HoffmannThe Case: Northwest Biotherapeutics, Inc v. Canaccord Genuity LLC, 1:22-cv-10185, (S.D.N.Y.)
In this post I’ll go over the highlights of the Second Amended Complaint filed on 3-15-24 and then offer some thoughts.
The outline of the First Amended Complaint and the Second Amended Complaints were identical.
The significant changes started on page 90 with the section titled Loss Causation and Standing.
Highlights
Total Shares Sold at Depressed Prices
Went from approximately 283m to 274m
Shares sold within 24 hours of spoofing
Went from approximately 49m to 40m.
“In total, Plaintiff sold 40,507,628 shares in 95 transactions within 24 hours after Defendants’ Spoofing.”
“These sales took two forms: Cash Stock Sales and Exchange Agreement Sales. “
Cash Stock Sales
“In Cash Stock Sales, Plaintiff sold shares in transactions that were executed at the secondary market closing price on a single given date (a “Pricing Date”) or at a price equal to the average secondary market closing price of NWBO’s shares over one or more Pricing Dates. Because a decline in any component of an average mathematically leads to a decline in the average, a decline in the closing price of NWBO’s shares on the days included in that average led to a decline in the price at which Plaintiff sold shares of stock.”
“Attached as Exhibit 4 is a chart containing Plaintiff’s Cash Stock Sales in which the sale price was determined by the closing price of NWBO shares on one or more Pricing Dates having one or more Spoofing Episodes in the final hour of a trading day (i.e., between 3pm – 4pm). There were forty-four (44) such transactions, across which a total of 14,141,632 shares were sold at artificially depressed prices.”
Exchange Agreement Sales
“In Exchange Agreement Sales, Plaintiff sold shares to lenders in exchange for the extinguishment of debt obligations having an outstanding value equal to the market value of Plaintiff’s shares as determined by a standard pricing formula. In these transactions, the price at which Plaintiff sold shares to lenders was determined by a single formula: (a) 85% multiplied by (b) the average of the five lowest closing sale prices of NWBO shares in the last twenty trading days immediately preceding the date of each exchange agreement. Because a decline in any component of an average mathematically leads to a decline in the average, a decline in the closing price of NWBO’s shares on the days included in that average led to a decline in the price at which Plaintiff sold shares of stock.”
“Attached as Exhibit 6 is a chart containing Plaintiff’s Exchange Agreement Sales in which the sale price was determined by the closing price of NWBO shares on dates where one or more Spoofing Episodes took place in the final hour of trading on the Pricing Date (i.e., between 3pm – 4pm). There were twenty-three (23) such transactions, across which a total of 8,379,501 shares were sold at artificially depressed prices.”
“Attached as Exhibit 7 is a chart containing Plaintiff’s Exchange Agreement Sales in which the sale price was determined by the closing price of NWBO shares on dates where the closing price was affected by one or more Spoofing Episodes that took place between one hour and twenty-four hours before the close of trading on the Pricing Date. There were twenty-five (25) such transactions, across which a total of 16,872,872 shares were sold at artificially depressed prices. “
“As the above figure shows, the periods after Spoofing Episodes were characterized by a price decline followed by a partial reversion that provided Defendants an opportunity to profit from their purchases (including Executing Purchases) at depressed prices. Following the partial reversion, NWBO’s share price stabilized, but at a still depressed level.”
“As the above figure shows, the negative price impact of Spoofing Episodes persisted up to sixty (60) trading days following the Spoofing Episodes, during times when both NASX and NBI were increasing in value. After twenty (20) days, NWBO’s price decline stabilized, but persisted at a depressed price and did not revert in the following trading days. “
“Defendants tended to engage in Spoofing Episodes during periods of time when investor enthusiasm over NWBO was rising. 76 This evidence demonstrates that, absent Defendants’ spoofing, the price of NWBO shares would have increased following the Spoofing Episodes. This evidence also demonstrates that Spoofing Episodes “cut off” investor enthusiasm, preventing NWBO’s share price from rising even further. For this reason,increases in the price of NWBO shares do not reflect that the price impact of Defendants’ spoofing had dissipated fully. Whether NWBO’s share price increased or decreased following the Spoofing Episode, but for Defendants’ manipulative conduct, the price of NWBO shares would have been even higher”
Why were sales based on closing prices after the alleged sale?
“In certain instances, the terms of an Exchange Agreement Sale provided that Plaintiff would sell additional shares of stock to the purchaser if the share price of NWBO declined following the date of the Exchange Agreement. These so-called “true-up” provisions always applied the same formula: a “true-up” price would be calculated as 85% of the average of those five lowest closing prices in the twenty trading days following the date of the Exchange Agreement. If the “true-up” price was below the original sale price, Plaintiff would sell additional shares to adjust the final price paid by the purchaser for the entire transaction. For any Exchange Agreement Sale where true-up shares were issued (i.e., where the true-up price was below the original sale price), Spoofing Episodes on the pricing dates used to calculate the true-up price would cause Plaintiff to sell shares at a lower price than would otherwise have occurred absent the spoofing. For this reason, transactions in Exhibits 6 and 7 sometimes include Pricing Dates after the transaction date which had Spoofing Episodes within 1 hour or within 24 hours, respectively, before the close of trading on those Pricing Dates. Those Spoofing Episodes led to the sale of additional shares pursuant to true-up provisions at a sale price that was artificially depressed by spoofing activity on those true-up Pricing Dates.”
NWBO Has Hired Experts to Review IHub
“Defendants’ manipulative spoofing often occurred during periods when there was increasing investor enthusiasm concerning NWBO’s share price. Plaintiff examined posts concerning NWBO on the popular message board platform InvestorsHub. This message board is popular among investors in small-cap and over-the-counter stocks, including NWBO, and the U.S. Department of Justice and Securities and Exchange Commission have alleged that posts on InvestorsHub are material for OTC stocks.”
“To measure investor enthusiasm, Plaintiff downloaded all 235,194 posts during the Relevant Period on the NWBO message board on InvestorsHub, and applied standard sentiment analysis, which scores the message board post according to standard methods employed in the peer-reviewed literature.”
THOUGHTS
The Second Amended Complaint clearly addresses the Judge’s concern as to loss causation. It provides the formulaic connection between the referenced pricing dates and the sales price. It survives the MTD on that alone, but they went a step further. Cohen’s attorneys spent considerable time and resources to beef up other portions of the complaint, namely the long term price impact of spoofing.
Expert disclosure, reports and depositions are usually the last part of the discovery phase. While I’m sure Cohen had an expert put together and review the spoofing data, you typically don’t see this sort of expert analysis this early in a case. It appears Cohen has retained an expert as to the long term effects of spoofing and that expert has done extensive analysis. See Images 2 & 3. They’ve also retained an expert that has done extensive social media analysis and how social media sentiment relates to spoofing. See Image 4. This sort of expert analysis is extremely costly and time consuming. Cohen and their attorneys are not sparing any expenses. This tells me they strongly believe in this case. That is exactly what you want to see at this stage.
I was impressed with the Second Amended Complaint.
We will still likely have to go through another MTD + briefings before we move on to discovery. I believe the next thing we will see is a letter from the Defendants asking for leave to file a MTD.
Cohen and Milsteins second amended complaint.
