In re Evolus Inc. Securities Litigation

Background

This putative class action was brought under the federal securities laws on behalf of people who purchased or otherwise acquired Evolus, Inc. securities from February 1, 2019, through July 6, 2020. The plaintiffs allege that Evolus and individual defendants made materially false or misleading statements, and failed to disclose adverse information, about Jeuveau, Evolus’s Botox alternative, and allegations that Evolus and Daewoong Pharmaceuticals misappropriated trade secrets involving the product’s bacterial strain and manufacturing process.

The court had consolidated two related actions. Four competing motions sought appointment as lead plaintiff and approval of lead counsel: Raja Ahmad; James LeFebvre; Peter Diaferia and Mitchell Sisun as co-lead plaintiffs; and Armin Malakouti, Mahmood Gholami, and Daniel Mierlak as an Investor Group.

Lead Plaintiff Analysis

The Private Securities Litigation Reform Act generally creates a rebuttable presumption favoring the applicant with the largest financial interest who also satisfies the relevant class-representation requirements. The court compared the applicants’ purchases, retained shares, funds spent, and approximate losses, placing the greatest weight on approximate loss.

Ahmad claimed an approximate loss of $748,294.84, the largest loss among the applicants. The competing applicants argued that Ahmad’s loss was not recoverable because he sold all of his Evolus securities before the July 6, 2020, ITC determination that fully disclosed the alleged misconduct. The court rejected that argument at this stage. It found that the complaint adequately alleged two earlier partial corrective disclosures: the International Trade Commission’s March 1, 2019, announcement of an investigation into the trade-secret allegations, and Medytox’s March 4, 2020, report that an ITC attorney had issued an opinion supporting the misappropriation claims.

Because Ahmad sold his shares after the March 1, 2019, partial disclosure, the court concluded that his losses could have been caused by the alleged fraud. The court therefore accepted his loss calculation and found that he had the largest financial interest.

Rule 23 Requirements

Rule 23 sets requirements for class representatives, including that the representative’s claims be typical of the class’s claims and that the representative adequately protect the class’s interests. The court concluded that Ahmad made the required preliminary showing of both requirements. Like the other proposed class members, he alleged that he purchased Evolus stock during the class period and was harmed by the defendants’ alleged misrepresentations or omissions.

The court also found that Ahmad had retained competent and experienced counsel, had a significant financial stake in the case, and had no apparent conflict with the other class members. The competing applicants did not show that Ahmad faced a unique defense that would prevent him from adequately representing the class.

Lead Counsel

The Act allows the most adequate plaintiff, subject to court approval, to select counsel for the class. Ahmad selected the Rosen Law Firm, P.A. The court reviewed the firm’s submitted resume and concluded that the firm was qualified to serve as lead counsel.

Disposition

The court granted Plaintiff Ahmad’s motion for appointment as lead plaintiff and of lead counsel. It denied all competing motions and directed the Clerk of Court to terminate the specified motions. This order addressed only the selection of the lead plaintiff and lead counsel; it did not resolve the underlying securities-fraud claims.