UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS. ) Master Docket No RCL ALL ACTIONS ) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT - PDF

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UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS IN RE VASO ACTIVE PHARMACEUTICALS ) SECURITIES LITIGATION ) This Document Relates To: ) Master Docket No RCL ALL ACTIONS ) CONSOLIDATED
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UNITED STATES DISTRICT COURT DISTRICT OF MASSACHUSETTS IN RE VASO ACTIVE PHARMACEUTICALS ) SECURITIES LITIGATION ) This Document Relates To: ) Master Docket No RCL ALL ACTIONS ) CONSOLIDATED AMENDED CLASS ACTION COMPLAINT Lead Plaintiffs Edwin Choi, Richard Ching and Joe Huback ( Lead Plaintiffs ) and plaintiff Richard A. Ruternian (together with Lead Plaintiffs, Plaintiffs ), individually and on behalf of all other persons similarly situated, allege the following upon personal knowledge as to themselves and their purchases of the Class A common stock of Vaso Active Pharmaceuticals, Inc. ( Vaso or the Company ), and upon information and belief based upon the investigation of their attorneys as to all other matters. This investigation included, among other things, a review and analysis of the public filings by Vaso with the United States Securities and Exchange Commission ( SEC ), press releases and other public statements published by and regarding Vaso, a transcript of an interview with Vaso's President, Chief Executive Officer ( CEO ), and Chairman, John J. N4asiz ( Masiz ), and reports by news services about Vaso. Counsel for Plaintiffs has also thoroughly reviewed the complaint in the settled civil injunction action filed by the SEC against Vaso and Masiz on August 17, Plaintiffs believe that the ongoing investigations of their counsel will yield further information in support of the claims alleged herein. Based upon the substantial facts already uncovered, and alleged herein, Plaintiffs also believe that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery. NATURE OF THE ACTION This is a federal securities class action brought under Sections ii and 15 of the Securities Act of 1933 (the Securities Act ), 15 U.S.C. 77k and 77o, Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the Exchange Act ), 15 U.S.C. 78j(b) and 78t(a), and the rules and regulations promulgated thereunder by the SEC, including Rule 1 Ob-5, 17 C.F.R Ob- 5. The claims under the Exchange Act are brought on behalf of all persons and entities who purchased or otherwise acquired Vaso Class A common stock on the open market between December 9, 2003 and March 31, 2004, inclusive (the class Period ). The claims under the Securities Act are brought on behalf of all persons and entities who acquired shares of Vaso's Class A common stock in connection with the Company's initial public offering on or about December 9, 2003 (the IPO ) pursuant, or traceable, to Vaso's Form SB-2 registration statement filed on July 7, 2003 and its Forms SB-2/A amended registration statements filed on September 12, 2003, October 16, 2003, November 13, 2003, and December 9, 2003 (collectively the Registration Statement ). 2. According to the Company, Vaso was an early stage company focused on the commercialization, marketing, and sale of over-the-counter (OTC) drug products that incorporated a patented transdermal (i.e., through the skin) drug delivery technology, which was exclusively licensed to Vaso by its parent company, BioChemics, Inc. ( BioChemics ). This transdermal technology, referred to in the Company's SEC filings as vaso active lipid encapsulated, or VALE, transdermal delivery technology, purportedly provided a highly efficient, reliable and targeted method of drug delivery into 2 the bloodstream that does not require the use of a needle or patch and eliminates many of the common side effects of pills, such as bleeding and ulcers. 3. Defendants (defined below) represented in the Registration Statement that Vaso had begun marketing and was preparing for the commercial launch of three OTC, transdermal drug products Athlete's Relief, Osteon, and defeet (later renamed Termin8) (collectively the Current Products ) - two of which, defeet and Athlete's Relief, purportedly employed the Company's exclusive VALE transdermal drug delivery technology. The Registration Statement also represented that Vaso's Current Products have been through the research and development, pre-clinical study and clinical trial stages and have received FDA approval. 4. Based on these representations, Defendants conducted the IPO at an offering price of $5.00 per share and raised over $8.3 million in gross proceeds and approximately $6.4 million in net proceeds. During the Class Period, the Company was also able to raise an additional $7.5 million in a private placement of its securities and pay for marketing and advertising services with warrants to purchase Vaso common stock. Throughout the Class Period, Vaso continued to represent that Vaso's Current Products were compliant with FDA rules and regulations and were ready for commercial launch. 