Defense Digest, Vol. 26, No. 2, June 2020

Securities Litigation Trends and Defenses In a COVID-19 World

Key Points:

  • In the wake of COVID-19, market volatility and the largest drop in the stock market since the 2008 recession has left global markets seeking answers and accountability.
  • Misleading public statements made by publically traded companies concerning COVID-19 will be the catalyst leading to a significant rise in securities litigation.
  • McDermid v. Inovio Pharmaceuticals, Inc., a class action securities lawsuit recently filed in the United Stated District Court for the Eastern District of Pennsylvania, represents one of the first round of lawsuits filed for alleged misleading statements made in response to the COVID-19 pandemic. 

In the wake of the COVID-19 global pandemic, U.S. and foreign markets remain in a state of uncertainty. Market volatility and the largest drop in the stock market since the 2008 recession has left global markets seeking answers to questions never posed prior to the novel COVID-19 outbreak. Given this uncertainty and unprecedented daily market volatility, it is expected that there will be a significant rise of securities litigation, especially class action filings based on the Private Securities Litigation Reform Act (PSLRA). These lawsuits will track allegations based on violations of federal securities laws by making misleading public statements concerning COVID-19 and its impact on its business.

In McDermid v. Inovio Pharmaceuticals, Inc., a class action lawsuit filed on March 12, 2020, in the United States District Court for the Eastern District of Pennsylvania under Docket No. 2:20-CV-01402, alleged violations of the federal securities laws were brought on behalf of all investors in Inovio common stock (NASDAQ: INO) between February 14, 2020, and March 9, 2020. In this two-count complaint, the plaintiff, on behalf of the putative class, alleges that Inovio and its CEO, J. Joseph Kim, made false and misleading statements in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, 15 U.S.C. §§ 78j(b) and 78t(a), and SEC Rule 10b-5, 17 C.F.R. § 240.10b-5.

This class action complaint was filed in the wake of the COVID-19 pandemic and alleged that Inovio capitalized on the widespread COVID-19 fears by falsely claiming that Inovio had developed a vaccine for COVID-19. According to the filed complaint, on February 14, 2020, Inovio CEO Kim appeared on Fox Business News with Neal Cavuto and stated that Inovio had developed a COVID-19 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 U.S. early this summer.” In response, Inovio’s stock price rose more than 10% over the next few trading days, on enormous trading volume. Two weeks later, following a well-publicized March 2, 2020, meeting with President Trump to discuss the COVID-19 outbreak, defendant Kim again claimed that Inovio had developed a COVID-19 vaccine, stating: “We were able to fully construct our vaccine within three hours . . . . Our plan is to start [U.S.-based COVID-19 trials] in April of this year.” The market responded favorably to Kim’s statement, and Inovio’s stock price more than quadrupled from $4.28 per share on February 28, 2020, and continued to increase in the following weeks, reaching an intra-day high of $19.36 on March 9, 2020.

However, according to the filed complaint, Inovio had not developed a COVID-19 vaccine. On March 9, 2020, before trading commenced, Citron Research exposed the defendants’ misstatements, calling for an SEC investigation into the company’s “ludicrous and dangerous claim that they designed a [COVID-19] vaccine in 3 hours.” In response to the news, Inovio’s stock price plummeted from its March 9 opening price of $18.72 per share to close at $9.83. The following day, March 10, 2020, Inovio’s stock price fell from its $9.30 per share opening price to close at $5.70 per share. The two-day drop wiped out approximately $643 million in market capitalization for the company, marking a 71% decline from its Class Period high. In a message to shareholders that same day, Inovio attempted to blunt the Citron Research revelations, but only highlighted its own misstatements, admitting that it had not developed a COVID-19 vaccine but, rather, had merely “designed a vaccine construct”—i.e., a precursor for a vaccine—and that it believed it had a “viable approach to address the COVID-19 outbreak.”

The federal class action securities lawsuit filed in McDermid represents one of the first round of securities lawsuits filed in the wake of the COVID-19 pandemic. This lawsuit, and lawsuits that will be filed in the near future, all pertain to alleged statements made with regard to bolstering a company’s stock price due to investor optimism based on the COVID-19 response and treatment plan. However, although this lawsuit is in its infancy stages of litigation before the District Court, certain defenses might exist for companies, such as Inovio, that could protect them from future securities lawsuits. For example, the PSLRA provides a “safe harbor” for forward-looking statements to encourage companies to provide prospective information, so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those disclosed in the statement. The safe harbor provision applies to actions brought under both the Securities Exchange Act of 1934 and the Securities Act of 1933, although its scope as to types of forward-looking statements covered is limited. For example, forward-looking information contained in GAAP financial statements is not protected by the safe harbor, and it does not apply to initial public offerings. 

Certain information regarding future financial performance and the expectations and objectives of management of a company is forward-looking. Forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts. They often include words such as “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “seeks,” or words of similar meaning, or future or conditional verbs, such as “will,” “should,” “could” or “may.”

The PSLRA safe harbor provision greatly increases protections for companies for forward-looking statements and also provides a mechanism for getting lawsuits dismissed at a very early stage in a proceeding. Time will only tell whether this safe harbor provision under the PSLRA will aid Inovio in this federal class action lawsuit. However, the issues presented in the McDermid lawsuit, the defenses presented, and its eventual outcome will be of interest and guidance to publically traded companies facing securities violations in the wake of the COVID-19 pandemic and for defense attorneys defending lawsuits on behalf of these companies.

*Jeremy is an associate who workings in our Mount Laurel, New Jersey office. He can be reached at 856.779.6103 or


Defense Digest, Vol. 26, No. 2, June 2020 is prepared by Marshall Dennehey Warner Coleman & Goggin to provide information on recent legal developments of interest to our readers. This publication is not intended to provide legal advice for a specific situation or to create an attorney-client relationship. ATTORNEY ADVERTISING pursuant to New York RPC 7.1. © 2020 Marshall Dennehey Warner Coleman & Goggin. All Rights Reserved. This article may not be reprinted without the express written permission of our firm. For reprints, contact