SECURITIES FRAUD LAWSUIT: BIOPHARMACEUTICAL FOUNDER ACCUSED OF MISLEADING INVESTORS

Share

Read about a recent securities fraud lawsuit where a biopharmaceutical founder is accused of intentionally misleading investors about the profitability of their flagship pain product. Learn about the legal risks involved in selling stock and the importance of honesty in dealing with investors.

M&A Stories

July 29, 2021

Introduction:

When selling stock in a company, the legal risks are higher compared to selling the business assets. In stock sales, sellers’ statements are subject to federal securities laws, unlike in asset sales where legal risks are limited to the representations and warranties in the purchase agreement.

The Deal:

In this case, a San Francisco-based biopharmaceutical company specializing in pain-relieving products underwent clinical trials for its “flagship pain product,” CA-008, between 2017 and 2018. The trials did not yield promising results. However, between January and May 2019, the company’s founder allegedly assured investors that the trials had been successful and that CA-008 significantly reduced pain and opioid dependency, making it highly valuable. Based on these claims, investors purchased $76 million in Series B Preferred Stock from the company.

The Lawsuit:

Subsequently, the investors filed a securities fraud lawsuit against the founder in a federal district court in Oakland, California. The founder attempted to dismiss the complaint, arguing that the investors had not provided enough specific evidence of intentional fraud.

The court disagreed with the founder’s motion to dismiss, ruling that the investors presented plausible allegations. They claimed that the founder was aware of the unfavorable clinical trial results and, despite this knowledge, created a presentation to attract investors, which contradicted the actual data. The court inferred that the founder intentionally misrepresented the trial’s results.

This case is referred to as Oracle Partners, LP v. Concentric Analgesics, Inc., Case No. 20-cv-03775-HSG, United States District Court, N.D. California, (June 7, 2021). https://scholar.google.com/scholar_case?case=266396339398176554&q=%22stock+purchase+agreement%22&hl=en&scisbd=2&as_sdt=2006&as_ylo=2020

Conclusion:

The case highlights the importance of honesty in dealing with investors. The founder’s alleged attempt to mislead investors damaged both his and the company’s reputation. As former U.S. Secretary of State George Shultz wisely said, “Trust is the coin of the realm.”

By John McCauley: I help people manage M&A legal risks.

Email:             jmccauley@mk-law.com

Profile:            http://www.martindale.com/John-B-McCauley/176725-lawyer.htm

Telephone:      714 273-6291 

Check out my book: Buying Assets of a Small Business: Problems Taken From Recent Legal Battles

Legal Disclaimer

The blogs on this website are provided as a resource for general information for the public. The information on these web pages is not intended to serve as legal advice or as a guarantee, warranty or prediction regarding the outcome of any particular legal matter. The information on these web pages is subject to change at any time and may be incomplete and/or may contain errors. You should not rely on these pages without first consulting a qualified attorney.

Posted in federal securities fraud, scienter, stock purchase agreement, tying fraud to economic loss Tagged with: , , , , , , , , , , , , , , ,

Recent Comments

Categories