Securities and Exchange Commission v. Carchedi et al

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UNITED STATES DISTRICT COURT
DISTRICT OF MASSACHUSETTS
___________________________________
)
SECURITIES AND EXCHANGE 	)
COMMISSION, 	)
)
Plaintiff, 	)
)
v. 	) 	Civil Action
) 	No. 25-cv-10599-PBS
STEFANO R. CARCHEDI, MARIE L. 	)
FOEGH RAMWELL, and JAMES G. 	)
CULLEM, 	)
)
Defendants. 	)
______________________________ 	)
MEMORANDUM AND ORDER
March 24, 2026
Saris, J.
INTRODUCTION
The 	Securities 	and 	Exchange 	Commission 	(the 	“SEC”) 	alleges
that 	Stefano 	R. 	Carchedi, 	Marie 	L. 	Foegh 	Ramwell, 	and 	James 	G.
Cullem (“Defendants”) committed securities fraud in their efforts
to 	bring 	a 	new 	drug 	to 	market 	despite 	negative 	feedback 	from 	the
Food and Drug Administration (the “FDA”). Now before the Court are
Defendants’ motions to dismiss the SEC’s complaint. After hearing,
the Court concludes that the SEC has plausibly alleged misstatement
liability by Carchedi and scheme liability by Carchedi and Cullem
but 	has 	failed 	to 	plausibly 	allege 	scheme 	liability 	by 	Foegh.
Accordingly, 	Carchedi’s 	motion 	to 	dismiss 	(Dkt. 	52) 	is 	DENIED,
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Cullem’s motion to dismiss (Dkt. 47) is DENIED, and Foegh’s motion
to dismiss (Dkt. 49) is ALLOWED.
BACKGROUND
In 	adjudicating 	a 	motion 	to 	dismiss 	for 	failure 	to 	state 	a
claim, the Court “accept[s] as true all well-pleaded facts alleged
in 	the 	complaint 	and 	draw[s] 	all 	reasonable 	inferences 	therefrom
in the [plaintiff]’s favor.” Back Beach Neighbors Comm. v. Town of
Rockport, 	63 	F.4th 	126, 	128 	(1st 	Cir. 	2023) 	(third 	alteration 	in
original) (quoting Legal Sea Foods, LLC v. Strathmore Ins. Co., 36
F.4th 29, 34 (1st Cir. 2022)).
In 2013, a pharmaceutical company referred to by the parties
as 	“Company 	A” 	ceased 	development 	of 	dovitinib, 	a 	drug 	candidate
for 	the 	treatment 	of 	renal 	cell 	carcinoma, 	because 	a 	Phase 	III
trial 	failed 	to 	show 	that 	the 	drug 	was 	superior 	to 	a 	comparator
drug. 	In 	2018, 	predecessor 	companies 	of 	Allarity 	Therapeutics,
Inc. (“Allarity”) licensed dovitinib from Company A.1
In 	December 	2019, 	Allarity 	requested 	a 	meeting 	with 	the 	FDA
to 	discuss 	the 	potential 	filing 	of 	a 	New 	Drug 	Application 	(an
“NDA”) for dovitinib. The FDA wrote to Allarity in advance of the
meeting, 	raising 	two 	concerns 	about 	the 	prospective 	application.
First, 	the 	FDA 	took 	issue 	with 	Allarity’s 	conducting 	a
1 	For 	ease 	of 	reference, 	the 	Court 	refers 	to 	Allarity 	and 	its
predecessor 	companies 	collectively 	as 	“Allarity” 	except 	where
specified otherwise.
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retrospective 	non-inferiority 	analysis 	after 	the 	2013 	trial 	had
already 	concluded.2 	Second, 	the 	FDA 	expressed 	concern 	about
Allarity’s 	plan 	to 	measure 	dovitinib’s 	efficacy 	in 	terms 	of
progression-free 	survival 	(“PFS”) 	rather 	than 	overall 	survival
(“OS”).3 The FDA wrote that Allarity’s proposed clinical data and
statistical approach were inadequate to support the submission of
the 	NDA. 	Defendants, 	each 	of 	whom 	served 	as 	an 	executive 	at
Allarity,4 	received 	a 	copy 	of 	the 	FDA’s 	written 	response 	in
February 2020.
