I. 1. Fill in the gaps in the realistic story below with the words from the list:
Crashing markup plummeted anecdotes lock-up lawsuits forward internal surge withholding fraud disclosure trial targeting venture
The Memory Cure That Never Was
The Company: Neurava Biotech
A promising biotech firm, Neurava, had spent five years developing NVR-701, a revolutionary drug early-stage Alzheimer’s. Backed by aggressive capital, the company was gearing up for a high-profile IPO on the New York Stock Exchange.
Phase 1: Before the IPO – Strategic Silence
Months before the IPO, insiders — including the Chief Scientific Officer and a senior clinical advisor — received trial data suggesting that NVR-701 failed to produce statistically significant results in phase 2B trials.
However:
The company delayed public , framing the data as “inconclusive.”
PR emphasized secondary biomarkers and speculative AI-guided reanalysis.
Meanwhile, insiders quietly sold equity to external VC funds through a pre-IPO secondary share sale — at a 40% , citing "strong pipeline progress."
Translation: They cashed out privately, transferring their risk to optimistic investors before negative news could surface.
Phase 2: During the IPO – Inflated Hope
At the IPO roadshow:
Executives highlighted the Alzheimer's program, quoting only selectively positive patient .
The company’s underwriters (investment banks) helped push a valuation based on future success of NVR-701.
The IPO went live. Shares 35% on day one, fueled by public excitement.
Insiders were technically under , but:
Through “friends and family” allocations and pre-agreed contracts, some insiders structured derivative agreements that locked in profits during the IPO pricing window — without directly selling.
Translation: They monetized their insider knowledge indirectly, while appearing compliant.
Phase 3: After the IPO – Reality Hits
Exactly 87 days after the IPO (3 days before lock-up expiry), Neurava released full data:
NVR-701 had no significant effect compared to placebo.
The stock 65% in two days.
When the lock-up expired:
Founders and key early investors dumped their shares on the open market, further the price.
A whistleblower later revealed that management had seen full negative data before IPO roadshows.
SEC Investigation and Aftermath
The SEC opened an insider trading and disclosure investigation:
Evidence showed intentional of material trial data.
Two executives were charged under Rule 10b-5 for misleading investors.
The company’s CFO resigned; class-action followed.
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Incorrect Answers: 0
2. Prepare a summary of the story above using these questions as a guide:
- What was Neurava's flagship product, and what disease was it intended to treat?
- What did insiders at Neurava learn about the clinical trials before the IPO, and how did they act on this information?
- How did the company present its situation during the IPO roadshow despite knowing the trial results?
- What methods did insiders use to benefit financially during the IPO while avoiding direct violations of lock-up rules?
- What happened to the stock price after the full trial data was released, and how did investors react?
- What kind of investigation was launched by the SEC, and what actions were taken against Neurava’s executives?
- How does this case illustrate the risks of asymmetrical information in public offerings?