Case 2:20-cv-02706-ARR-ARL Document 1 Filed 06/18/20 Page 1 of 20 PageID #: 1
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`UNITED STATES DISTRICT COURT
`EASTERN DISTRICT OF NEW YORK
`
`20-cv-2706
`CASE NO. _______________
`
`JURY TRIAL DEMANDED
`
`SERGEY CHERNYSH, on behalf of
`himself and all others similarly situated,
`
`Plaintiff,
`
`v.
`
`CHEMBIO DIAGNOSTICS, INC.,
`RICHARD L. EBERLY, and GAIL S.
`PAGE,
`
`Defendants.
`
`CLASS ACTION COMPLAINT
`
`Plaintiff, Sergey Chernysh, by his attorneys, on behalf of himself and all others similarly
`
`situated, alleges the following based upon the investigation by plaintiff’s counsel, except as to
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`allegations specifically pertaining to plaintiff, which are based on personal knowledge. The
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`investigation by counsel included, among other things, a review of Chembio Diagnostics, Inc.’s
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`(“Chembio” or the “Company”) public filings with the United States Securities and Exchange
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`Commission (“SEC”), press releases issued by the Company, public conference calls, media and
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`news reports about the Company, and publicly available trading data relating to the price and
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`volume of Chembio common stock.
`
`I.
`
`INTRODUCTION
`
`1.
`
`This action is a securities fraud action brought under Sections 10(b) and 20(a) of
`
`the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated
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`thereunder by the SEC brought by Plaintiff on behalf of a class of all persons and entities who
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`purchased the publicly traded common stock of Chembio during the period April 1, 2020
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`Case 2:20-cv-02706-ARR-ARL Document 1 Filed 06/18/20 Page 2 of 20 PageID #: 2
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`through June 16, 2020, inclusive (the “Class Period”).
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`2.
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`Chembio purports to be a leading point-of-care (POC) diagnostics company
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`focused on detecting and diagnosing infectious diseases. The Company claims its patented Dual
`
`Path Platform (DPP) technology platform, which uses a small drop of blood from the fingertip,
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`provides high-quality, cost-effective results in approximately 15 minutes.
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`3.
`
`Furthermore, the Company asserts that its products “meet the highest standards
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`for accuracy and superior performance to help prevent the spread of infectious diseases” and that
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`its “innovative solutions, like the Chembio Dual Path Platform (DPP®), make POC testing
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`faster, more accurate, and more cost effective.”
`
`4.
`
`In light of the COVID-19 pandemic, the Company focused on the development
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`and commercialization of a serological or antibody test. Chembio’s antibody test was one of the
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`first antibody tests authorized by the FDA during the COVID-19 public health emergency.
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`5.
`
`Throughout the Class Period, Defendants represented that its DPP COVID-19
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`serological POC test for the detection of IgM and IgG antibodies aided in determining current or
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`past exposure to the COVID-19 virus, that its test provides high sensitivity and specificity, and
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`was 100% accurate. Test sensitivity is the ability of a test to correctly identify those with the
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`disease (true positive rate), whereas test specificity is the ability of the test to correctly identify
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`those without the disease (true negative rate).
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`6.
`
`Based on Defendants representations, during the Class Period the Company’s
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`stock increased from a closing price on March 31, 2020, the day before the Class Period begins,
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`of $5.12 per share, to a Class Period high of $15.54 per share on April 24, 2020.
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`7.
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`Defendants took advantage of Chembio’s inflated stock price. On May 11, 2020,
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`the Company reported that it closed the public offering of approximately 2.6 million shares of
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`Chembio stock at $11.75 per share for gross proceeds of approximately $30.8 million.
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`8.
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`Then, on June 16, 2020, after the market closed, the U.S. Food and Drug
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`Administration (“FDA”) issued a press release disclosing that it had revoked the Company’s
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`Emergency Use Authorization (“EUA”) for the Company’s DPP COVID-19 Igm/IgG System:
`
`Today, the U.S. Food and Drug Administration revoked the emergency use
`authorization (EUA) of the Chembio Diagnostic System, Inc. (Chembio) DPP
`COVID-19 IgM/IgG System, a SARS-CoV-2 antibody test, due to performance
`concerns with the accuracy of the test. Antibody tests, a type of serological test,
`can help provide information on a person’s and population’s exposure to COVID-
`19.
