A law firm recently announced it has filed a class action lawsuit against a nutritional ingredients and medical foods manufacturer for allegedly violating federal securities laws.
Ryan & Maniskas, LLP, noted that the securities class action suit, initiated against Enzymotec Ltd., was filed in U.S. District Court for the District of New Jersey. The litigation was commenced on behalf of investors who acquired shares in the company in connection with its initial public offering on Sept. 27, 2013 or on the open market between Sept. 27, 2013, and Aug. 4, 2014.
Enzymotec, an Israeli company listed on the Nasdaq market, develops and markets ingredients that are used in baby formulas, the New Jersey Law Journal reported. The company's InFat formula is sold in a volatile Chinese market subject to earnings losses.
The complaint against the biotech company alleges that the Registration Statement and Prospectus ahead of its IPO contained false or misleading information regarding the company's business in China. The securities class action suit claimed that Enzymotec failed to disclose to investors that its InFat line was subject to regulation by the Chinese government, and that its baby formula business in China was at risk and liable to revenue loss. In addition, the company allegedly did not inform investors that its agreement with AarhusKarlshamn AB, which marketed Enzymotec's Chinese formula, was collapsing.
The lawsuit claims that because of the aforementioned circumstances regarding Enzymotec's InFat line, all positive statements that the company made about its business during relevant times were false, and thus a breach of federal securities laws. On May 14, 2014, the company disclosed that due to Chinese regulations, it would have to make changes to the production chain for its InFat baby formula. When Enzymotec, on Aug. 5, 2014, revealed the extent of the company's revenue loss due to Chinese baby formula stringencies, the share price dropped $5.85 per share, or close to 40 percent, by closing on the same day.
China seeking industry approval on baby formula safety
In 2004 and 2008, tainted baby formula sickened infants in China, according to Forbes. This resulted in a global outcry about the safety of infant formulas in the country. Chinese consumers have since searched out foreign brands to ensure the safety of their children. As a result, the government has issued a number of regulations aimed at enhancing the safety of the infant formula infancy and recapturing consumer trust in domestic brands.