A 	week 	after 	receiving 	the 	response, 	Carchedi, 	Foegh, 	and
other 	Allarity 	staff 	met 	with 	the 	FDA. 	At 	the 	meeting, 	the 	FDA
reiterated its objections regarding the non-inferiority margin and
the 	reliance 	on 	PFS 	rather 	than 	OS. 	The 	FDA 	recommended 	that
Allarity 	conduct 	a 	new 	trial. 	Each 	of 	Defendants 	received 	a 	copy
2 A “non-inferiority” trial seeks to demonstrate that the efficacy
of 	the 	test 	drug 	is 	within 	a 	clinically 	acceptable 	margin 	of 	the
efficacy of a comparison drug. FDA guidance provides that the non-
inferiority 	margin 	must 	be 	specified 	before 	the 	trial 	begins 	to
avoid potential bias.
3 PFS refers to the length of time from start of treatment to the
earlier 	of 	tumor 	growth 	or 	patient 	death, 	while 	OS 	refers 	to 	the
length 	of 	time 	from 	the 	start 	of 	treatment 	to 	patient 	death. 	FDA
guidance 	provides 	that 	OS 	is 	preferable 	because 	it 	is 	more
objective.
4 Carchedi was the chief executive officer and president from 2019
to 	2022; 	Foegh 	was 	the 	chief 	medical 	officer 	from 	2017 	to 	2024;
and Cullem held various executive positions (senior vice president
of 	corporate 	development, 	chief 	business 	officer, 	and 	chief
executive officer) from 2019 to 2023.
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of the meeting minutes, which Foegh described as “pretty negative
in 	terms 	of 	filing” 	with 	“[n]early 	every 	answer 	to 	our 	questions
[beginning] with Do not file the NDA.” Dkt. 1 ¶ 34 (alterations in
original). Notes from Allarity consultants, which Foegh and Cullem
received, 	likewise 	reflected 	that 	the 	FDA 	was 	unlikely 	to 	accept
the dovitinib NDA.
After 	the 	meeting, 	Defendants 	drafted 	a 	press 	release 	which
claimed 	that 	the 	“FDA 	indicated 	that 	they 	would 	accept 	the 	[NDA]
filing if submitted,” that Allarity “expects that [d]ovitinib will
be 	approved 	by 	the 	FDA 	as 	a 	safe 	and 	efficacious 	drug,” 	and 	that
the 	FDA 	“provided 	input 	on 	the 	‘non-inferiority’ 	margin” 	and
“discussed [PFS] as an endpoint.” Id. ¶¶ 38-40. The press release
did 	not 	indicate 	that 	the 	FDA 	had 	in 	fact 	expressed 	serious
concerns 	about 	the 	NDA 	and 	discouraged 	Allarity 	from 	filing 	it.
The 	press 	release 	was 	approved 	by 	Carchedi, 	was 	issued 	in 	March
2020, and remained on Allarity’s website through at least 2022.
On 	March 	30, 	2020, 	Carchedi 	presented 	at 	a 	meeting 	of
Allarity’s 	Board 	of 	Directors, 	at 	which 	Cullem 	was 	also 	in
attendance. He characterized the FDA meeting as “positive” but did
not 	disclose 	the 	FDA’s 	negative 	feedback. 	Id. 	¶ 	43. 	Defendants
regularly presented at Board meetings thereafter but did not alert
the Board to the FDA’s concerns.
In 	February 	2021, 	Company 	A 	requested 	the 	minutes 	from 	the
FDA 	meeting. 	Carchedi 	and 	Cullem 	decided 	to 	redact 	all 	“negative
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information” 	from 	the 	minutes 	before 	sending 	them 	to 	Company 	A.
Id. 	¶ 	45. 	When 	Cullem 	circulated 	the 	proposed 	redactions
internally, he explained, “I have redacted (blackout text) any of
the 	FDA 	comments 	about 	unwillingness 	to 	accept 	non-inferiority
etc.” Id. Cullem then sent Company A the redacted minutes in March
2021, copying Foegh.
Throughout 2021, Defendants prepared several other statements
about 	Allarity’s 	interactions 	with 	the 	FDA. 	First, 	Defendants
helped 	create 	a 	slide 	deck 	used 	by 	Carchedi 	in 	discussions 	with
prospective investors. The slide deck, which was posted online and
filed 	with 	the 	SEC 	as 	part 	of 	Allarity’s 	Form 	8-K, 	claimed 	that
dovitinib’s 	efficacy 	had 	been 	demonstrated 	in 	a 	Phase 	III 	trial
and stated that the dovitinib NDA had selected renal cell carcinoma
as 	the 	lead 	indication 	“for 	fastest 	path 	to 	approval.” 	Id. 	¶ 	53
(emphasis omitted). Allarity provided copies of the slide deck to
several prospective investors in March and October 2021.
