By Dean Seal

Law360 (August 18, 2020, 4:12 PM EDT) -- Lowenstein Sandler LLP and Robbins Geller Rudman & Dowd LLP appear to be leading the fight to helm a putative securities class action against a diagnostics company that had its COVID-19 antibody test revoked by the U.S. Food and Drug Administration.

Eight total firms filed for appointment as lead counsel on Monday in the New York federal court case against Chembio Diagnostics Inc., a point-of-care diagnostics company that saw its stock price explode in the early stages of the coronavirus pandemic.

An investor sued Chembio after watching its share price drop more than 60% on June 17, the day after the FDA announced it had revoked the company's emergency use authorization for its COVID-19 antibody test, which had been among the first tests to receive such authorization as the virus spread through the U.S.

The lead plaintiff applicant claiming the highest financial losses as a result of the stock drop is a set of funds represented by Lowenstein Sandler, which asserts that the funds lost more than $1.76 million because of Chembio's alleged misrepresentations about the accuracy of the test.

"The funds are paradigmatic lead plaintiffs under the [Private Securities Litigation Reform Act] because they are sophisticated institutional investors with a real financial interest in the litigation, and also have experience serving as lead plaintiff in complex securities class actions and supervising the work of outside counsel," according to the motion filed Monday.

The lawsuit claims Chembio and its top brass misrepresented the test as providing high sensitivity and specificity, as well as being "100% accurate," only for the FDA to later question the test's accuracy and declare "it is not reasonable to believe that the test may be effective."

Chembio's stock hung around $4 per share in the early months of 2020 before exploding at the end of March. After the market closed on the last day of the month, Chembio announced it was launching a COVID-19 antibody test that could detect antibodies within 15 minutes of a finger prick. The company's share price rose about 40% the next day and continued to climb to a high of $15.54 on April 24, the suit noted.

The continued climb was hastened by the company's announcement on April 15 that it had received emergency use authorization from the FDA for its antibody test. Then on a May 4 conference call with investors, a Chembio executive stated that "accuracy of the DPP COVID-19 systems after 11 days post the onset of symptoms is 100% for total antibodies," based on data reviewed by the FDA, the suit alleges.

Chembio executives took advantage of the company's allegedly inflated stock price and closed a public offering of 2.6 million shares on May 11 at an offer price of $11.75, netting about $30.8 million, according to the lawsuit.

Then on June 16, the FDA announced it had revoked Chembio's emergency use authorization "due to performance concerns with the accuracy of the test." Chembio shares declined from a closing price of $9.93 that day to close at $3.89 per share on June 17, the complaint noted.

Of the eight investors that put in bids to lead the litigation on Monday, the Lowenstein Sandler-backed funds said they'd lost $998,750 as a result of their purchases of Chembio stock from the company's May offering, and another $769,140 from purchases on the open market.

The applicant most closely trailing the funds' financial losses claim was the Municipal Employees' Retirement System of Michigan, repped by Robbins Geller Rudman & Dowd and alleging $631,781 in losses.

When choosing between prospective lead plaintiffs, courts often look to the Private Securities Litigation Reform Act's guidance that the most adequate plaintiff have the "largest financial interest" in the relief sought by a class, although factors like choice of counsel, or whether the plaintiff is an individual or institutional investor, are also considered.

Levi & Korsinsky LLP, Faruqi & Faruqi LLP and Pomerantz LLP have also thrown their hats into the ring with individual investor plaintiffs alleging six-figure losses, as have The Rosen Law Firm PA and Kaplan Fox & Kilsheimer LLP with individual investors claiming five-figure financial losses on Chembio securities transactions.

Glancy Prongay & Murray LLP is representing an individual investor who also claims to have the largest financial interest in the case but did not disclose his losses from Chembio stock buys.

When reached Tuesday, Lawrence M. Rolnick of Lowenstein Sandler told Law360 that "we have a very experienced group of litigators with a proven track record and, if appointed, will do our very best to secure an outstanding recovery for all investors."

Counsel for the seven other applicants did not immediately respond to requests for comment.

Investor Jay Patel is represented by Donald R. Hall and Jeffrey P. Campisi of Kaplan Fox & Kilsheimer LLP.

Investor Craig Engel is represented by Phillip Kim and Laurence M. Rosen of The Rosen Law Firm PA.

Special Situations Fund III QP, LP, Special Situations Cayman Fund LP, and Special Situations Private Equity Fund LP are represented by Lawrence M. Rolnick, Marc B. Kramer, Steven M. Hecht, Brandon Fierro and Jennifer A. Randolph of Lowenstein Sandler LLP.

Investor Michael T. Dolan is represented by Shannon L. Hopkins of Levi & Korsinsky LLP.

Investor Jeff Kone is represented by Jeremy A. Lieberman, J. Alexander Hood II and Patrick V. Dahlstrom of Pomerantz LLP, and Lesley F. Portnoy of Portnoy Law Firm.

Investor Benjamin Wallace is represented by Richard W. Gonnello and Katherine Lenahan of Faruqi & Faruqi LLP.

Investor A. Majeed Qasim is represented by Gregory B. Linkh, Robert V. Prongay, Charles H. Linehan and Pavithra Rajesh of Glancy Prongay & Murray LLP, and Howard G. Smith of the Law Office of Howard G. Smith.

The Municipal Employees' Retirement System of Michigan is represented by David A. Rosenfeld, Samuel H. Rudman, Vincent M. Serra, Danielle S. Myers and Michael Albert of Robbins Geller Rudman & Dowd LLP.

The case is Chernysh v. Chembio Diagnostics Inc. et al., case number 2:20-cv-02706, in the U.S. District Court for the Eastern District of New York.

--Editing by Haylee Pearl.

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