Wolf of law firm files class action against alleged “pump-&-dump” scheme
CUMBERLAND, Virginia––Even as animal advocates celebrate the ongoing rescue of beagles from the soon-to-be-closed Envigo breeding kennels in Cumberland, Virginia, and the decision of Air France to get out of the monkey transport business, the most influential blow to animal use in biomedical research in recent weeks may be a lawsuit filed on June 23, 2022 in Indianapolis.
The lawsuit, on the surface, is simply a shareholder claim that Inotiv, the owner of Envigo, in effect pulled a “pump-and-dump“ scheme that inflated its stock value, leaving stock buyers holding the bag when the stock value crashed.
“Materially false & misleading”
The term “pump-and-dump” will be familiar to viewers of the 2013 Leonardo DiCaprio film The Wolf of Wall Street, in which the Matthew McConaughey character outlines to DiCaprio how it works. The Wolf in this case, however, is the law firm Wolf Haldenstein Adler Freeman & Herz LLP.
Wolf Haldenstein Adler Freeman & Herz LLP allege in the lawsuit that the “pump-and-dump” occurred when:
- Envigo and Inotiv’s Cumberland, Virginia facility engaged in widespread and flagrant violations of the Animal Welfare Act;
- Envigo and Inotiv did not properly remedy issues with regards to animal welfare at the Cumberland facility;
- as a result, Inotiv was likely to face increased scrutiny and governmental action;
- Inotiv would imminently shut down two facilities, including the Cumberland facility;
- Inotiv did not engage in proper due diligence; and
- as a result, Defendants’ statements about its business, operations, and prospects, were materially false and misleading and/or lacked a reasonable basis at all relevant times.
The lawsuit is not specifically about animal use in biomedical research. But it is about liability for the consequences of continuous “widespread and flagrant” Animal Welfare Act violations, and if successful, will multiply the financial consequences of Animal Welfare Act violations far beyond the often token fines that institutions breeding, selling, and using animals in laboratories typically treat as just routine costs of doing business.
If successful, the case brought by Wolf Haldenstein Adler Freeman & Herz LLP will make Animal Welfare Act violators financially accountable to shareholders for losses resulting from those violations.
Short chain of alleged cause-&-effect
Corporations are by definition accountable to their shareholders. This is why seeking shareholder resolutions pertaining to corporate actions have long been a favorite tactic of activists in a multitude of causes.
What is unusual about the Wolf Haldenstein Adler Freeman & Herz LLP lawsuit is that it argues that shareholders who lose money because Animal Welfare Act violations deflate stock values should be compensated for their losses.
Of course proving that Animal Welfare Act violations are the actual cause of a loss in stock value would normally be very difficult. In the case of Envigo and Inotiv, however, the alleged chain of cause-and-effect extends only from September 21, 2021 to June 13, 2022, and not much more seems to be involved than the purported pump-and-dump.
Founded as Bioanalytical Systems Inc. in West Lafayette, Indiana, in 1974, the company now called Inotiv began selling public shares in 1997. It changed names to Inotiv in March 2021.
Inotiv on September 21, 2021 announced the purchase of Envigo, headquartered in Indianapolis, Indiana.
Envigo already had a tangled corporate history, involving several of the most controversial companies in the laboratory animal supply field.
Pedigree of bastards
The Envigo beagle breeding facility in Cumberland, Virginia was apparently built in 1961 and operated by Hazelton Laboratories until 1987, when it was sold to Covance.
The beagle kennels were still owned by Covance as of 2019, but Covance was by then a subsidiary of LabCorp, having been sold to LabCorp in 2014.
Envigo was formed in 2015 through a merger with Harlan Laboratories and Huntingdon Life Sciences. Envigo bought LabCorp, including the Cumberland facilities, in June 2019.
All five companies involved in the Envigo corporate history before the Inotiv purchase had their own histories of repeated Animal Welfare Act violations.
Ups & downs
Irrespective of that, the Inotiv share price approximately doubled from the announcement of the Inotiv purchase until November 19, 2021.
“The stock hit an all-time high of $60.66, just two weeks after its previously announced acquisition of Envigo was finalized,” observed Susan Orr for the International Business Journal.
“The stock’s price has dropped precipitously since then, and its closing price has remained below $15 for the past month,” Orr wrote when the lawsuit against Inotiv was filed.
“The plaintiff is asking the court to grant class-action status to the case on behalf of individuals who purchased Inotiv shares from September 21, 2021, to June 13, 2022,” Orr summarized.
“The latter date,” Orr explained, “is when Inotiv announced it planned to close the dog-breeding facility and a separate rodent-breeding facility elsewhere in Virginia. Inotiv’s stock price dropped again following that announcement.”
