Two coronavirus-related securities class actions have already been filed – one against a cruise line and one against a pharmaceutical company – as expectations of a spate of D&O lawsuits resulting from the outbreak start to be realised.

D&O boardroom

On 12 March, a shareholder filed a lawsuit against Norwegian Cruise Line Holdings, as well as its CEO and CFO, alleging false and misleading SEC filings and public statements. The securities class action, filed in the Southern District of Florida, claims to be on behalf of shareholders who bought shares from 20 February to 12 March. 

The complaint notes that a 20 February press release gave positive outlooks for Norwegian Cruise Line, stating that its booked position was ahead of the prior year “despite the current known impact from the Covid-19 coronavirus outbreak”.

The cruise line added: “While the effect of these impacts cannot be fully quantified at this time, our Company has an exemplary track record of demonstrating its resilience in challenging environments and we remain confident in our ability to deliver strong financial performance over the long-term.”

Norwegian Cruise Line also touted the procedures it had in place to protect its guests and crew.

In addition, the complaint also takes issue with a number of statements in a later 10-K filing. It also points to a Miami New Times report that leaked emails allegedly showed Norwegian Cruise Line management directed sales staff to lie to customers about the outbreak. 

A second coronavirus-related class action lawsuit was also filed on 12 March, with a shareholder suing Inovio Pharmaceuticals and its CEO for statements about development of a Covid-19 vaccine.  

The Eastern District of Pennsylvania complaint alleges that CEO Joseph Kim claimed on Fox Business News that Inovio had developed a vaccine “in a matter of about three hours once we had the DNA sequence from the virus” and “our goal is to start phase one human testing in the US early this summer”. The complaint said Kim repeated this claim two weeks later after a meeting with President Trump and said the plan was to start trials in April. 

Inovio’s share price more than quadrupled from 28 February reaching an intra-day high of $19.36 on 9 March.

The complaint stated, however, that the stock price plummeted after Citron called for an SEC investigation into Inovio’s “ludicrous and dangerous claim” that it designed a Covid-19 vaccine in three hours. The share price dropped over two days to close at $5.70 on 10 March. 

Inovio later clarified that it had “designed a vaccine construct” and believed it had a “viable approach to address the Covid-19 outbreak”.

D&O disclosure risk

The two lawsuits were highlighted by RT ProExec executive vice president Kevin LaCroix on his blog. They follow comments last week from D&O specialists that lawsuits would be filed against directors and officers as a result of company disclosures around the outbreak

As this publication reported, companies are already making disclosures to investors about how they are reacting to the outbreak and will be required to make further statements that could lead to litigation down the line.

The SEC has stipulated that public companies must provide investors with insight into their assessment of risks resulting from the outbreak and how they plan to address them.

“Any time there is any kind of global event that requires a lot more broadscale disclosure from a lot more companies there is always the potential for more foot-faults for how those disclosures are handled,” Carl Metzger, partner and chair of risk management and insurance at Goodwin Procter, said on a webcast held by the Professional Liability Underwriting Society last week. 

“That will almost undoubtedly lead to some forms of additional securities litigation, whether that is the private plaintiffs bar or even SEC actions.”

Metzger added that it is not even just necessarily the content of those disclosures but also how they are handled. He said there are likely to be allegations such as improper selective disclosures and insider trading. 

“So unfortunately, I think one of the fallouts from this whole situation will be some kind of increase in these various types of D&O litigation, particularly for public companies,” Metzger said.  

On the same webcast, RT’s LaCroix said he saw possible D&O claims coming from three directions, with potential exposures from mismanagement claims and bankruptcies in addition to disclosure-related risks.