`
`“Since the beginning of the COVID-19 public health emergency, the FDA has
`balanced the urgent need for access to diagnostic and antibody tests with
`providing a level of oversight that helps to ensure accurate tests are being
`deployed,” said Jeff Shuren, M.D., director of FDA’s Center for Devices and
`Radiological Health. “By continuing to monitor authorized tests and emerging
`scientific evidence, we are able to make changes when appropriate – including
`taking action when a test’s benefits no longer outweigh its risks. Through
`these efforts, we are able to help assure that FDA-authorized tests meet the needs
`of the American public.”
`
`The Chembio antibody test was one of the first antibody tests authorized by the
`FDA during
`the COVID-19 public health emergency. At
`the
`time of
`authorization, based on the information that Chembio submitted to the FDA at
`that time, the agency concluded that the test met the statute’s “may be effective”
`standard for emergency use authorization, and that the test’s known and potential
`benefits outweighed its known and potential risks.
`
`As the FDA has learned more regarding the capability for performance of SARS-
`CoV-2 serology tests during the pandemic, and what performance is necessary for
`users to make well-informed decisions—through both the continued review and
`authorization of serology tests as well as through a research partnership with the
`National Institutes of Health’s National Cancer Institute (NCI)— the FDA was
`able to develop general performance expectations for these tests, which are listed
`in our serology templates.
`
`Data submitted by Chembio as well as an independent evaluation of the
`Chembio test at NCI showed that this test generates a higher than expected
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`rate of false results and higher than that reflected in the authorized labeling
`for the device. Under the current circumstances of the public health
`emergency, it is not reasonable to believe that the test may be effective in
`detecting antibodies against SARS-CoV-2 or that the known and potential
`benefits of the test outweigh the known and potential risks of the test,
`including the high rate of false results. Moreover, the risk to public health from
`the false test results makes EUA revocation appropriate to protect the public
`health or safety. As such, the FDA decided to revoke the emergency use
`authorization of the Chembio test, and this test may not be distributed.
`
`(Emphasis added).
`
`9.
`
`On June 17, 2020, the Company filed a report with the SEC on Form 8-K that
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`acknowledged receipt of the FDA’s June 16, 2020 letter and stated, in part, the following:
`
`On June 16, 2020, we received a letter from the U.S. Food and Drug
`Administration, or FDA, notifying us that the FDA was revoking the Emergency
`Use Authorization, or EUA, granted in April 2020 with respect to our DPP
`COVID-19 System, which consists of our serological test for COVID-19 and one
`of our Micro Reader analyzers. As a result of this decision by the FDA, we may
`no longer distribute the DPP COVID-19 System. . .
`
`In its letter of June 16, 2020, the FDA stated that it had decided to revoke the
`EUA for the DPP COVID-19 System due to performance concerns regarding the
`sensitivity and specificity of our test system. . . .
`
`We intend to continue working with the FDA with respect to the modification of
`the DPP COVID-19 System and of the revocation of the EUA for our test system.
`
`10.
`
`As a result of disclosure of the FDA letter, Chembio shares declined from a
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`closing price on June 16, 2020 of $9.93 per share to close at $3.89 per share on June 17, 2020, a
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`decline of $6.04 per share, or over 60%, on heavier than usual volume of over 25 million shares.
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`11.
`
`Also on June 17, 2020, Bloomberg published a report titled “FDA Reversal on
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`Chembio Antibody Test Sends Stock Down 63%” that noted that, in light of the FDA revocation
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`of the Company’s EUA, five analysts downgraded Chembio stock.
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`12.
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`As a result of Defendants’ wrongful acts and omissions, and the precipitous
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`decline in the market value of the Company’s common stock, Plaintiffs and other Class members
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`have suffered significant losses and damages.
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`II.
`
`JURISDICTION AND VENUE
`
`13.
`
`The claims asserted arise under Sections 10(b) and 20(a) of the Exchange Act and
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`Rule 10b-5 promulgated thereunder. Jurisdiction is conferred by Section 27 of the Exchange
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`Act. Venue is proper pursuant to Section 27 of Exchange Act because during the Class Period
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`defendant Chembio and the Individual Defendants conducted business in, and wrongful conduct
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`took place in, this District.
