Ninth Circuit Drops Cellular Biomed Appeal

SAN FRANCISCO (CN) – The Ninth Circuit has dismissed an appeal by a group of shareholders who had accused Cellular Biomedicine Group in a federal class action of inflating its stock price and hiding deaths connected to its cancer treatment.

The shareholders had asked the Ninth Circuit earlier this month to dismiss the case, but did not reveal the reasons behind the request. Shareholder attorney Jacob Goldberg declined to comment in an interview Monday on why his clients had agreed to drop their appeal, but said that there had been no settlement of the case.

Cellular Biomedicine attorney Adrienne Ward said in an interview that the plaintiffs hadn’t told her client why they decided to drop their appeal, either. But she conjectured that the decision was influenced by a similar case in the Eleventh Circuit – In Re: Galectin Therapeutics, Inc. Securities Litigation – that found for the defendant.

“Right now, if they walk away from this appeals case, it has no precedential value, it’s just more of a data point,” she said, adding ,”I would surmise that they would be concerned about – within a circuit where they do practice frequently – causing there to be an adverse Ninth Circuit opinion to their interests.”

The Jan. 23 dismissal affirms a September 2016 decision by U.S. District Judge William Orrick granting Cellular Biomedicine’s motion to dismiss the shareholders’ second amended complaint, and puts an end to the two-year-old litigation.

“The case as we pleaded it is now over,” Goldberg said.

Cellular Biomedicine, a Delaware corporation based in Palo Alto, develops stem cell and immune cell therapies for diseases like cancer, osteoarthritis and spinal muscular atrophy, marketing its patented cell technology to China’s burgeoning health care market.

The company’s Car-T cancer treatment technology involves engineering cancer patients’ own immune cells to recognize and attack their tumors, according to an April 2015 complaint filed by lead plaintiff Francis Bonanno.

Bonanno claimed that the company paid a promoter to inflate its stock price in violation of the Securities Exchange Act and Securities and Exchange Commission rules, and that it failed to disclose that that was how it had achieved its $500 million valuation. Bonanno also accused the company of hiding deaths that occurred during its Car-T studies.

Cellular Biomedicine’s illicit promotional campaign allegedly ballooned its stock price from $13.79 per share on January 2, 2015 to a high of $47.06 per share on March 23.

According to Bonanno, the truth about the company’s finances and research was revealed in an April 7, 2015 report published on Seekingalpha.com by an anonymous blogger called the Pump Stopper, which claimed that the company was “engaged in a massive fraudulent scheme to mislead investors and that the company had no meaningful financial value.”

Bonanno said the blog post caused Cellular Biomedicine’s stock price to tumble nearly 22 percent, closing at $25.22 per share the day it was published.

Orrick dismissed the case for the second time last September, ruling that the Pump Stopper’s report couldn’t serve as a “corrective disclosure” because it contained already-public information that the average investor could understand. He also found that the plaintiffs had failed to show that Cellular Biomedicine’s stock price had dropped due to the report’s revelations rather than due to the company’s own stock promotion activities.

Specifically, Orrick said the plaintiffs had failed to plead loss causation – a causal connection between a material misrepresentation and a plaintiff’s loss. Loss causation is satisfied by pleading that a defendant revealed “the truth” through corrective disclosures that caused the company’s stock price to fall and investors to lose money.

In making his finding, Orrick said the plaintiffs hadn’t shown that the Pump Stopper’s report constituted “true facts” and not an opinion.

Although the plaintiffs had claimed that the Pump Stopper had revealed for the first time the extent of the company’s promotional campaign, Orrick disagreed, characterizing the report as “an individual’s summary and comments” on facts that were already public.

“Because the Pump Stopper Report only collected and opined on already public information, it does not constitute disclosure of ‘the truth’ as required for a corrective disclosure,” he said.

The plaintiffs had acknowledged that Cellular Biomedicine’s promotional activities were public, but had argued that the average investor couldn’t understand them without an analyst’s help.

Orrick, however, found that the plaintiffs hadn’t alleged that the company’s promotional campaign would have been difficult for the average investor to understand. The judge similarly demolished the plaintiffs’ argument that information regarding Cellular Biomedicine’s promotional activities wasn’t incorporated into its market price because it wasn’t available in its public filings.

“This argument fails – it is irrelevant if the public information at issue comes directly from the company or from non-company sources; all public information will be incorporated into stock prices in an efficient market,” Orrick said.

“Plaintiffs have failed to point to any non-public information in the Pump Stopper Report and have failed to explain why this public information would not be factored into market price,” he added.

Goldberg is with The Rosen Law Firm in Jenkintown, Pennsylvania.

Ward is with Ellenoff Grossman & Schole in New York.

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