6. However, unbeknown to the investing public, Vaso's claims regarding its Current Products were materially false and misleading. Vaso had not, and has not, received any approval from the FDA for the marketing or sale of any of its OTC drug products. Moreover, because the Current Products were represented to employ a new mode of drug administration, i.e., transdermal, that had 3 not been considered by the FDA as generally recognized as safe and effective, or GRASE, these products were not eligible for participation in the FDA's OTC Review Program. As a result, Vaso was required to obtain pre-market approval from the FDA in the form of an approved new drug application (NDA) or abbreviated new drug application (ANDA) before it could market or sell its Current Products. 7. The perpetuation of these material false and misleading statements was brought to an end by the SEC who suspended trading in the Company's stock effective at 9:30 AM on April 1, According to the Company, the SEC imposed the trading suspension because of questions regarding the accuracy of assertions by the Company and by others, in press releases, its annual report, its Registration Statement and public statements to investors concerning, among other things: (1) the FDA approval of certain key products, and (2) the regulatory consequences of the future application of their primary product. After the initiation of the trading suspension, Vaso ceased the marketing and sale of its Current Products and has to date not resumed the marketing and sale of these products. On April 2, 2004, the Nasdaq Stock Market, Inc. ( Nasdaq ) notified Vaso that it had commenced an inquiry concerning the Company's compliance with Nasdaq inclusion requirements. In response, the Company chose to voluntarily cause its shares to be removed from Nasdaq, and the Company's securities were delisted from the Nasdaq effective April 8, 2004, 9. On August 17, 2004, the SEC, who consulted the FDA with respect to Vaso, filed a complaint against the Company and Masiz, alleging that these defendants made material misrepresentations and omissions in both public statements and filings made with the SEC by falsely 4 claiming, among other things, that Vaso's Current Products had received FDA approval (the SEC Complaint ) 10. After the Class Period, the Company and Masiz settled with the SEC and restated the Company's Form 1 0-KSB for the year ended December 31, 2003 to correct various false and misleading statements concerning the Current Products. As part of his settlement with the SEC, Masiz was fined $80,000 and agreed to be barred from acting as an officer or director of any public company, including Vaso, for five years. 11. In its restated Form 1 0-KSB, Vaso no longer described its Current Products as having a transdermal effect, instead describing each as having only a topical formulation and effect. Moreover, the Company disclosed that because the VALE transdermal technology required NDA approval by the FDA, the Company would not pursue the development of this technology until it had secured a partnership with a larger marketing partner. Thus, Vaso effectively abandoned the very technology which it had described during the Class Period as the sole focus of the Company's business strategy and activities. 12. On March 31, 2004, the last day of the Class Period, the Company's Class A common stock closed at a price of $7.59 per share. After the SEC trading suspension expired, trading in the Company's stock resumed on the over-the-counter (OTC) Bulletin Board on April 16, On that date, the Company's stock closed at a price $1.75 per share, according to the Pink Sheets, representing a 77% decline from its closing price on March 31, The Company's Class A common stock, which had a closing price as high as $13.10 per share during the Class Period, now trades on the OTC Bulletin Board for less than a $0.50 per share.' 13. Due to Defendants' dissemination of materially false and misleading statements throughout the Class Period concerning Vaso's Current Products and the Company's ability to pursue commercialization of OTC drug products that employed the VALE transdermal drug delivery technology, the price of Vaso's Class A common stock was artificially inflated in price at all relevant times, and purchasers of the Company's common stock, including Plaintiffs, were damaged as a result. JURISDICTION AND VENUE 14. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange Act as (15 U.S.C. 78j (b) and 78t(a)) and Rule lob-s promulgated thereunder by the SEC (17 C.F.R Ob-5), and Sections 11 and 15 of the Securities Act (15 U.S.C. 77 k and 77o). 15. This Court has jurisdiction over the subject matter of this action pursuant to Section 27 of the Exchange Act (15 U.S.C. 78aa), Section 22 of the Securities.Act (15 U.S.C. 77v), and 28 U.S.C and Venue is proper in this District pursuant to Section 27 of the Exchange Act (15 U.S.C. 78aa) and 28 U.S.C. 1391(b). Vaso maintains its principal executive offices in this District, and many of the acts complained of, including the dissemination to the investing public of materially false and misleading information, occurred within this District. 