RenovaCare, Inc. and its top executives face a proposed class action that claims investors were injured financially by a drop in stock price apparently triggered by news that the biotech company had misled the public about its involvement in a promotional campaign meant to artificially inflate share prices.
Per the 23-page lawsuit, a May 2021 SEC litigation release stated that the New Jersey-based stem cell research and development outfit was being charged with alleged securities fraud after its controlling shareholder and chairman, Harmel Rayat, had secretly caused RenovaCare to pay for a promotional campaign designed to boost its stock price. According to the SEC complaint, when RenovaCare was questioned by OTC Markets Group as to its involvement in the campaign, the defendants issued a press release and Form 8-K that contained “material misrepresentations and omissions” denying their involvement, the suit says.
The lawsuit alleges RenovaCare investors were initially misled by the defendants and then suffered financial losses when the SEC’s complaint triggered a drop in the company’s stock price. Upon news of the SEC action, RenovaCare’s stock price fell 24.8 percent over three consecutive trading sessions, financially injuring stockholders, the case says.
RenovaCare is a development stage company that, according to the complaint, has not generated any revenue since its inception, focusing instead on research and development and capital raises. RenovaCare owns the CellMist System, a “treatment method for cell isolation for the regeneration of human skin cells and other tissues,” and a solution sprayer device known as the SkinGun, the case states. Per the suit, RenovaCare represented in SEC filings beginning in August 2017 that it had adequate disclosure controls and procedures in place to ensure timely and accurate disclosures to the SEC.
According to the complaint, the defendants issued a January 2018 statement in which investors were informed that OTC Markets Group Inc., the market on which RenovaCare trades, had become aware of “promotional activities concerning the Company,” including an annual predictions report issued by StreetAuthority LLC in which RenovaCare was purportedly among “thirteen companies independently selected, researched and mentioned.” OTC further identified a press release issued by Avita Medical Limited announcing a failed challenge to a RenovaCare patent and a Stockhead article covering the failed petition, which boosted the company’s stock 84 percent in late December 2017, the suit relays.
Per the lawsuit, the defendants represented in the press release that RenovaCare “had no editorial control” over the content published by StreetAuthority and was “not affiliated in any way with the authors of the annual predictions report or its publisher.” The press release further represented that the statements concerning the company’s technology and products in the Avita press release and corresponding article “are not materially false and misleading,” and that RenovaCare’s executive officers, directors, controlling shareholders and third-party service providers were not involved with publishing the promotional materials, according to the suit.
The case alleges, however, that the defendants’ representations were misleading in that they failed to disclose that the company was, in fact, engaged in a promotional campaign to inflate its stock prices, and that the January 2018 press release contained “materially false and misleading” statements concerning RenovaCare executives’ involvement in the PR push.
According to the suit, the SEC issued in May 2021 a litigation release stating RenovaCare was being charged with alleged securities fraud. Per the SEC’s complaint, Rayat had, between July 2017 and January 2018, “arranged, and caused RenovaCare to pay for, a promotional campaign designed to increase the company’s stock price.” More specifically, the case says, the executive had allegedly provided false information to StreetAuthority regarding RenovaCare’s experimental burn-wound healing device, including promotional materials that described a patient who reportedly recovered from a burn wound in three days using the company’s product when, in reality, the “before” and “after” pictures were taken five years apart. Moreover, the suit alleges the materials provided to StreetAuthority claimed the SkinGun product “could soon be approved by the FDA,” when in truth the company had withdrawn its only application to the agency at the time.
Rayat, the lawsuit claims, had arranged for monthly payments to StreetAuthority through third parties to conceal the company’s involvement despite knowing or being recklessly unaware that the publisher was required to disclose such payments. When OTC Markets Group inquired about RenovaCare’s involvement in the promotion, the defendants allegedly issued the false and misleading press release denying such, the suit attests.
The proposed class action looks to represent all persons or entities who purchased or otherwise acquired RenovaCare securities between August 14, 2017 and May 28, 2021 and were damaged thereby.
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