Second, 	Carchedi 	drafted 	and 	signed 	two 	“interim 	reports”
which were published on Allarity’s website in August and November
2021. 	The 	interim 	reports 	stated 	that 	the 	FDA 	had 	“provided
guidance 	to 	[Allarity] 	regarding 	[dovitinib’s] 	potential 	path 	to
approval” and that “[b]ased on this feedback from the FDA, Allarity
plans to provide a[n] [NDA] . . . during 2021.” Id. ¶ 47 (emphasis
omitted) (third alteration in original). The interim reports also
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stated that dovitinib showed “identical clinical activity” to the
comparator drug in the 2013 trial. Id. ¶ 48.
Third, 	Allarity 	filed 	two 	prospectuses 	with 	the 	SEC 	in
November 	and 	December 	2021. 	The 	prospectuses 	claimed 	that
dovitinib was non-inferior to the 2013 comparison drug with respect
to 	PFS 	and 	OS, 	even 	though 	the 	FDA 	disagreed 	with 	that 	efficacy
claim. 	One 	of 	the 	prospectuses 	also 	stated: 	“we 	anticipate 	. 	. 	.
approval 	of 	our 	[NDA].” 	Id. 	¶ 	51 	(alterations 	in 	original).
Carchedi signed both prospectuses.
On December 21, 2021, Allarity submitted an NDA for dovitinib.
Contrary 	to 	the 	FDA’s 	recommendations, 	the 	NDA 	did 	not 	contain
data 	from 	any 	new 	trial 	and 	instead 	was 	based 	on 	a 	retrospective
non-inferiority 	analysis 	of 	the 	2013 	trial 	data. 	That 	same 	day,
Allarity announced that it had secured $20 million in funding from
a single investor and that its stock had begun trading on NASDAQ.
Allarity’s 	Board 	awarded 	Defendants 	six-figure 	bonuses 	and 	stock
option awards to reward them for meeting certain goals, including
submitting 	the 	dovitinib 	NDA 	and 	listing 	Allarity’s 	stock 	on
NASDAQ.
In 	January 	2022, 	the 	FDA 	advised 	Allarity 	to 	withdraw 	the
NDA. 	Allarity 	declined 	to 	do 	so. 	In 	February 	2022, 	the 	FDA
announced its refusal to file the NDA based on its concerns about
the 	retrospective 	non-inferiority 	analysis 	and 	the 	focus 	on 	PFS
rather 	than 	OS 	-- 	i.e., 	the 	same 	issues 	that 	FDA 	had 	previously
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communicated 	to 	Allarity. 	Upon 	learning 	of 	the 	FDA’s 	refusal 	to
file 	the 	NDA, 	the 	Chairman 	of 	Allarity’s 	Board 	emailed 	Cullem,
stating: 	“I’m 	interested 	to 	know 	who 	advised 	us 	to 	file 	against
the crystal clear advice of the FDA.” Id. ¶ 60. Cullem and Carchedi
explained 	that 	filing 	the 	NDA 	had 	been 	crucial 	to 	procuring 	the
$20 million investment in December 2021, which had helped Allarity
avoid bankruptcy.
Later 	in 	February 	2022, 	Allarity 	informed 	the 	public 	about
the FDA’s refusal to file the NDA, causing Allarity’s stock price
to 	plummet. 	In 	August 	2022, 	Allarity 	announced 	that 	it 	was 	no
longer pursuing development of dovitinib as a standalone drug.
LEGAL STANDARD
To survive a Federal Rule of Civil Procedure 12(b)(6) motion
to 	dismiss, 	a 	complaint 	must 	allege 	“a 	plausible 	entitlement 	to
relief.” 	Bell 	Atl. 	Corp. 	v. 	Twombly, 	550 	U.S. 	544, 	559 	(2007).
