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A judge in the United States District Court for the Central District of California has allowed a lawsuit against actress Jessica Alba’s child and personal care company Honest to move forward. The case is the latest in a series of investor-led actions against companies that shareholders claim have used COVID-19 and associated disruptions to mislead the public about the financial health of their businesses.

The acronym “ESG” is shorthand for environmental, social, and governance concerns.  In recent years, companies have used “ESG” to refer to initiatives involving climate change, responding to racial injustice, and supporting workers’ rights.  The “S” in ESG can be a bit nebulous, however, as “social” may refer to any number of issues affecting a corporation, its stakeholders, and the community at large. For example, children’s privacy has always been a hot button social issue, but it has only gained traction during the COVID-19 pandemic as children have transitioned to remote learning and socializing online more than ever before. And a derivative lawsuit suggests that companies may want to ensure they are responding to child privacy concerns as part of their regular ESG practices and policies.

While we are growing accustomed to pandemic-based shareholder actions relating to improper health and safety disclosures or misrepresentations relating to COVID-19 treatments and tests, this month brings a novel variant of the COVID-19 lawsuit. A Universal Health Services Inc. investor has filed a derivative suit against company officers and directors, claiming they took advantage of a pandemic-related drop in the company’s stock price to grant and receive certain stock options that were unfair to the company and its stockholders. The plaintiff investor claims that “company insiders took advantage of the temporary drop in the company’s stock price to grant and receive options to buy the company’s stock at rock bottom prices, thereby showering themselves in excessive compensation.” The complaint alleges that the drop in stock price was “not caused by any changes in the company’s fundamentals or business prospects,” but instead was entirely attributable to the effect of the pandemic on the markets writ large.

On May 27, 2021, the United States District Court for the Southern District of Florida dismissed a securities class action against Carnival Corp. (“Carnival”), which operates the world’s largest cruise company, relating to the company’s health and safety disclosures made prior to and as the COVID-19 pandemic spread.  This decision follows a dismissal of another securities fraud class action against a major cruise operator six weeks earlier by the same court.

Like in the prior case against Norwegian, the Carnival court dismissed the suit upon finding the plaintiffs failed to plead the existence of any statements that were materially false or misleading, and failed to sufficiently allege scienter.  In so doing, it applied traditional principles of federal securities laws to the anything-but-traditional circumstances created by the COVID-19 pandemic.

On April 10, 2021, the United States District Court for the Southern District of Florida dismissed a securities class action complaint against Norwegian Cruise Lines (“NCL”) relating to the company’s disclosures made as the coronavirus pandemic was starting to unfold in the United States. In Douglas v. Norwegian Cruise Lines, et al., the court found the plaintiff failed to plead actionable misstatements or omissions and scienter for a claim of securities fraud under Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 10b-5 promulgated thereunder.

Thanks to the court’s thorough analysis, this decision serves as a useful overview to those wishing to cruise through the sea of corporate puffery, forward-looking statements, and scienter in the federal securities laws.

As the world waits to overcome the COVID-19 pandemic, publicly traded pharmaceutical companies waging in that fight are facing the multifaceted challenge of developing COVID-19 responses, informing the public of their progress, and managing legal challenges related to their efforts. Enter AstraZeneca.

AstraZeneca partnered with Oxford University to develop a COVID-19 vaccine in April 2020, which it later called “AZD1222.” On May 21, 2020, the company announced that the United States government was providing more than $1 billion for the development, production and delivery of the vaccine. Over the course of the next six months, the company continued to make public announcements on further financial support agreements and interim development results on its vaccine progress.

Thanks to HBO’s documentary, “The Inventor: Out for Blood in Silicon Valley,” and a barrage of media coverage about Elizabeth Holmes and her defunct company, Theranos, it is unmistakable that big misrepresentations can lie in public statements regarding miniscule quantities of blood.

This lesson proved true again last month, when the CEO of Decision Diagnostics, a pharmaceutical testing company, widely publicized that the company could accurately test for COVID-19, providing near-instant results with only a finger-prick of blood. In one press release, the CEO, Keith Berman, went so far as to say the COVID-19 testing would be “commercial ready” by summer of 2020.  The market took note, and the company’s stock soared (by a whopping 1,200%) following Berman’s statements.