No Refill on Stock Fraud Suit Against Drug Concern, 2d Cir. Says

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By Phyllis Diamond

Former employees of Covis Pharmaceuticals Inc. failed to revive claims the global drug concern fraudulently induced them to alter their holdings without disclosing it was engaged in merger negotiations ( Brown v. Cerberus Capital Mgmt. LP , 2017 BL 237853, 2d Cir., No. 17-63, 7/11/17 ).

The plaintiffs didn’t show that the alleged misrepresentations were material, the U.S. Court of Appeals for the Second Circuit said in a July 11 summary order.

The former employees knew from the outset that they were involved in a short term venture and that Covis executives were interested in quickly selling corporate assets, the appeals court said. “The pendency of merger negotiations thus signaled no more than the Covis’s enterprise’s continued adherence to its announced corporation strategy.”

The court also affirmed that the plaintiffs didn’t adequately allege “scienter"--culpable intent.

To contact the reporter on this story: Phyllis Diamond in Washington at pdiamond@bna.com

To contact the editor responsible for this story: Seth Stern at sstern@bna.com

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