17. In connection with the acts, conduct, and wrongs complained of herein, Defendants, 'Except where noted herein, all share numbers, per share stock prices, and option exercise prices contained herein reflect the Company's 3 for 1 stock split effective March 5, 2004. directly or indirectly, used the means and instrumentalities of interstate commerce. THE PARTIES 18. Lead Plaintiffs purchased Vaso Class A common stock during the Class Period, as set forth in their certifications previously filed with the Court and incorporated by reference, and have suffered damages as a result. 19. Plaintiff Richard A. Ruterman purchased shares of Vaso Class A common stock during the Class Period, as set forth in his certification of named plaintiff, which is annexed hereto as Exhibit A, and has suffered damages as a result. 20. Defendant Vaso is a Delaware corporation with its headquarters and executive offices located in Danvers, Massachusetts. Dur9ing the Class Period, shares of Vaso common stock traded on the Nasdaq under the ticker symbol VAPH. As of March 18, 2004, there were over 5,798,604 shares of Vaso Class A common stock outstanding. 21. Defendant Masiz was, at all relevant times, Vaso's President, CEO, and Chairman, and the President, CEO, and Chairman of BioChemics, Vaso's parent Company and principal stockholder. At all relevant times, BioChemics owned 4,500,000 shares of Vaso's Class B common stock, representing approximately 70% of the combined voting power of the outstanding common stock of the Company. At all relevant times, Masiz had over 85% of the sole beneficial ownership of BioChemics. As a result, as stated in the Company's Form 10-KSB for the year ended December 31, 2003, Masiz controls both BioChemics and Vaso. Defendant Masiz signed the Registration Statement and the Company's Form 10-KSB for the year ended December 31, 2003, which contained materially false 7 and misleading statements, as detailed herein. 22. Defendant Stephen G. Carter, PH.D was, at all relevant times since June 2003, Vaso's Chief Scientific Officer ( CSO ) and director. At all relevant times from 1999, defendant Carter also served as CSO and as a director of BioChemics. Defendant Carter signed the Registration Statement and the Company's Form l0-ksb for the year ended December 31, 2003, which contained materially false and misleading statements, as detailed herein. 23. Defendant Joseph Frattaroli was, at all relevant times, Vaso's Chief Financial Officer and Secretary. Defendant Frattaroli signed the Registration Statement, which contained materially false and misleading statements, as detailed herein. 24. Defendant Bruce A. Shear was, at all relevant times, a director of Vaso. Defendant Shear signed the Registration Statement, which contained materially false and misleading statements, as detailed herein. 25. Defendant Gary Fromm, PH..D was, at all relevant times, a director of Vaso. Defendant Fromm signed the Registration Statement, which contained materially false and misleading statements, as detailed herein. 26. Defendant Brian J. Strasnick, PH.D was, at all relevant times, a director of Vaso. Defendant Strasnick signed the Registration Statement, which contained materially false and misleading statements, as detailed herein. 27. Defendant William P. Adams, M.D was, at all relevant times, a director of Vaso. Defendant Adams signed the Registration Statement, which contained materially false and misleading statements, as detailed herein. 28. Defendant Robert E. Anderson was, at all relevant times, a director of Vaso. Defendant Anderson signed the Registration Statement, which contained materially false and misleading statements, as detailed herein. 29. Defendants Shear, Fromm, Strasnick, Adams, and Andersen are referred to herein as the Outside Director Defendants. 30. Defendants Vaso, Masiz, Carter, Frattaroli, Shear, Fromm, Strasnick, Adams, Andersen, and Kashner (defined below) are collectively referred to herein as Defendants. 31. Defendants Masiz, Carter, and Frattaroli's and the Outside Directors' signatures on the Registration Statement make them primarily liable under Section 11 of the Securities Act for the materially false and misleading statements that appeared in that Registration Statement. 32. As officers and controlling persons of a publicly-held company whose common stock was registered with the SEC pursuant to the Exchange Act, and was traded on the Nasdaq, and governed by the provisions of the federal securities laws, defendants Masiz and Carter had a duty to disseminate promptly, accurate and truthful information with respect to the Company's financial condition and operations, so that the market price of the Company's publicly-traded common stock would be based upon truthful and accurate information. Defendants Masiz and Carter's material misrepresentations during the Class Period violated these specific requirements and obligations. 