“While 	a 	complaint 	attacked 	by 	a 	Rule 	12(b)(6) 	motion 	to 	dismiss
does 	not 	need 	detailed 	factual 	allegations, 	a 	plaintiff’s
obligation 	to 	provide 	the 	grounds 	of 	his 	entitlement 	to 	relief
requires 	more 	than 	labels 	and 	conclusions, 	and 	a 	formulaic
recitation of the elements of a cause of action will not do.” Id.
at 	555 	(cleaned 	up). 	This 	standard 	requires 	a 	court 	to 	“separate
the 	complaint’s 	factual 	allegations 	(which 	must 	be 	accepted 	as
true) 	from 	its 	conclusory 	legal 	allegations 	(which 	need 	not 	be
credited).” Kando v. R.I. State Bd. of Elections, 880 F.3d 53, 58
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(1st 	Cir. 	2018) 	(quoting 	Morales-Cruz 	v. 	Univ. 	of 	P.R., 	676 	F.3d
220, 	224 	(1st 	Cir. 	2012)). 	The 	court 	must 	then 	determine 	whether
the factual allegations permit it “to draw the reasonable inference
that 	the 	defendant 	is 	liable 	for 	the 	misconduct 	alleged.”
Germanowski 	v. 	Harris, 	854 	F.3d 	68, 	72 	(1st 	Cir. 	2017) 	(quoting
Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009)).
Because the SEC alleges that Defendants engaged in fraud, the
SEC 	must 	also 	“state 	with 	particularity 	the 	circumstances
constituting [the] fraud.” SEC v. Tambone, 597 F.3d 436, 442 (1st
Cir. 	2010) 	(en 	banc) 	(alteration 	in 	original) 	(quoting 	Fed. 	R.
Civ. 	P. 	9(b)). 	“To 	satisfy 	this 	particularity 	requirement, 	the
[SEC] 	must 	set 	out 	the 	‘time, 	place, 	and 	content 	of 	the 	alleged
misrepresentation[s] 	with 	specificity.” 	Id. 	(quoting 	Greebel 	v.
FTP Software, Inc., 194 F.3d 185, 193 (1st Cir. 1999)).
DISCUSSION
The SEC alleges liability under two theories. First, the SEC
claims 	that 	Carchedi 	is 	liable 	under 	SEC 	Rule 	10b-5(b), 	see 	17
C.F.R. 	§ 	240.10b-5(b),5 	and 	§ 	17(a)(2) 	of 	the 	Securities 	Act 	of
1933, see 15 U.S.C. § 77q(a)(2), for making misleading statements.
Second, 	the 	SEC 	claims 	that 	all 	three 	Defendants 	are 	subject 	to
5 Rule 10b-5 implements § 10(b) of the Securities Exchange Act of
1934, which prohibits “us[ing] or employ[ing], in connection with
the purchase or sale of any security . . .[,] any manipulative or
deceptive device or contrivance in contravention of such rules and
regulations as the [SEC] may prescribe.” 15 U.S.C. § 78j(b).
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scheme 	liability 	under 	Rule 	10b-5(a) 	and 	(c), 	see 	17 	C.F.R.
§ 240.10b-5(a), (c), and § 17(a)(1) and (3) of the Securities Act
of 1933, see 15 U.S.C. § 77q(a)(1), (3), based on their allegedly
fraudulent conduct. The Court examines each of these two theories
of liability in turn.
I. 	Misstatement Liability
The 	Court 	first 	gauges 	the 	sufficiency 	of 	the 	SEC’s 	claim
that Carchedi violated Rule 10b-5(b) and § 17(a)(2). Rule 10b-5(b)
makes it unlawful, “in connection with the purchase or sale of any
security,” to “make any untrue statement of a material fact or to
omit 	to 	state 	a 	material 	fact 	necessary 	in 	order 	to 	make 	the
statements 	made, 	in 	the 	light 	of 	the 	circumstances 	under 	which
they 	were 	made, 	not 	misleading.” 	17 	C.F.R. 	§ 	240.10b-5(b).
Similarly, 	§ 	17(a)(2) 	prohibits, 	“in 	the 	offer 	or 	sale 	or 	any
securities,” “obtain[ing] money or property by means of any untrue
statement 	of 	a 	material 	fact 	or 	any 	omission 	to 	state 	a 	material
fact 	necessary 	in 	order 	to 	make 	the 	statements 	made, 	in 	light 	of
the circumstances under which they were made, not misleading.” 15
U.S.C. § 77q(a)(2).
The 	parties 	agree 	that 	these 	provisions 	impose 	identical
pleading 	requirements 	on 	the 	SEC 	with 	respect 	to 	the 	presently
disputed issues, with one exception: While Rule 10b-5(b) requires
allegations 	of 	scienter, 	§ 	17(a)(2) 	requires 	only 	allegations 	of
negligence. 	See 	SEC 	v. 	Ficken, 	546 	F.3d 	45, 	47 	(1st 	Cir. 	2008).