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`III.
`
`THE PARTIES
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`14.
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`Plaintiff purchased Chembio’s publicly traded common stock as detailed in the
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`attached Certification and was damaged thereby.
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`15.
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`Defendant Chembio is incorporated in Nevada and its current principal executive
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`offices are located at 555 Wireless Boulevard, Hauppauge, New York 11788.
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`16.
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`Defendant Richard L. Eberly (“Eberly”) has been the Company’s President and
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`Chief Executive Officer, and a director since March 16, 2020.
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`17.
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`Defendant Gail S. Page (“Page”), has been the executive chair of the Company’s
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`board of directors since July 2017.
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`18.
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`Defendants Eberly and Page are referred to herein as the “Individual Defendants.”
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`The Individual Defendants, because of their positions with the Company, possessed the power
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`and authority to control the contents of Chembio’s quarterly reports, press releases and
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`presentations to securities analysts, money and portfolio managers and institutional investors,
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`i.e., the market. Each defendant was provided with copies of the Company’s reports and press
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`releases alleged herein to be misleading prior to or shortly after their issuance and had the ability
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`and opportunity to prevent their issuance or cause them to be corrected. Because of their
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`positions and access to material non-public information available to them but not to the public,
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`each of these defendants knew that the adverse facts specified herein had not been disclosed to
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`and were being concealed from the public and that the positive representations which were being
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`made were then materially false and misleading. The Individual Defendants are liable for the
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`false statements pleaded herein, as those statements were each “group-published” information,
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`the result of the collective actions of the Individual Defendants.
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`19.
`
`Chembio and
`
`the Individual Defendants are referred
`
`to collectively as
`
`“Defendants”.
`
`IV. CLASS ACTION ALLEGATIONS
`
`20.
`
`Plaintiff brings this action as a class action pursuant to Federal Rules of Civil
`
`Procedure 23(a) and 23(b)(3) on behalf of a class of all persons and entities who purchased the
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`publicly traded common stock of Chembio during the period April 1, 2020 through June 16,
`
`2020, inclusive (the “Class”).
`
`21.
`
`The members of the Class are so numerous that joinder of all members is
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`impracticable. While the exact number of Class members is unknown to plaintiff at the present
`
`time and can only be ascertained through appropriate discovery, plaintiff believes that there are
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`hundreds of members of the Class located throughout the United States. As of March 4, 2020,
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`Chembio had over 17 million shares of common stock outstanding, which were actively traded
`
`on the Nasdaq in an efficient market.
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`22.
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`Plaintiff’s claims are typical of the claims of the members of the Class. Plaintiff
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`and all members of the Class have sustained damages because of Defendants’ unlawful activities
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`alleged herein. Plaintiff has retained counsel competent and experienced in class and securities
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`litigation and intends to pursue this action vigorously. The interests of the Class will be fairly
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`and adequately protected by plaintiff. Plaintiff has no interests which are contrary to or in
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`conflict with those of the Class that plaintiff seeks to represent.
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`23.
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`A class action is superior to all other available methods for the fair and efficient
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`adjudication of this controversy. Plaintiff knows of no difficulty to be encountered in the
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`management of this action that would preclude its maintenance as a class action.
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`24.
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`Common questions of law and fact exist as to all members of the Class and
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`predominate over any questions solely affecting individual members of the Class. Among the
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`questions of law and fact common to the Class are:
`
`(a)
`
`whether the federal securities laws were violated by Defendants’ acts and
`
`omissions as alleged herein;
`
`(b)
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`whether defendants misstated and/or omitted to state material facts in their public
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`statements and filings with the SEC;
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`(c)
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`whether Defendants participated directly or indirectly in the course of conduct
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`complained of herein; and
`
`(d)
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`whether the members of the Class have sustained damages and the proper
`
`measure of such damages.
`
`V.
`
`FALSE AND MISLEADING STATEMENTS
`
`25.
