Settlement in Securities Lawsuit Against CBD Company Zynerba Leads to Reforms

On Friday, plaintiffs Phillip Quartararo and Dmitry Itkis asked the District of Delaware to approve a settlement agreement between themselves and the board members of Zynerba Pharmaceuticals, a CBD drug company, in a derivative securities lawsuit purporting that the company did not disclose negative effects on participants in a drug trial, causing damage to the company. 

The brief accompanying the plaintiffs’ motion gave more details regarding the case and the settlement.  It explained that the plaintiffs alleged that individuals associated with Zynerba violated the Securities Exchange Act of 1934, and that the derivative action resolved their claims, along with the claims of a shareholder, Rainer Machek.  

Reportedly, the settlement agreement in the matter “provides a substantial benefit to Zynerba, on behalf of which the Derivative Action was brought,” and that under the settlement its board of directors will be required to implement “corporate governance reforms” and improve policies and procedures over the next five years.  

The specific corporate changes required in the settlement were outlined in the plaintiffs’ opening brief in support of its motion for approval of the settlement and in the settlement itself. The plaintiffs’ said that the company and its board acknowledged that this derivative action and its resolution led to reforms that benefited the company. 

A separate lawsuit which was held in the Pennsylvania Eastern District Court led to a proposed $4 million settlement for stockholder damages with Zynerba Pharmaceuticals. The motion for preliminary approval of the settlement in that matter was filed in late April. 

The plaintiffs explained in the present filing that Zynerba “develops and produces transdermal cannabinoid therapies for rare and near-rare neuropsychiatric disorders.” The company was accused of not disclosing adverse effects during a trial of the product Zygel, or ZYN02.  The plaintiffs alleged that the individual defendants breached their duties and the Exchange Act by making false statements about the trial and its outcomes. 

In addition to seeking approval of the proposed settlement, the plaintiffs also asked the court to approve the proposed class notice method, schedule a hearing for final approval of the settlement, and grant any other relief it considers “just and proper.” 

Co-liaison counsel for the plaintiffs include Peter Bradford deLeeuw, Farnan Law, Bragar Eagel & Squire P.C, and The Brown Law Firm P.C. The defendants, including individuals associated with the company, are represented by Young Conaway, Stargatt & Taylor