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The 	Court 	concludes 	that, 	contrary 	to 	Defendants’ 	arguments, 	the
SEC has alleged each of the required elements with particularity.
Carchedi first argues that the SEC has not alleged fraud “in
connection 	with 	the 	purchase 	or 	sale 	of 	any 	security.” 	17 	C.F.R.
§ 	240.10b-5. 	Relatedly, 	Cullem 	and 	Foegh 	point 	out 	that 	prior 	to
December 	2021, 	Allarity 	was 	not 	trading 	on 	any 	domestic 	stock
exchange and its Danish predecessors were trading only on a Swedish
exchange. 	They 	argue 	that 	all 	allegations 	regarding 	statements
made 	before 	December 	2021 	thus 	run 	afoul 	of 	the 	Supreme 	Court’s
holding 	that 	Rule 	10b-5(b) 	applies 	only 	to 	“transactions 	in
securities 	listed 	on 	domestic 	exchanges[] 	and 	domestic
transactions 	in 	other 	securities.” 	Morrison 	v. 	Nat’l 	Austl. 	Bank
Ltd., 561 U.S. 247, 267 (2010).
Not so. The framework from Morrison does not apply here. See
SEC 	v. 	Morrone, 	997 	F.3d 	52, 	60 	n.7 	(1st 	Cir. 	2021) 	(“Morrison’s
transactional test only governs conduct occurring before July 22,
2010.”). 	Even 	if 	it 	did, 	the 	SEC’s 	complaint 	would 	satisfy 	that
test. The SEC alleges that Allarity’s stock began trading on NASDAQ
(a 	domestic 	exchange) 	on 	December 	21, 	2021, 	and 	that 	Allarity
procured 	a 	$20 	million 	investment 	that 	same 	day. 	The 	SEC 	further
alleges 	that 	Allarity 	was 	a 	Delaware 	corporation 	at 	the 	time 	of
various 	of 	Defendants’ 	alleged 	misstatements 	leading 	up 	to
December 2021. These allegations adequately plead that Defendants’
misstatements 	were 	made 	in 	connection 	with 	a 	security 	listed 	on
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NASDAQ 	and/or 	that 	the 	investor 	incurred 	“irrevocable 	liability”
in 	the 	United 	States. 	Id. 	at 	60; 	see 	id. 	(“The 	existence 	of 	a
domestic transaction suffices to apply the federal securities laws
under Morrison. No further inquiry is required.”).
Next, 	Carchedi 	contends 	that 	the 	SEC 	has 	not 	particularly
alleged 	any 	“false, 	or 	misleadingly 	omitted, 	statement[s] 	of
fact.” 	U.S. 	SEC 	v. 	Lemelson, 	57 	F.4th 	17, 	24 	(1st 	Cir. 	2023)
(quoting Constr. Indus. & Laborers Joint Pension Tr. v. Carbonite,
Inc., 	22 	F.4th 	1, 	7 	(1st 	Cir. 	2021)). 	He 	chiefly 	argues 	that 	the
SEC 	premises 	its 	claims 	on 	“pure 	omissions.” 	Macquarie
Infrastructure 	Corp. 	v. 	Moab 	Partners, 	L. 	P., 	601 	U.S. 	257, 	264
(2024).
Again, 	the 	Court 	disagrees. 	Far 	from 	alleging 	merely 	“pure
omissions,” 	the 	SEC 	in 	fact 	alleges 	that 	Carchedi 	affirmatively
made 	various 	misleading 	statements 	and 	“half-truths” 	actionable
under Rule 10b-5 and § 17(a)(2). Id. For example, Carchedi used a
slide 	deck 	to 	tell 	investors 	that 	dovitinib 	was 	on 	the 	“fastest
path 	to 	approval,” 	Dkt. 	1 	¶ 	53 	(emphasis 	omitted); 	signed 	two
interim reports stating that Allarity planned to submit an NDA for
dovitinib 	“[b]ased 	on 	th[e] 	feedback 	from 	the 	FDA,” 	id. 	¶ 	47
(emphasis 	omitted) 	(first 	alteration 	in 	original); 	and 	signed 	a
prospectus stating that Allarity “anticipate[d] . . . approval of”
the NDA, id. ¶ 51 (second alteration in original). By making these
statements and not also disclosing that the FDA had in fact advised
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strongly 	against 	filing 	the 	NDA, 	Carchedi, 	at 	minimum, 	plausibly
“omitt[ed] 	a 	material 	fact 	necessary 	‘to 	make 	the 	statements
made . . . not 	misleading.’” 	Macquarie, 	601 	U.S. 	at 	263 	(second
alteration in original) (quoting 17 C.F.R. § 240.10b–5(b)).6
Carchedi further argues that the misstatements identified by
the 	SEC 	were 	not 	plausibly 	“material.” 	15 	U.S.C. 	§ 	77q(a)(2); 	17
C.F.R. § 240.10b–5(b). He posits that no reasonable investor would
find 	the 	statements 	material 	in 	light 	of 	the 	prospectuses, 	which
he 	argues 	contained 	extensive 	risk 	disclosures 	that 	acknowledged
(among 	other 	things) 	that 	Allarity 	“may 	not 	receive 	regulatory
approval” from the FDA. Dkt. 53 at 23 (emphasis omitted).
