Sporn v. BrainStorm Cell Therapeutics
Eli Sporn, Individually and on behalf of all others similarly situated v. BrainStorm Cell Therapeutics, Inc., et al.
- Ho
- 1:23-cv-09630
- U.S. District Court · Southern District of New York
- 30
Sporn v. BrainStorm: Judge Ho granted in part and denied in part defendants’ dismissal motion, allowing some securities claims to continue and dismissing others.
The ruling affects the proposed investor class and the claims against BrainStorm Cell Therapeutics, Inc., Chaim Lebovits, Stacy Lindborg, and Ralph Kern. Some securities-fraud and control-person claims continue, while the specified Section 10(b) and insider-trading claims were dismissed.
What happened
In Eli Sporn v. BrainStorm Cell Therapeutics, Inc., investors alleged that BrainStorm and its executives misled the market about the FDA’s views, clinical-trial results, and the prospects for approval of NurOwn, a treatment being developed for neurological disorders.
The court found that some alleged statements could support securities-fraud claims, including statements about the FDA’s views of the trial design, whether a subgroup analysis was planned in advance, the FDA’s views about a statistical “floor effect,” and patient safety. The court rejected claims based on biomarker interpretations and certain general, future-looking, or promotional statements.
Judge Dale E. Ho granted in part and denied in part the defendants’ motion to dismiss. The court dismissed the insider-trading claims and certain Section 10(b) claims, but denied the motion as to the remaining claims, including the control-person claims under Section 20(a).
The detailed version
- Sporn v. BrainStorm Cell Therapeutics · No. 1:23-cv-09630
- Ho
- Sept. 15, 2025
Background
Eli Sporn, George Colby, and Brett Shirley brought a proposed securities class action under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 against BrainStorm Cell Therapeutics, Inc., and Chaim Lebovits, Stacy Lindborg, and Ralph Kern. The proposed class consisted of people or entities that purchased publicly traded BrainStorm common stock from February 18, 2020, through September 27, 2023.
The plaintiffs alleged that the defendants made misleading statements about NurOwn, BrainStorm’s stem-cell-based product for neurological disorders including amyotrophic lateral sclerosis. The alleged misstatements concerned the FDA’s views of the Phase 3 trial’s design, the characterization of a subgroup analysis as “prespecified,” the explanation of trial results through a statistical “floor effect,” biomarker data, safety, and the likelihood of FDA approval. The plaintiffs alleged that corrective information emerged over time, culminating in an FDA advisory committee vote against approval, and that BrainStorm’s stock price declined.
Claims and Pleading Standards
The defendants moved to dismiss. Because this was a motion to dismiss for failure to state a claim, the court treated the complaint’s factual allegations as true for purposes of the motion, while requiring the plaintiffs to plead securities fraud with particularity under Federal Rule of Civil Procedure 9(b) and the Private Securities Litigation Reform Act.
For the Section 10(b) claims, the plaintiffs had to adequately allege a materially false or misleading statement or omission, the required state of mind—called scienter—and loss causation, meaning a plausible connection between the alleged fraud and the investors’ losses.
Statements the Court Found Potentially Actionable
The court held that the plaintiffs adequately alleged misleading statements in four areas:
- FDA views on trial design. The plaintiffs plausibly alleged that statements describing the FDA as confirming that the Phase 3 trial was “well-designed” and “well-run” contradicted the FDA’s earlier concerns about using the chosen endpoint and enrolling only rapid progressors.
- Prespecified subgroup analysis. The plaintiffs adequately alleged that BrainStorm misleadingly described the subgroup analysis as “prespecified,” when the FDA briefing document characterized the analysis as not prespecified and unsuitable to rescue an otherwise negative trial.
- Floor-effect statements. The plaintiffs adequately alleged that statements suggesting the FDA did not disagree with BrainStorm’s floor-effect explanation were false or misleading because the FDA had stated that the lack of efficacy could not be explained by a floor effect.
- Safety statements. The plaintiffs adequately alleged that statements about having fewer deaths than expected and a strong safety profile were misleading in light of alleged FDA concerns about deaths and other safety information.
The court also held that the plaintiffs adequately pleaded scienter for these categories. It found that the alleged knowledge of information contradicting the public statements could support an inference of recklessness. The court rejected the plaintiffs’ theories that BrainStorm’s general need to raise money or Lebovits’s stock sales, standing alone, established scienter.
The court further held that the plaintiffs adequately pleaded loss causation. The alleged decline in BrainStorm’s stock price could plausibly have resulted from information revealing that the challenged statements about trial design, the subgroup analysis, floor effects, and safety were misleading.
Statements the Court Found Not Actionable
The court held that statements expressing the defendants’ own interpretations of clinical-trial results generally were opinions and therefore were not actionable on the allegations presented. It specifically rejected the claims based on biomarker statements because the plaintiffs challenged the defendants’ interpretation of the biomarker data rather than alleging that the defendants misstated the underlying presence of the biomarker. The court also rejected statements that were forward-looking and accompanied by cautionary disclosures, as well as statements too general to influence a reasonable investor, which the court characterized as puffery.
Other Claims and Disposition
The plaintiffs also asserted insider-trading claims based on stock sales by BrainStorm and Lebovits. The court dismissed those claims because the allegations did not show that the sales were unusual. The court rejected the defendants’ argument that the Section 20(a) control-person claims should be dismissed merely because the Section 10(b) claims failed, because the court allowed part of the Section 10(b) case to proceed.
The court concluded that the defendants’ motion to dismiss was GRANTED IN PART AND DENIED IN PART. The Section 10(b) claim was dismissed as to statements concerning biomarker data and other statements that were opinions, forward-looking statements, or puffery. The insider-trading claims were dismissed. The motion was denied as to all other claims, including the Section 10(b) claims based on the four categories of statements the court found adequately pleaded and the Section 20(a) claims. The court stated that an order scheduling an Initial Pretrial Conference would issue separately.
Read the full 30-page opinion on CourtListener, the free public archive maintained by the Free Law Project.