investors.

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