31 Because of their positions of control and authority as an officers and directors of the Company, defendants Masiz and Carter were able to and did control the content of the Company's 9 filings with the SEC. Defendants Masiz and Carter were provided with copies of the documents alleged herein to be misleading prior to or shortly after their issuance and/or had the ability and/or opportunity to prevent their issuance or cause them to be corrected. Moreover, defendants Masiz and Carter by virtue of their directorships and executive and managerial positions with Vaso and BioChemics, directly participated in the management of the Company and BioChemics, were directly involved in the day-to-day operations of the Company and BioChemics at the highest level, and were privy to confidential proprietary information concerning the Company, its business and operations, clinical trials, and its compliance and non-compliance with FDA regulations. 34. Defendants Vaso, Masiz and Carter are primary liable as participants in a fraudulent scheme and course of business that operated as a fraud or deceit on purchasers of Vaso common stock, by disseminating materially false and misleading statements and concealing material adverse facts. The scheme deceived the investing public regarding Vaso's business, strategies, prospects, financial condition, and the intrinsic value of Vaso common stock and caused Plaintiffs and other members of the Class to purchase Vaso common stock at artificially inflated prices. Because of defendants Masiz and Carter's positions with the Company and BioChemics, they had access to the undisclosed adverse information about the Company's principal technology, clinical trials, compliance and non-compliance with FDA regulations, and its business prospects via access to internal corporate documents, conversations and connections with other corporate officers and employees, attendance at management and Board of Directors meetings and committees thereof, and via reports and other information provided to them in connection therewith. ffil 35. Defendant Kashrier Davidson Securities Corp. ( Kashner ) is a brokerage and investment banking firm with its principal office located in Sarasota, Florida. Kashner was the lead underwriter for the IPO. Kasimer substantially participated in the commission of the wrongs alleged herein and received substantial fees in connection with the IPO. In connection with the IPO, Kashner was to receive approximately $475,000 in underwriting fees plus live year warrants, at a price of $0001 per warrant, to purchase 435,000 shares of Vaso Class A common stock at an exercise price of $2.58 per share. The warrants were exercisable during the four year period commencing one year from approximately December 9, Prior to the 1P0, defendant Kashner was required to, and did, conduct an investigation into the business, operations, prospects, financial condition and accounting and management control systems of Vaso, known as a due diligence investigation. In the course of such investigation, Kashner would have obtained knowledge of the facts alleged herein if it acted with reasonable care. Specifically, had Kashncr completed the most cursory of investigations, it would have discovered that neither Vaso nor BioChemics had sought nor received FDA approval for Vaso's Current Products and that the representation in the Registration Statement that the Current Products had received FDA approval was patently false. Kashner caused the materially false and misleading Registration Statement to be delivered to potential and actual purchasers of Vaso common stock in connection with offers and sales thereof. At all relevant times, Kashner had a duty to promptly disseminate truthful and accurate information with respect to Vaso and its affairs. 11 SUBSTANTIVE ALLEGATIONS BACKGROUND 37. According to the Company, Vaso began its operations in January 2001 as a division of BioChemics, a biopharmaceutical company focused on the development of transdermal drug delivery systems. According to the Company, Vaso's business focus was the commercialization of a broad range of products incorporating BioChemics's patented VALE transdermal drug delivery technology, which was exclusively licensed to Vaso by BioChemics for use in the OTC pharmaceutical market. 38. In the Registration Statement, the Company's VALE system was described as a patchless, lipid-based delivery system, which uses an active, as opposed to a passive, process to deliver drugs into the bloodstream. In the Registration Statement, Vaso also touted the Company's VALE technology as providing an efficient, predictable and reliable transdermal drug delivery system that eliminates the need for a patch and allows for the efficient and effective delivery [of] a myriad of drugs that can not be effectively delivered transdermally using prior transdermal drug delivery technology. SECURITIES ACT CLAIMS 39. The claims brought under the Securities Act are separate and distinct from Counts EU and IV asserted herein under the Exchange Act. The
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