The 	Court 	rejects 	this 	argument, 	which 	is 	better 	suited 	for
later 	stages 	of 	the 	litigation. 	See, 	e.g., 	Lemelson, 	57 	F.4th 	at
25 	(“The 	determination 	of 	materiality 	is 	typically 	left 	to 	the
jury.”). At the pleading stage, the SEC has plausibly alleged that
a reasonable investor could view Carchedi’s misleading statements
as 	“having 	significantly 	altered 	the 	‘total 	mix’ 	of 	information
made 	available,” 	id. 	(quoting 	Basic 	Inc. 	v. 	Levinson, 	485 	U.S.
224, 232 (1988)), particularly given that the prospectuses nowhere
6 	The 	Court 	likewise 	rejects 	Carchedi’s 	arguments 	that 	the 	SEC’s
allegations 	merely 	target 	“expression[s] 	of 	corporate 	optimism,”
Dkt. 53 at 16 (quoting Shaw v. Digit. Equip. Corp., 82 F.3d 1194,
1217 (1st Cir. 1996)), and that the SEC did not allege Carchedi’s
involvement 	with 	the 	alleged 	misstatements 	and 	omissions 	with
particularity. 	On 	the 	contrary, 	the 	SEC 	has 	identified 	specific
misleading 	statements 	and 	has 	provided 	the 	dates 	on 	which 	those
statements were made and signed by Carchedi.
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disclosed the specific criticisms received from the FDA regarding
dovitinib. Indeed, the SEC alleges that Carchedi himself told the
Chairman 	of 	Allarity’s 	Board 	that 	filing 	the 	NDA 	was 	critical 	in
procuring the $20 million investment in December 2021. It follows
that 	statements 	of 	optimism 	regarding 	the 	FDA’s 	likelihood 	of
accepting 	the 	NDA, 	while 	omitting 	the 	FDA’s 	true 	feedback, 	would
likewise have been material.
Finally, 	Carchedi 	asserts 	that 	the 	SEC 	has 	failed 	to 	plead
that 	he 	made 	the 	alleged 	misstatements 	with 	scienter. 	He 	argues
that the SEC’s allegations fail to plausibly show “either conscious
intent 	to 	defraud 	or 	‘a 	high 	degree 	of 	recklessness,’” 	as 	is
required to plead a Rule 10b-5(b) violation, Lemelson, 57 F.4th at
28 (quoting Ficken, 546 F.3d at 47), or negligence, as is required
under § 17(a)(2), see Ficken, 546 F.3d at 47.
Contrary 	to 	Carchedi’s 	argument, 	the 	SEC 	has 	alleged 	ample
and particular facts supporting a plausible inference of scienter.
The SEC alleges that Carchedi knew of the FDA’s specific concerns
regarding the dovitinib NDA yet chose to conceal those criticisms
while 	making 	misleading 	statements, 	including 	those 	in 	the
investor slide decks, interim reports, and prospectuses. Carchedi
allegedly 	even 	went 	so 	far 	as 	to 	redact 	the 	criticisms 	from 	the
FDA 	meeting 	minutes 	before 	sending 	them 	to 	Company 	A. 	Carchedi’s
decision to make statements when he “knew facts suggesting [that]
the 	statements 	were 	inaccurate 	or 	misleadingly 	incomplete 	is
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classic 	evidence 	of 	scienter.” 	SEC 	v. 	Johnston, 	986 	F.3d 	63, 	74
(1st 	Cir. 	2021) 	(quoting 	Aldridge 	v. 	A.T. 	Cross 	Corp., 	284 	F.3d
72, 	83 	(1st 	Cir. 	2002)). 	The 	SEC 	further 	alleges 	that 	Carchedi
benefitted 	from 	these 	actions 	by 	securing 	a 	bonus 	and 	helping
Allarity 	avoid 	bankruptcy. 	See 	Kader 	v. 	Sarepta 	Therapeutics,
Inc., 887 F.3d 48, 60 (1st Cir. 2018) (explaining that “allegations
that 	‘the 	very 	survival 	of 	the 	company 	w[as] 	on 	the 	line’” 	may
support an inference of scienter (alteration in original) (quoting
Corban 	v. 	Sarepta 	Therapeutics, 	Inc., 	868 	F.3d 	31, 	41 	(1st 	Cir.
