Michael Wernke is Fighting Corporate Malfeasance – and Winning Big for Investors

Over the past year, Pomerantz partner Michael Wernke has been a lead litigator in three of the firm’s high-profile securities fraud cases – each case showcasing the firm’s tenacity and creativity in pursuing recoveries for investors.

In a case against Teva Pharmaceuticals, the firm represented Israeli institutional investors who alleged losses related to an alleged price-fixing scheme as well as Teva’s role in the U.S. opioid crisis. Building on novel legal strategies that Pomerantz developed in a case there led against the Perrigo drug company, the firm defeated defendants’ attempts to dismiss the claims and ultimately reached highly favorable settlements for each plaintiff. The firm also recently netted a nearly $20M settlement with Y-mAbs Therapeutics over allegedly misleading statements about the FDA approval process for a cancer drug. In a case against Nikola Corp., involving the electric vehicle maker’s false representations about its business, the firm has survived two rounds of motion-to-dismiss briefings and continues the litigation.

Wernke, a partner in the firm’s New York office, joined Pomerantz in 2014 after nine years focusing on securities defense at Cahill Gordon & Reindel.

Lawdragon: What was the issue in the Teva case and why did you think it was a good case to take on?

Michael Wernke: Teva is one of the world's largest manufacturers of generic drugs and, during the relevant period between 2013 to 2016, they were attributing their success to their business acumen instead of the fact they were simply increasing their prices. But that was false and misleading. They were increasing their prices significantly and doing so in collusion with other manufacturers. All of this culminated in 2019 when about 47 states brought antitrust complaints against Teva for their collusive activity. Obviously, the stock price declined as a result.

Teva lists its securities on both the New York and Tel Aviv stock exchanges. We brought claims on behalf of a number of major Israeli pension funds and other organizations that had invested in Teva, but we didn't participate in the class action. Instead, we brought an opt-out, a direct action. The primary reason was that the class action didn't bring claims for shares that were purchased on the Tel Aviv Stock Exchange and wouldn't have given our clients an adequate recovery for all of their losses. For the Teva action, we further refined the theory of supplemental jurisdiction that we had developed in our case against Perrigo, which also dual-lists its securities on the NYSE and TASE, so that the judge agreed to adjudicate our clients – and the class’s – Israeli claims in a U.S. court.

We also brought securities fraud claims based on Teva's role in the opioid crisis that had swept across the United States. A number of Teva's products, including Actiq and Fentora, were opioids only approved by the FDA for breakthrough cancer pain, meaning a patient had tried other types of pain relief. But what Teva was doing, along with others in the industry, was encouraging doctors to prescribe these opioids for off-label purposes. They were saying the drugs weren’t addictive and were perfectly fine for things like lower back pain or headaches. It was a novel case. No one else, as far as I know, had chosen to bring a securities fraud claim against Teva for their involvement in the opioid crisis.

LD: How did the Teva litigation progress?

MW: The court sided with us on the issue of supplemental jurisdiction over the Israeli claims and it also sustained our opioid claims on a motion to dismiss. So our clients were able to get a recovery based on the opioid claims in addition to the other claims.

LD: In a similar case involving the Perrigo drug company, your colleague Josh Silverman successfully argued that Israeli investors who used the Tel Aviv stock exchange to purchase Perrigo shares could sue the company in the U.S. How were you able to build on that case?

MW: We used experts and went through the history to show that this really isn't an open question. The federal court in Connecticut ruled in our favor and said, “There's no daylight between the law you would apply for the Israeli shares and the law you'd apply for the U.S. shares.” U.S. District Judge Stefan Underhill, in our Teva case, really provided a roadmap, which will be great for all investors going forward. Instead of needing to have experts come in with a 100-, 200-page report on the history of Israeli securities laws and translate from Hebrew and so on, we now have a decision where all of that has been, in a sense, codified by a judge who goes into depth and explains all of this clearly and also correctly. I think that will be a huge benefit in future cases.

Instead of needing experts to come in with a 100-, 200-page report on the history of Israeli securities laws and translate from Hebrew and so on, we now have a decision where all of that has been, in a sense, codified by a judge.

LD: The Nikola class action sounds like an interesting one, too.

MW: Yes. Essentially what happened is the defendants here, primarily Trevor Milton, the founder and chairman, allegedly lied about many aspects of Nikola. I guess the headline-grabbing one is the truck. They claimed they had developed a fully operational, zero-emissions tractor trailer powered by hydrogen fuel cell technology, the Nikola One, which would be able to be run cheaper than diesel. They had a conference where they unveiled it to investors and it looked fully operational. And then they released a video online that said, behold the Nikola One in motion – it even said, “in motion.” In fairness, it was in motion, but it was in motion because they took the empty shell of this truck to the top of a hill and filmed it rolling downhill.

Another alleged lie they told was on the first day of the class period. Trevor Milton said – and this was really one of the keys to the company – that they had found a way to develop hydrogen to fuel these vehicles at a fraction of what the industry experts had previously thought. They had said that before hydrogen would be produced at something like $16 per kilogram. And what Trevor Milton said was that they now were able to develop it at $4 a kilogram. That's amazing. It's also a lie. Not only had they not figured out how to produce hydrogen at a quarter of the price, they had never produced any hydrogen, none, absolutely none.