`
`On March 31, 2020, after the market closed, the Company issued a press release
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`titled “Chembio Announces Launch of DPP COVID-19 Serological Point-of-Care Test” that
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`stated the following1:
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`IgM/IgG Antibody Results in 15 Minutes from a Simple Finger Stick
`
`HAUPPAUGE, N.Y., March 31, 2020 (GLOBE NEWSWIRE) -- Chembio
`Diagnostics, Inc. (Nasdaq: CEMI), a leading point-of-care diagnostic company
`focused on infectious diseases, today announced the U.S. launch of the rapid DPP
`COVID-19 serological point-of-care test for the detection of IgM and IgG
`antibodies. These results can be obtained within 15 minutes from a simple finger
`stick utilizing Chembio’s MicroReader 1 and MicroReader 2 analyzers which are
`produced by Chembio Germany. The ability of the DPP platform to provide
`numerical results can aid clinicians in determining current or past exposure to
`the COVID-19 virus and monitoring infection progression, while avoiding the
`human interpretation errors associated with visual readings.
`
`The DPP COVID-19 test detects antibodies in the blood that are produced by the
`body in response to a novel coronavirus infection. Numerical readings of the IgM
`and IgG antibodies have the ability to assist clinicians in determining patients who
`have been exposed to the novel coronavirus, even among patients who exhibit
`mild to no symptoms. Detection of an acute infection phase, as determined by the
`level of IgM antibodies, helps determine if a patient may still be infectious and
`could possibility transmit the infection to another person. Further along in the
`infection progression, the body typically starts to produce IgG antibodies, which
`increase while IgM levels decrease until eventually only IgG antibodies are
`present, demonstrating prior infection without the ability to transmit the virus.
`
`“The results and data from our DPP COVID-19 test can help improve clinical
`outcomes through the management of individual patients by enabling clinicians
`to understand the likelihood of past and present infection and to manage
`populations as a whole as a surveillance test,” stated Richard Eberly, Chief
`Executive Officer of Chembio. “Our measured approach has positioned us to
`offer a viable and sustainable long-term solution for clinicians. We expect to
`begin shipping product in April 2020, and we will continue to work with our
`partner LumiraDx to provide DPP COVID-19 tests with the ability to scale based
`upon market demand.”
`
`“We are excited that, through diligent collaboration with the FDA, our test will be
`distributed as authorized by the FDA Notification process under the public health
`emergency guidance issued on March 16, 2020,” stated Gail S. Page, Chembio
`director. “This is another example of Chembio’s ability to respond in an
`expeditious manner to global pandemics with differentiated solutions, as
`demonstrated previously with Zika and Ebola.” . . . .
`
`
`
`1 The statements quoted in this section in bold and italicized typeface are materially false and
`misleading for the reasons set forth herein.
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`Chembio is a leading point-of-care diagnostics company focused on detecting and
`diagnosing infectious diseases. The company’s patented DPP technology
`platform, which uses a small drop of blood from the fingertip, provides high-
`quality, cost-effective results in approximately 15 minutes.
`
`26.
`
`On April 15, 2020, Chembio issued a press release titled “Chembio Diagnostics
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`Receives Emergency Use Authorization for DPP COVID-19 System for IgG and IgM
`
`Antibodies” that stated, as follows:
`
`First Shipments of the COVID-19 Serological Test have been Released
`
`HAUPPAUGE, N.Y., April 15, 2020 (GLOBE NEWSWIRE) -- Chembio
`Diagnostics, Inc. (Nasdaq: CEMI), a leading point-of-care diagnostic company
`focused on infectious diseases, today announced receipt of Emergency Use
`Authorization (EUA) for its DPP COVID-19 System. The DPP COVID-19
`System is a serological test and analyzer that provides numerical readings for both
`IgM and IgG levels within 15 minutes from a simple finger stick drop of blood.
`Both Chembio’s Micro Reader 1 and Micro Reader 2 analyzers are compatible
`with the test.
`
`“We are very pleased with the continued progress our teams are making to
`address the market demands with our DPP COVID-19 serological system,” stated
`Rick Eberly, Chembio’s Chief Executive Officer. “The flexibility of having two
`analyzers and a system that provides high sensitivity and specificity that is
`generally consistent with the performance of Chembio’s other DPP platform
`tests as part of our offering places us in a unique position to serve a variety of
`markets. Additionally, we are pleased to announce that our manufacturing team
`has produced and shipped our first lots of the COVID-19 Systems, and we look
`forward to providing further product within the US and abroad.”
