Among its other miseries and immiserations, the coronavirus pandemic promised a second epidemic in its wake, one of fraud. And given how eager what’s left of society is to be rid of COVID-19, no sector is as ripe for it as the pharmaceutical industry. From colloidal silver to questionable testing kits to industrial dinosaurs attempting to remake themselves into critical cogs in the fight against the ‘rona on the Federal dime, investors can’t get enough of this kind of thing. And the holy grail, of course, will be a vaccine—a (hopefully) once-in-a-lifetime opportunity to gouge governments and eight billion people, all eager for immunity and the promise of a return to normalcy that comes with it.
The people who run such companies have, to put it mildly, noticed. And they’ve been selling and selling as their potentially world-saving but also potential fruitless and thus shareholder-value-destroying efforts pump up their stock prices. Take, for instance, Vaxart, a company which may or may not have been a bit optimistic in public statements about its participation in U.S. government vaccine research and the billions of dollars it’s handing out. Well, Vaxart used to be owned by a hedge fund, a hedge fund which retains a small stake and a large pile of warrants and a couple of board seats. And, well, wouldn’t you know that just before Vaxart began—in a possibly exaggerated fashion—to publicize its participation in “Operation Warp Speed,” that hedge fund, Armistice Capital, took a quick break unloading its shares, and Vaxart took a moment away from trying to save the world to double the amount of its shares Armistice was allowed to own, in a way that just happened to earn Armistice an extra $191 million once that news broke? Well, other Vaxart shareholders have noticed, and they’re, uh, not happy.
“Through their disloyal behavior, the board members have secured substantial sums for themselves and Armistice Capital, to the detriment of Vaxart,” the Chancery Court complaint says…. The changes allowed Armistice to exercise the warrants unless doing so would increase its Vaxart stake to 20%, up from a previous limit of 10%, according to the complaint.
That allowed the hedge fund to buy millions of shares at $0.30 to $1.10 per share at a time when the federal funding news and other developments were sending it to highs of $14, the suit says….
Two members of Vaxart’s board are directly affiliated with Armistice, while the others benefited from lucrative “equity arrangements they approved for themselves” in a “quid pro quo” that required the support of the Armistice-linked directors, the suit says.
Looks like Vaxart won’t be allowed to clear itself of the allegations.
Vaxart Board Let Fund Insider Trade on Covid Vaccine: Suit [Bloomberg Law]