Legal Teams Vie To Lead COVID Test Supply Stock Drop Suit

By Emilie Ruscoe
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Law360 (June 30, 2020, 10:30 PM EDT) -- Four legal teams are competing to represent a proposed class of investors in Manhattan federal court suit accusing health care analytics company SCWorx Corp. of securities fraud after the firm landed on a list of public companies subject to U.S. Securities and Exchange Commission trading suspensions linked to claims about combating coronavirus.

Lead plaintiff, lead counsel and consolidation bids were filed Monday in the suit, which claims an analyst's skepticism about SCWorx's plan to supply COVID-19 tests kicked off a decline in the company's stock price and ultimately led the SEC to halt trades on SCWorx, citing "questions and concerns regarding the adequacy and accuracy of publicly available information" about the company.

The proposed lead counsel teams include attorneys from eight firms. One team comprises lawyers from Glancy Prongay & Murray LLP, Johnson Fistel LLP and the Law Office of Frank R. Cruz. Another has lawyers from Levi & Korsinsky LLP, Pomerantz LLP and the Schall Law Firm. Kaplan Fox & Kilsheimer LLP attorneys round out another team, and the final counsel team hails from Faruqi & Faruqi LLP.

Glancy Prongay & Murray represented plaintiff Daniel Yannes when Yannes launched the suit in April — and for the Glancy Prongay team's motion on Monday, the investor, who is still represented by the firm, was joined by four other individuals, Jonathon Charles Leonard, Paul Yannes, Brandon Gale and Jeff Minton, who all asked to be appointed co-lead plaintiffs together in the matter. The proposed investor group claims that together, its members lost $227,576.72 in connection with the alleged misrepresentations.

Levi & Korsinsky, Pomerantz and the Schall Law Firm are counsel to proposed lead plaintiffs Eduardo Carreno and Faiz Taher, who claim that together, they lost $257,981.67 as a result of SCWorx's alleged misrepresentations.

Kaplan Fox & Kilsheimer are attorneys for Vy Nguyen, who claims his losses on his SCWorx shares related to the company's statements were $273,527.

And Faruqi & Faruqi's client Bhupander Virk allegedly lost $123,106.64 in connection with the purported scheme.

All four proposed lead plaintiff-lead counsel teams also asked U.S. District Judge John G. Koeltl to consolidate the matter with two other, similar proposed class actions against SCWorx, launched by Pomerantz LLP and Stone Law Group PLLC. The company also faces a derivative action in the district that was filed on behalf of a client by the Brown Law Firm, court records show.

Daniel Yannes' action was filed on April 29, before the other suits. In it, the investor claimed that when the SCWorx announced on April 13 that it locked down a deal to supply coronavirus tests to a virtual health care network in the United States, the company's trading price and trading volume skyrocketed.

Yannes said SCWorx claimed that it "received a committed purchase order" from the virtual health care company for 2 million COVID-19 Rapid Testing Units "with provision for additional weekly orders of 2 million units for 23 weeks, valued at $35 million per week."

The announcement sent the shares by up 434%, or $9.77, and when the markets closed that day, the company was trading at $12.02, Yannes said.

But days later on April 17, the investor claimed, a financial analyst published a report casting doubt on the company's claims about its deal.

The April 17 analyst report contended that SCWorx's announcement was too good to be true, Yannes claimed. The analyst report claimed that companies allegedly involved with the deal didn't appear to have the resources necessary to support their ends of the bargain and pointed out individual legal records of two executives, one of whom is SCWorx's chief executive Marc Schessel (Yannes' suit only names Schessel and the company).

Yannes claims that over the three trading days following the analyst report, SCWorx shares fell $1.19, or more than 17%, and closed at $5.76 per share on April 21, 2020. A day later on April 22, the SEC suspended trading of SCWorx shares, the investor said.

The class proposed in Yannes' suit would include those who bought SCWorx shares between April 13 and April 17.

On Tuesday, attorneys for the investors, attorneys for Schessel and representatives for the company did not immediately respond to requests for comment.

The proposed co-lead plaintiff group comprising Jonathon Charles Leonard, Daniel Yannes, Paul Yannes, Brandon Gale and Jeff Minton is represented by Gregory B. Linkh, Robert V. Prongay, Charles H. Linehan and Pavithra Rajesh of Glancy Prongay & Murray LLP, Ralph M. Stone and Michael I. Fistel Jr of Johnson Fistel LLP, and Frank R. Cruz of The Law Office of Frank R. Cruz.

The proposed co-lead plaintiff group comprising Eduardo Carreno and Faiz Taher is represented by Shannon L. Hopkins of Levi & Korsinsky LLP, Jeremy A. Lieberman, J. Alexander Hood II and Patrick V. Dahlstrom of Pomerantz LLP, and Brian Schall of the Schall Law Firm.

Vy Nguyen is represented by Frederic S. Fox, Donald R. Hall, Pamela A. Mayer, Laurence D. King and Mario M. Choi of Kaplan Fox & Kilsheimer LLP.

Bhupander Virk is represented by Richard W. Gonnello and Sherief Morsy of Faruqi & Faruqi LLP.

Counsel information for SCWorx Corp was not immediately available Tuesday.

Marc S. Schessel is represented by Michael J. Biles and Paul Richard Bessette of King and Spalding LLP.

The case is Yannes v. SCWorx Corp. et al, case number 1:20-cv-03349, in the U.S. District Court for the Southern District of New York.

—Additional reporting by Frank G. Runyeon. Editing by Amy Rowe.

For a reprint of this article, please contact reprints@law360.com.

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