Chembio Diagnostics alleges securities fraud over COVID-19 test
Chembio Diagnostics alleges securities fraud over COVID-19 test

Chembio Diagnostics alleges securities fraud over COVID-19 test

Rapid tests for antigen for coronavirus disease (COVID-19). REUTERS / Hannibal Hanschke

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  • Investors did not show that managers knew about results with lower accuracy
  • Underwriters must face negligence requirements over offer documents

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(Reuters) – A US judge has denied allegations that Chembio Diagnostics Inc. has defrauded investors by overestimating the accuracy of their COVID-19 antibody test in the first months of the pandemic, but will allow the company’s insurers to be sued for negligence.

U.S. District Judge Allyne Ross in Brooklyn delivered on Wednesday that investors had not shown that Chembio executives knew that independent surveys indicated lower accuracy rates than the company revealed prior to a May 2020 share offering.

The company’s antibody test was one of the first to receive an emergency use permit from the US Food and Drug Administration in April 2020.

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Shareholders sued Chembio in June after the FDA revoked the permit, causing the company’s share price to fall more than 60%.

Underwriters Robert W. Baird & Co and Dougherty & Company LLC must face allegations that they were negligent in not disclosing by offering documents that the risk of FDA approval could be revoked due to the accuracy of the test. The judge also allowed investors to raise negligence claims against the company and directors.

Representatives of the underwriters and Chembio did not immediately respond to requests for comment Thursday.

Including Chembio, shareholders have sued 39 companies since the start of the pandemic over related issues, according to a database maintained by Stanford University.

For investors: Samuel Rudman, David Rosenfeld and Sarah Delaney from Robbins Geller Rudman & Dowd and Lawrence Rolnick, Marc Kramer, Steven Hecht, Brandon Fierro and Jennifer Randolph from Rolnick Kramer Sadighi

For Chembio: John Rotunno, Paul Walsen, Molly Mcginley and Joanna Diakos from K&L Gates

For underwriters: Colleen Smith, Michele Johnson, Jordan Davisson Cook and Kevin McDonough from Latham & Watkins

The case is In re Chembio Diagnostics Inc Securities Litigation, No. 20-cv-02706, U.S. District Court, Eastern District of New York.

Read more:

Chembio shares decline as FDA recalls emergency use of COVID-19 test

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Jody Godoy

Jody Godoy reports on banking and securities legislation. Contact her at [email protected]

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