Illegal Profits From False Claims About COVID-19 Vaccines

False Claims on COVID-19 Vaccine Making Illegal Profits

Written by Taher Kameli & Chathan Vemuri

Due to the need for a vaccine in light of the devastating COVID-19 pandemic, biotechnology companies developing vaccine candidates have become the source of immense profit to stockholders investing in these companies.[1] Investors are betting on companies with promising candidates for successful vaccines, hoping to make millions, if not billions, off of the sale of these drugs. Already insiders from 11 small companies dependent on drug success or failure have sold over $1 billion in shares since March, in response to announcements of positive test results from heads of pharmaceutical and medical companies, themselves profiting heavily in the process.[2] These timely stock transactions have been profitable for investors and company heads.[3]


However, one such company that has already made millions from announcements concerning its vaccine candidate is the biotechnology company Vaxart, after announcing that its vaccine candidate had been selected by the U.S. government Operation Warp Speed.[4] Yet there is concern from government officials that biotech companies are using, exaggerating, or even falsifying their ties to the government initiative in order to market their business and profit from it.[5]


This week, Vaxart shareholder David Stachowski filed a derivative suit against Vaxart in the U.S. District Court for the Northern District of California, alleging securities violations, breach of fiduciary duty and unjust enrichment, after it was discovered that wasn’t chosen to participate in the U.S. Government’s Warp Speed initiative, despite Vaxart’s claims that the initiative had selected its vaccine.[6]


In reality, Vaxart’s vaccine was part of an animal trial that a federal agency organized with the Warp Speed initiative but was not selected for funding and support.[7] Yet the announcement saw the value of the company’s shares jump from ¢35 per share to as high as $14 a share before coming back down to $8.04 per share, leading to allegations by the plaintiff shareholder that the company misled investors in order to enrich itself and benefit from the race to develop a COVID-19 vaccine.[8]


The suit claims that Vaxart’s executives and its biggest shareholder, hedge fund Armistice Capital LLC, changed warrant agreements on about 21 million shares in the beginning of June, making it easier to for the hedge fund, whose founder and one of its managing directors are both members of the Vaxart board, to quickly by the 21 million shares which generated more than $197 million in profits after Vaxart announced its vaccine was selected by the Warp Speed initiative.[9] This, coupled with the fact that the Vaxart CEO was granted stock options to buy more than 1.7 million shares worth $2.46 each that came to amount to $28 million, constituted illegal insider trading (spring-loading) and breached Vaxart officers’ fiduciary duties.[10]


Nevertheless, vaxart is not the only case. Officials at the Department of Health and Human Services have expressed the same fear that companies were exaggerating their involvement with the Warp Speed initiative in order to inflate their stock prices, which has been relayed to the Securities and Exchange Commission.[11]


In August, a Pennsylvania biotechnology company called Inovio announced its work on a new COVID-19 vaccine as well as affiliation with the government Warp Speed initiative, with promising results leading to its stock value soaring by as much as 963%.[12] This is in spite of the fact that Inovio never listed to receive financial support under Warp Speed to mass-produce vaccines.[13]  Inovio has sold the stock and made similar claims about vaccine tests for H1N1 (“Swine Flu”), malaria, the Zika virus, and, bizarrely, even a “cancer vaccine.”[14]


Yet, Inovio never actually brought a vaccine onto the market and some scientists have even questioned the viability of the technology used by Inovio, leading to shareholders suing the company for exaggerating its success on a coronavirus vaccine to inflate its stock price.[15] The problem goes beyond that to any claim regarding success with COVID-19 drug trials. Earlier in June of this year, investors with Co-Diagnostics, a Utah company, filed suit against it, claiming that it made false claims about its COVID-19 diagnostic test being completely accurate, with directors and officers selling their stock at inflated prices before the claims came to be doubted.[16]


This is not an issue of simply a few companies potentially gaming the market on COVID-19 vaccine candidates with misleading claims, this is part of a potentially damaging trend under the current government. As part of its effort to develop a COVID-19 vaccine, the Trump administration has been working companies with questionable records and exaggerated claims of success to demonstrate its resolve in fighting the COVID-19 pandemic.[17] Such claims can lure in unsuspecting investors whose investments turn out to be misplaced and could exacerbate public distrust in vaccines.[18]


Thus, in a world where mere unprotected exposure in a manner of minutes can spread the virus with potentially deadly effects, that is a dangerous situation. That is why it important to research and verify corporate reputations and evidence behind claims of vaccine success before investing. The development of an effective COVID-19 vaccine is an absolute necessity with almost 1 million deaths worldwide from the virus and great financial potential. Ambitious companies intent on promoting themselves and their products with thin foundations should not be allowed to profit from this tragedy.


Please contact Kameli Law at or give us a call at +1 (312) 233-1000 if you have concerns about an investment in a company claiming successful trials of a possible COVID–19 vaccines.


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[1] David Gelles and Jesse Drucker, Corporate Insiders Pocket $1 Billion in Rush for Coronavirus Vaccine, The New York Times (Jul. 25, 2020),

[2] Id.

[3] Id.

[4] Id. (Operation Warp Speed is the Trump Administration initiative to develop, manufacture and distribute the COVID-19 vaccine, funded by the U.S. Department of Health and Human Services).

[5] Id.

[6] Rachel O’Brien, Derivative Suit Sways Biotech Co. Lied About COVID-19 Vaccine, Law360  (Sept. 18, 2020, 3:47 PM)

[7] Id.

[8] Id./

[9] Id.

[10] Id.

[11] Id.

[12] David Gelles and Heather Murphy, This Company Boasted to Trump About Its Covid-19 Vaccine. Experts are Skeptical, The New York Times (updated Aug. 11, 2020)

[13] Id.

[14] Id.

[15] Id.

[16]Andrew G. Simpson, Investors’ Suit Alleges Firm Inflated Stock with Misleading Claims About Its Covid Test, Insurance Journal (Jun. 17, 2020)

[17] Id. (Such companies include Moderna and Novavax.)

[18] Id.

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