CV Sciences, Inc. (CVSI) issued a statement denying that it had violated securities laws. The statement stemmed from a claim by Citron Research that CV Sciences had a patent application rejected by the United States Patent and Trademark Office (USPTO).
Initially, CV Sciences stock popped 25% in one day prompting Citron to release the negative report on August 20. The stock actually jumped around considerably over a few days. On August 17, the stock opened at $5.62 and then closed up at $6.61 on a normal volume of roughly six million shares.
The following trading day when the report was released on August 20, the stock plunged from an open of $6.91 down to $4.21 on 29 million shares traded. On the following day, the stock opened at $4.05 to close at $5.58 on 11 million shares.
According to a company statement, the Citron report alleges that CV Sciences violated securities laws by failing to disclose that it had received notice from the USPTO that its pending patent application, U.S. Patent Application No. 15/426,617, had been “finally rejected” by the USPTO. The complaint draws the conclusion that this notice from the USPTO terminated the company’s patent application, and that the company’s efforts to obtain patent protection for the inventions disclosed in the ‘617 Application have therefore failed.
Citron sent a Tweet that said,
$CVSI misrepresentation by management. The total bull case is based on REJECTED patents the company has never disclosed and continues to hype. Securities Fraud? Another IRTH special
Following the Citron report, a class action lawsuit was filed on behalf of shareholders that alleges that same violation.
“We believe that any claims alleging violations of securities laws by the Company are without merit and we intend to vigorously defend our position,” stated Joseph Dowling, Chief Executive Officer of CV Sciences.
It was suggested that Citron is a short seller who would benefit if the stock price fell.
“The conclusions in the complaint and in the ‘report’ by Citron Research are outright false, and demonstrate either an ignorance, a disregard, or both, of the basics of patent prosecution,” stated Mr. Dowling. “A ‘final rejection’ in the context of patent prosecution is anything but final. It by no means indicates that the applicant has failed in its efforts to obtain an issued patent.” We will continue to prosecute the ‘617 Application and plan to file and prosecute several more applications related to the inventions described in the ‘617 Application.”
Mr. Dowling continued, “While the end result is not assured, both the Company and our patent counsel at Banner & Witcoff continue to have comfort that we will obtain an issued patent pursuant to the ‘617 Application.”
CV Sciences didn’t address whether it had properly disclosed the patent application transaction history. The stock fell an additional 13% on the denial and was lately trading at $4.30.