2017))). 	These 	allegations 	are 	adequate 	to 	support 	a 	plausible
inference 	of 	scienter 	under 	Rule 	10b-5(b) 	and, 	a 	fortiori, 	of
negligence under § 17(a)(2).
The 	Court 	thus 	concludes 	that 	the 	SEC 	has 	plausibly 	alleged
that Carchedi is subject to misstatement liability under Rule 10b-
5(b) and § 17(a)(2).
II. 	Scheme Liability
The 	Court 	next 	addresses 	the 	SEC’s 	claims 	that 	all 	three
Defendants 	are 	subject 	to 	“scheme 	liability” 	under 	Rule 	10b-5(a)
and (c) and § 17(a)(1) and (3). The scheme liability provisions of
Rule 	10b-5 	make 	it 	unlawful, 	“in 	connection 	with 	the 	purchase 	or
sale of any security,” to “employ any device, scheme, or artifice
to 	defraud,” 	17 	C.F.R. 	§ 	240.10b-5(a), 	or 	to 	“engage 	in 	any 	act,
practice, or course of business which operates or would operate as
a fraud or deceit upon any person,” id. § 240.10b-5(c). Similarly,
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§ 	17(a)’s 	scheme 	liability 	provisions 	make 	it 	unlawful, 	“in 	the
offer 	or 	sale 	of 	any 	securities,” 	to 	“employ 	any 	device, 	scheme,
or 	artifice 	to 	defraud,” 	15 	U.S.C. 	§ 	77q(a)(1), 	or 	to 	“engage 	in
any transaction, practice, or course of business which operates or
would 	operate 	as 	a 	fraud 	or 	deceit 	upon 	the 	purchaser,” 	id.
§ 77q(a)(3). 	For 	present 	purposes, 	the 	parties 	agree 	that 	Rule
10b-5(a) parallels § 17(a)(1) and Rule 10b-5(c) mirrors § 17(a)(3),
and 	that 	the 	parallel 	provisions 	are 	coterminous, 	except 	that
§ 17(a)(3) 	merely 	requires 	negligence 	while 	the 	other 	three
provisions require scienter. See Johnston, 986 F.3d at 74.
The 	Court’s 	analysis 	of 	the 	SEC’s 	scheme 	liability 	claims
must begin with a review of two Supreme Court decisions. First, in
Janus Capital Group, Inc. v. First Derivative Traders, the Supreme
Court 	held 	that 	the 	“maker 	of 	a 	statement” 	for 	purposes 	of
misstatement liability under Rule 10b-5(b) “is the person or entity
with ultimate authority over the statement, including its content
and whether and how to communicate it.” 564 U.S. 135, 142 (2011).
Finding 	that 	“[o]ne 	who 	prepares 	. 	. 	. 	a 	statement 	on 	behalf 	of
another 	is 	not 	its 	maker,” 	id., 	the 	Court 	held 	that 	a 	person 	who
merely “participat[es] in the drafting of a false statement” that
is ultimately “made” by another person cannot be held liable under
Rule 10b-5(b), id. at 145, 148.