60 citations in less than a year
The lawsuit argues that Inotiv failed to disclose to share purchasers the seriousness of alleged Animal Welfare Act violations at the newly purchased Envigo properties, and then allowed the already bad situation to deteriorate.
“In less than a year,” Orr wrote, “the company has amassed over 60 citations for non-compliance with the Animal Welfare Act, which have affected thousands of beagles.
“The suit also accuses Envigo of employing ‘a paltry number of employees’ at the Virginia facility , and of choosing ‘to euthanize beagles or allow[ing] beagles to die from malnutrition, treatable and preventable conditions, and injuries resulting from beagles being housed in overcrowded and unsanitary enclosures , or enclosures that contain incompatible animals,’” Orr said.
Share value fell 79% from peak
Inotiv on May 20, 2022, “just a few days after issuing its quarterly report,” Orr noted, acknowledged that Envigo had been charged with Animal Welfare Act violations.
“By the end of the following trading day,” Orr said “Inotiv’s stock had dropped to $13.14 per share, down 28% from its previous closing price.
“On June 13, 2022,” Orr continued, “Inotiv announced it would close the dog breeding facility, plus a separate rodent-breeding facility elsewhere in Virginia. The company’s stock price dropped 2% the following day, to close at $12.78 per share.”
It is possible, indeed likely, that the real estate value of the Envigo facilities in Virginia exceeds whatever short-term profit potential they had in producing animals for biomedical research use.
U.S. District Judge Norman Moon on July 1, 2022 ordered that all of the beagles still at Envigo be released to the Humane Society of the United States within 60 days, and signed off on a beagle evacuation plan on July 5, 2022.
Blogged Humane Society of the U.S. president Kitty Block on July 26, 2022, “We along with several of our shelter and rescue partners, [have] removed the first 432 of approximately 4,000 beagles from Envigo RMS LLC’s facility in Cumberland, Virginia.”
Among those partners are reportedly Angels of Assisi, of Roanoke, Virginia; the Beagle Freedom Project, of North Hollywood, California; the Dakin Humane Society, of Springfield, Massachusetts; the Helen Woodward Animal Center, in Rancho Santa Fe, California; Homeward Trails Animal Rescue, of Fairfax, Virginia; the Humane Society of Tulsa, Oklahoma; Kindness Ranch, of Hartville, Wyoming; Loudoun County Animal Services, of Leesburg, Virginia; the Massachusetts SPCA; the Northeast Animal Shelter, of Salem, Massachusetts; Priceless Pet Rescue, of Costa Mesa, California; Red Rover, of Sacramento, California; Richmond Animal Care & Control, of Richmond, Virginia; the Southeast Kansas Humane Society, of Pittsburg, Kansas; Triangle Beagle Rescue, a shelterless organization based in the Raleigh, North Carolina area; the TriCounty Animal Shelter, of Hughesville, Maryland; and the Wisconsin Humane Society, of Milwaukee.
But were all the beagles still there?
There were supposedly more than 4,000 beagles on the Envigo premises as of May 18, 2022, when Judge Moon prohibited Envigo from relocating 2,100 beagles to another facility operated by a related company, Envigo Global Inc.
However, extensive drone video of the Envigo premises recorded by Showing Animals Respect & Kindness founder Steve Hindi on July 7, 2022 appeared to show chiefly empty kennels, with not more than about 1,400 beagles evident on site.
No matter how many beagles are evacuated from Envigo, the total will be far fewer than the 58,511 dogs, mostly beagles, used in U.S. laboratories in 2021, according to USDA Animal & Plant Health Inspection Service data.
Though the 2021 total was the lowest number of dogs used in any year since the Laboratory Animal Welfare Act of 1966 required labs to report dog use, and far lower than the high of 211,104 reported used in 1979, supplying purpose-bred beagles and other dogs to laboratories remains a large and lucrative business.
Non-human primate use in U.S. laboratories has increased from the low of 49,382 reached in 2001 to 68,257 in 2021, close to the annual average since 1966.
Air France, the last major international airline transporting monkeys for biomedical research use, reportedly informed the European Animal Research Association in June 2022 that it would quit “as soon as its current contractual commitments with research organizations come to an end,” presumably meaning by the end of 2022.
“China, a major exporter of primates for research and supplier of approximately 80% of the monkeys used for research in the United States until early 2020, banned trade in all non-domesticated terrestrial animals after the outbreak of COVID-19,” reported Cathleen O’Grady for Science.
Air France, O’Grady said, “transports many monkeys from Mauritius, which in recent years has become one of the world’s main suppliers.”
Of 14,000 monkeys exported from Mauritius in 2021, 10,000 came to the U.S.
Egyptair is expected to fly many of the monkeys who will no longer be moved by Air France, having already brought more than 5,000 monkeys to the U.S. since March 2022.