The spate of shareholder actions against biotech companies relating to COVID-19 treatments shows no signs of stopping, and now, derivative lawsuits are following the initial wave of securities class actions. For example, late last week, a shareholder of CytoDyn, Inc., brought a derivative action against certain officers and directors of the company. CytoDyn is a biotechnology company that has focused on the development and commercialization for a drug called “Leronlimab,” what was promoted as a potential therapy for HIV. According to the complaint, in 2020, CytoDyn began promoting Leronlimab as a treatment for COVID-19, causing its stock price to rise. But when it came out that marketing Leronlimab as a COVID-19 treatment was not a commercially viable development for the company, the complaint alleges CytoDyn’s shares dropped significantly.
The U.S. Court of Appeals for the First Circuit held yesterday that the U.S. securities laws apply to foreign brokers’ solicitations of securities purchases by foreign investors if the purchasers or sellers incurred irrevocable liability within the United States to pay for or deliver the securities. The decision in SEC v. Morrone follows the “irrevocable liability” test that the Second, Third, and Ninth Circuits previously adopted to determine whether the federal securities laws apply to transactions in securities not listed on a U.S. exchange. However, the First Circuit disagreed with other Second Circuit precedent holding that, even if a domestic transaction has occurred under the “irrevocable liability” standard, the transaction still might be too foreign for U.S. law to apply.