Also at issue was that the company's SEC filings touted 14,000 binding purchase orders representing billions and billions in revenue. But they didn't disclose that almost all of those purchase orders, one, weren't binding, and two, were for the Nikola One, which the company had abandoned. By the time the company went public, they had just given up on the Nikola One and were moving on to other vehicles. It was like everything that came out of their mouth was a lie.

LD: What challenges have you faced in the case?

MW: The challenge with this case wasn't necessarily Milton, it was showing “scheme liability” against everybody else involved – the officers and directors, the CEO, the CFO. Somewhere between the first motion to dismiss, which the court granted as to the other individuals, saying we hadn't shown an intent to defraud, and us filing an amended complaint, we gained a lot of information from Milton's criminal trial about what other officers and directors knew and what they were doing. Not only were they aware of Milton's false statements, but company employees brought it to their attention, saying, “Hey, Milton's out there just making false statements about the hydrogen, about various things, and that's wrong.” The officers and directors told the employees, “Oh, we'll fix that. We'll take care of it.” But they never did.

Our theory was that they were perfectly happy letting Milton say whatever he wanted and then reaping the benefits. The stock price shoots way up, they're all going to be billionaires. After the second briefing of the motion to dismiss, that's where we were able to get enough evidence and allegations for the court to say that for these other officers and directors, we've done enough for scheme liability.

It was a pretty novel theory because scheme liability cases that are completely independent of false statements usually have to do with a pump and dump scheme, where someone's bribing or going through back channels to have analysts write good things about the company that they know are false, so they can get the stock price up and then dump their shares. This case really walks the line between aiding and abetting and scheme liability. That's what makes it unique.

LD: How about the Y-mAbs Therapeutics case? Where is the litigation at, and what are the allegations?

MW: We just settled it for $19.6M. It didn't take long after we got through the motion to dismiss to mediate and resolve the case. As far as the allegations, Y-mAbs is a clinical biopharmaceutical company with an antibody-based drug called omburtamab for treating a very rare, unique form of childhood cancer. To get FDA approval for it, they had to go through a specific kind of approval called a Biologics License Application. They announced to investors that they had gotten a refusal to file letter from the FDA, basically indicating that there was some deficiency in their application they would need to fix before the FDA could consider whether or not to approve it. They assured investors that the deficiencies were just technical problems and that they were confident they'd resolve them in short order. Basically, they're telling people, “Hey, don't worry about it. It's just a technical glitch. We're going to fix it.”

But in truth, the FDA had repeatedly told the company that there was a problem with their data, specifically with the comparison of their study of the drug with the control group, which came from a German registry of children with this disease that had been followed over 25 years. In that 25-year period, the survival rate improved dramatically, even without omburtamab. The FDA was basically saying, “Look, the results that you're seeing might be a result of, for example, cranial radiation rather than your treatment.” So there were potentially serious flaws with using this registry as a comparator.

They said they had found a way to develop hydrogen to fuel these vehicles at a fraction of what the industry experts had previously thought. That's amazing. It's also a lie.

Y-mAbs originally assured investors that they were confident they would get the matter resolved in a couple of months. Well, a year and a half later, they still hadn't refiled their BLA to try to get approval. During that entire time, they kept giving investors positive updates that they expected getting a “green light” soon. In reality, the FDA kept telling them, “Look, you're not fixing these fundamental problems with the comparator.” They never got on the same page with the FDA.

LD: How did things come to a head?

MW: At the end of October 2022, the FDA, in advance of the Advisory Committee meeting, put out a briefing document that said, “We’ve told them over and over that this is not a good comparator. We've got serious concerns.” And then, of course, two days later, the Advisory Committee votes 16 to zero to not approve. And analysts are shocked, saying, “This is completely not what we expected. We thought this was going to sail right through.”

LD: What made the case challenging?

MW: The challenge of this case was that a lot of the statements that the company was making were soft statements, statements of opinion. They were saying, “We're confident we can address that.” The defendants’ primary argument in attempting to dismiss the claims was: It might be unrealistic, but you're still allowed to be confident. And the court broke the statements into a couple of buckets and ruled in favor of the defendants on some of them, saying they were allowed to be confident on some statements on issues with which they were engaged with the FDA.

But in their public statements, Y-mAbs also said things like, “We just had a meeting with the FDA, and they provided a clear path toward approval.” And what the judge said was, “You can be as confident as you want about your ability to meet certain standards, but you can't be confident about what actually happened with the FDA. In that sense, you're misleading people as to what actually happened.” What actually happened was the FDA was not in agreement. So for those types of statements, the court sided with us.

This is an important issue because it comes up over and over again, especially in FDA cases where companies know they can't guarantee approval, but they want to make people feel like approval is going to come. The distinction is, you get a lot of leeway on being confident about that, but you're not allowed to have rose-tinted glasses about facts, about what actually happened with the FDA and what the FDA actually said.

LD: What could this mean for future litigation in similar cases?

MW: I think it will be important in helping plaintiffs to get a foothold in a case, to get into discovery. Then hopefully you can get the emails that potentially show they're saying, “We're having serious problems. That meeting with the FDA didn't go well at all.” If we had that email, I'm confident the judge would say, “OK, that's enough to show that what they said to the market was false and misleading.”