`
`27.
`
`On May 4, 2020, the Company reported its financial results for the quarter ended
`
`March 31, 2020 and conducted a conference call with investors in which Defendants Eberly and
`
`Page participated. During the conference call, Defendant Eberly represented that the “accuracy
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`of the DPP COVID-19 systems after 11 days post the onset of symptoms is 100% for total
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`antibodies. This is based on our data that was submitted to and reviewed by the FDA for the
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`EUA.”
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`28.
`
`On May 11, 2020, the Company issued a press release titled “Chembio
`
`Diagnostics Announces Closing of Public Offering of Common Stock” that stated the following:
`
`HAUPPAUGE, N.Y., May 11, 2020 (GLOBE NEWSWIRE) -- Chembio
`Diagnostics, Inc. (Nasdaq: CEMI) (“Chembio”), a
`leading point-of-care
`diagnostic company focused on infectious diseases, announced today the closing
`of its previously announced public offering of 2,619,593 shares of its common
`stock, which included 281,125 shares issued pursuant to the partial exercise by the
`underwriters of their option to purchase additional shares, at a public offering
`price of $11.75 per share for gross proceeds of approximately $30.8 million. All
`shares of common stock sold in the offering were offered by Chembio.
`
`
`29.
`
`On May 4, 2020, the Company issued a press release reporting the Company’s
`
`financial results for the quarter ended March 31, 2020, that stated, in part, the following:
`
`Recent Accomplishments & Highlights
`
`
`• Attained FDA Emergency Use Authorization for the DPP COVID-19
`IgM/IgG System serological test
`Announced the U.S. launch and shipments to customers of the DPP
`•
`COVID-19 System
`Selected by Stony Brook Medicine as the testing solution to
`•
`identify COVID-19 survivors for study on COVID-19 convalescent
`plasma therapy
`Received a $4.0 million purchase order from Bio-Manguinhos for
`•
`our DPP COVID-19 System . . . .
`
`“During the first quarter, we refocused our business strategy to address the
`escalating need for COVID-19 diagnostic tests. In a short period of time, we
`developed a COVID-19 serological testing system, received FDA Emergency Use
`Authorization and began shipping tests to customers in the United States and
`Brazil in April. Our differentiated testing system offers numerical discrete
`detection of both IgM and IgG antibodies in approximately 15 minutes from a
`fingerstick. Then, in approximately 15 seconds, the DPP COVID-19 System
`reads the test to provide numerical results using the portable Micro Reader
`analyzers that are engineered and produced by our wholly owned subsidiary in
`Germany. Numerical results reduce the possibility of the types of human error
`that can be experienced in the visual interpretations required by many other
`serological tests,” said Gail Page, Chembio’s Executive Chair of the Board. “We
`are proud to be serving the needs of clinicians and the broader healthcare
`community in this time of crisis.”
`
`“It has been an extremely productive first few weeks in my new role as CEO.
`Amid these challenging circumstances, the skill and hard work of this team has
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`enabled a successful strategic pivot as we prioritize manufacturing and
`commercialization of our DPP COVID-19 System,” said Richard Eberly,
`Chembio’s Chief Executive Officer. “Through efficient use of our resources and
`technical ability, we are scaling production of these tests due to the strong demand
`we are experiencing. We believe the features and benefits offered by our DPP
`COVID-19 System will make it a preferred solution.”
`
`
`30.
`
`On May 18, 2020 the Company issued a press release titled “Chembio
`
`Diagnostics Announces US Distribution Agreement to Expand Reach of DPP COVID-19
`
`Serological Test with Thermo Fisher Scientific’s Healthcare Channel” that stated the
`
`following:
`
`HAUPPAUGE, N.Y., May 18, 2020 (GLOBE NEWSWIRE) -- Chembio
`Diagnostics, Inc. (Nasdaq: CEMI), a leading point-of-care diagnostic company
`focused on infectious diseases, today announced it has signed a multi-year, non-
`exclusive agreement with Thermo Fisher Scientific’s healthcare channel, to
`distribute Chembio’s DPP COVID-19 System in the United States. The DPP
`COVID‑19 System is a rapid serological test and analyzer that provides
`numerical readings for both IgM and IgG antibody levels within 15 minutes
`from a finger stick drop of blood. The DPP COVID‑19 System can include either
`Chembio’s Micro Reader 1 or Micro Reader 2 analyzer.
