Liberty Health Sciences Inc.
- Company Name
- Liberty Health Sciences Inc.
- Stock Symbol
- Class Period
- June 28, 2018 to December 3, 2018
- Motion Deadline
- March 8, 2019
- Southern District of New York
The complaint charges Liberty and certain of its officers with violations of the Securities Exchange Act of 1934. The Company’s principal business activity is the production and distribution of medical cannabis through its wholly-owned subsidiary DFMMJ LLC (d/b/a Liberty Health Sciences Florida Ltd.). Aphria Inc. (“Aphria”), which also produces and distributes cannabis, has had longstanding ties with Liberty, starting from the very beginning of both companies. Liberty was heavily influenced by Aphria and individuals involved in the management of Aphria.
The complaint alleges that, throughout the Class Period, defendants made materially false and misleading statements and/or failed to disclose adverse facts regarding the Company’s business and operations, including that, in conjunction with Aphria, Liberty was involved in a scheme whereby numerous fraudulent acquisitions and transactions were made to provide undue benefits to both companies’ insiders. As a result of this material information being withheld from the market, the price of Liberty common stock was artificially inflated to a high of $1.20 per share during the Class Period.
In September 2018, Aphria announced that it had sold off its stake in Liberty. On December 3, 2018, Quintessential Capital Management and Hindenburg Research issued a report, entitled “Aphria: A Shell Game with a Cannabis Business on the Side,” claiming that Aphria was part of a scheme involving the acquisition of shell companies at artificially inflated prices. Specifically, the report alleged that “Aphria is part of a scheme orchestrated by a network of insiders to divert funds away from shareholders into their own pockets.” The article detailed a thorough investigation into Aphria’s latest investments, which revealed the poor quality of the assets of those investments. On this news, the price of Liberty stock fell $0.36 per share, or nearly 34%, over the next two trading days to close at $0.70 per share on December 4, 2018.
Subsequently, on December 6, 2018, following a second report by Hindenburg Research, media outlets began reporting on Liberty’s connection to Aphria and Aphria’s alleged scheme. On this news, the price of Liberty stock fell more than 7%, to close at $0.66 per share on December 7, 2018.