`
`“We are pleased to announce our strategic supplier partnership with the Fisher
`Healthcare channel, which will significantly increase our commercial footprint by
`providing access to thousands of hospital and physician office moderately
`complex labs across the country,” stated Rick Eberly, Chembio’s President and
`Chief Executive Officer. “We have initiated a comprehensive training and
`marketing program for the Fisher Healthcare channel sales team, in order to
`expand the targeted coverage for this important segment of the market as soon as
`possible.”
`
`31.
`
`The statements referenced above in paragraphs 25-30 were materially false and/or
`
`misleading because Defendants misrepresented and failed to disclose that the Company’s DPP
`
`COVID-19 test did not provide high-quality results and there were material performance
`
`concerns with the accuracy of the Company’s DPP COVID-19 test. In truth, as set forth in the
`
`FDA’s June 16, 2020 letter to the Company, the Company’s DPP COVID-19 test generates a
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`higher than expected rate of false results and higher than that reflected in the authorized labeling
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`for the device, and was not effective in detecting antibodies against SARS-CoV-2. Indeed, the
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`FDA determined that based on the data the Company submitted in support of its EUA, it was not
`
`reasonable to believe that the test may be effective in detecting antibodies against SARS-CoV-2
`
`and that, as a result, there was a material risk to public health from the false test results.
`
`VI. THE TRUTH BEGINS TO EMERGE
`
`On June 16, 2020, after the market closed, the FDA issued a press release
`
`
`32.
`
`disclosing that it had revoked the Company’s EUA for the Company’s DPP COVID-19 Igm/IgG
`
`System.
`
`33.
`
`As a result of disclosure of the FDA letter, Chembio shares declined from a
`
`closing price on June 16, 2020 $9.93 per share to close at $3.89 per share on June 17, 2020, a
`
`decline of $6.04 per share, or over 60%, on heavier than usual volume of over 25 million shares.
`
`VII. LOSS CAUSATION/ECONOMIC LOSS
`
`During the Class Period, as detailed herein, Defendants engaged in a scheme to
`
`
`34.
`
`deceive the market and a course of conduct that artificially inflated Chembio stock price and
`
`operated as a fraud or deceit on Class Period purchasers of Chembio stock by misrepresenting
`
`the efficacy of the Company’s DPP COVID-19 test. Defendants achieved this by making false
`
`statements about Chembio’s DPP COVID-19 test, while they knew or at least recklessly
`
`disregarded that there were material performance concerns with its DPP COVID-19, as alleged
`
`herein. Later, however, when defendants’ prior misrepresentations were disclosed and became
`
`apparent to the market, the price of Chembio stock fell precipitously as the prior artificial
`
`inflation came out of Chembio’ stock price.
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`35.
`
`As a result of their purchases of Chembio stock during the Class Period, plaintiff
`
`and other members of the Class suffered economic loss, i.e., damages under the federal
`
`securities laws.
`
`36.
`
`As a direct result of the public revelations regarding the truth about the condition
`
`of Chembio’s business and the negative adverse factors that had been impacting Chembio’s
`
`business during the Class Period, the price of Chembio’s stock materially declined. This drop
`
`removed the inflation from Chembio’s stock price, causing real economic loss to investors who
`
`purchased the stock during the Class Period.
`
`37.
`
`The decline in Chembio’s stock price at the end of the Class Period was a direct
`
`result of the nature and extent of Defendants’ fraud finally being revealed to investors and the
`
`market. The timing and magnitude of Chembio’s stock price declines negate any inference that
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`the loss suffered by plaintiff and other Class members was caused by changed market
`
`conditions, macroeconomic or industry factors, or Company-specific facts unrelated to the
`
`defendants’ fraudulent conduct.
`
`VIII. FRAUD-ON-THE-MARKET DOCTRINE
`
`38.
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`At all relevant times, the market for Chembio’s common stock was an efficient
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`market for the following reasons, among others:
`
`(a)
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`The Company’s common stock met the requirements for public listing and was
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`listed and actively traded on the Nasdaq, a highly efficient market;
`
`(b)
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`As a regulated issuer, the Company filed periodic public reports with the SEC;
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`and
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`(c)
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`The Company regularly issued press releases which were carried by national news
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`wires. Each of these releases was publicly available and entered the public marketplace.
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`Case 2:20-cv-02706-ARR-ARL Document 1 Filed 06/18/20 Page 14 of 20 PageID #: 14
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`39.
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`As a result, the market for the Company’s publicly traded common stock
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`promptly digested current information with respect to Chembio from all publicly available
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`sources and reflected such information in the price of the Company’s common stock. Under
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`these circumstances, all purchasers of the Company’s publicly traded common stock during the
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`Class Period suffered similar injury through their purchase of the publicly traded common
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`stock of Chembio at artificially inflated prices and a presumption of reliance applies.
`
`IX. ADDITIONAL SCIENTER ALLEGATIONS
`
`40.
`
`As alleged herein, Defendants acted with scienter in that Defendants knew that
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`the public documents and statements issues or disseminated in the name of the Company were
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`materially false and misleading; knew that such statements or documents would be issued or
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`disseminated to the investing public; and knowingly and substantially participated or
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`acquiesced in the issuance or dissemination of such statements or documents as primary
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`violations of the federal securities laws. As set forth elsewhere herein in detail, Defendants, by
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`virtue of their receipt of information reflecting the true facts regarding Chembio, their control
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`over, and/or receipt and/or modification of Chembio’s allegedly materially misleading
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`misstatements and/or their associations with the Company which made them privy to
`
`confidential proprietary information concerning Chembio, participated in the fraudulent
`
`scheme alleged herein.
`
`41.
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`Defendants knew or recklessly disregarded the falsity and misleading nature of
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`the information which they caused to be disseminated to the investing public. The ongoing
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`fraudulent scheme described in this complaint could not have been perpetrated over a
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`substantial period of time, as has occurred, without the knowledge and complicity of the
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`personnel at the highest level of the Company, including the Individual Defendants.
`
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`42.
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`Defendants had the motive and opportunity to perpetrate the fraudulent scheme
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`and course of business described herein because the Individual Defendants were the most
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`senior officers of Chembio, issued statements and press releases on behalf of Chembio and had
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`the opportunity to commit the fraud alleged herein. As alleged above, during the Class Period,
`
`the Company closed a public offering of its common stock at an artificially inflated price for
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`approximately $30 million in gross proceeds.
`
`X.
`
`NO SAFE HARBOR
`
`43.
`
`The statutory safe harbor provided for forward-looking statements under certain
`
`circumstances does not apply to any of the allegedly false statements pleaded in this complaint.
`
`Many of the specific statements pleaded herein were not identified as “forward-looking
`
`statements” when made. To the extent there were any forward-looking statements, there were
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`no meaningful cautionary statements identifying important factors that could cause actual
`
`results to differ materially from those in the purportedly forward-looking statements.
`
`44.
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`Alternatively, to the extent that the statutory safe harbor does apply to any
`
`forward-looking statements pleaded herein, Defendants are liable for those false forward-
`
`looking statements because at the time each of those forward-looking statements was made, the
`
`particular speaker knew that the particular forward looking statement was false, or the forward-
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`looking statement was authorized and/or approved by an executive officer of Chembio who
`
`knew that those statements were false when made.
`
`FIRST CLAIM FOR RELIEF
`For Violation of Section 10(b) of the Exchange Act
`and Rule 10b-5 Against All Defendants
`
`45.
`
`Plaintiff incorporates paragraphs 1-44 by reference.
`
`
`
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`46.
`
`During the Class Period, Defendants disseminated or approved the false
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`statements specified above, which they knew or recklessly disregarded were materially false
`
`and misleading in that they contained material misrepresentations and failed to disclose
`
`material facts necessary in order to make the statements made, in light of the circumstances
`
`under which they were made, not misleading.
`
`47.
`
`Defendants violated Section 10(b) of the Exchange Act and Rule 10b-5 in that
`
`the