Several 	years 	later, 	in 	Lorenzo 	v. 	SEC, 	the 	Supreme 	Court
determined 	that 	“those 	who 	do 	not 	‘make’ 	statements 	(as 	Janus
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defined 	‘make’), 	but 	who 	disseminate 	false 	or 	misleading
statements to potential investors with the intent to defraud,” can
be 	subject 	to 	scheme 	liability 	under 	Rule 	10b-5(a) 	and 	(c) 	and
§ 17(a)(1). 	587 	U.S. 	71, 	74 	(2019).7 	The 	scheme 	liability
provisions, 	the 	Court 	noted, 	are 	textually 	“exp 	ansive” 	and 	thus
“capture 	a 	wide 	range 	of 	conduct.” 	Id. 	at 	79. 	The 	Court 	rejected
the 	petitioner’s 	argument 	that 	scheme 	liability 	can 	be 	incurred
“only 	when 	conduct 	other 	than 	misstatements 	is 	involved,” 	id.,
instead 	holding 	that 	the 	misstatement 	liability 	and 	scheme
liability 	provisions 	have 	“considerable 	overlap,” 	id. 	at 	80; 	see
also 	id. 	(citing 	early 	administrative 	decisions 	in 	which 	the 	SEC
found 	both 	misstatement 	and 	scheme 	liability 	“based 	on 	the 	same
misrepresentations 	and 	omissions”). 	Further, 	the 	Court 	rejected
the petitioner’s argument that this holding was at odds with Janus,
stating that Janus “remain[s] relevant (and preclude[s] liability)
where 	an 	individual 	neither 	makes 	nor 	disseminates 	false
information 	-- 	provided, 	of 	course, 	that 	the 	individual 	is 	not
involved in some other form of fraud.” Id. at 82.
7 In Lorenzo, the Supreme Court analyzed Rule 10b-5(a) and (c) and
§ 	17(a)(1), 	but 	not 	§ 	17(a)(3), 	which 	was 	not 	before 	it. 	See 	587
U.S. 	at 	77. 	But 	because 	the 	language 	of 	§ 	17(a)(3) 	essentially
mirrors that of Rule 10b-5(c), this Court finds Lorenzo’s holding
applicable 	to 	§ 	17(a)(3) 	as 	well. 	See, 	e.g., 	Malouf 	v. 	SEC, 	933
F.3d 	1248, 	1260 	(10th 	Cir. 	2019) 	(“Lorenzo 	. 	. 	. 	controls 	on
§ 17(a)(3) 	as 	well 	as 	the 	other 	provisions.”); 	SEC 	v. 	Sharp, 	626
F. 	Supp. 	3d 	345, 	394 	(D. 	Mass. 	2022) 	(“[W]here 	the 	pleading
requirements 	for 	[§§] 	17(a)(1) 	and 	10(b) 	are 	met, 	they 	are 	also
met for [§] 17(a)(3).”). The parties do not argue otherwise.
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The 	SEC 	contends 	that 	Defendants 	have 	violated 	the 	scheme
liability 	provisions 	of 	Rule 	10b-5 	and 	§ 	17(a) 	under 	the 	Lorenzo
framework. 	The 	SEC 	alleges, 	among 	other 	things, 	that 	Defendants
each 	participated 	in 	drafting 	a 	misleading 	press 	release 	and
investor slide deck; that Defendants concealed the FDA’s negative
feedback 	from 	Allarity’s 	Board 	of 	Directors 	despite 	regularly
presenting to the Board; that Cullem failed to correct Carchedi’s
false 	representation 	to 	the 	Board 	that 	the 	FDA’s 	feedback 	was
“positive,” 	Dkt. 	1 	¶ 	43; 	and 	that 	Carchedi 	and 	Cullem 	emailed
redacted 	minutes 	of 	the 	FDA 	meeting 	to 	Company 	A, 	copying 	Foegh,
to conceal the FDA’s criticisms. In the SEC’s view, these alleged
actions constitute “an ‘artful strategem’ or a ‘plan[]’ ‘devised’
to 	defraud 	an 	investor” 	under 	Rule 	10b-5(a) 	and 	§ 	17(a)(1) 	and
likewise 	represent 	“‘a[n] 	act, 	practice, 	or 	course 	of 	business’
that ‘operate[d] . . . as a fraud or deceit’” under Rule 10b-5(c)
and 	§ 	17(a)(3). 	Lorenzo, 	587 	U.S. 	at 	78-79 	(second 	and 	fourth
alterations in original) (quoting 17 C.F.R. § 240.10b-5(c)).
Defendants 	resist 	this 	conclusion, 	arguing 	that 	the 	SEC’s
scheme liability claims must be dismissed because the SEC fails to
plausibly 	allege 	a 	fraudulent 	scheme 	distinct 	from 	Carchedi’s
misstatements. In support of this proposition, they primarily cite
the Second Circuit’s decision in SEC v. Rio Tinto plc, 41 F.4th 47
(2d Cir. 2022), and district court cases following that decision.
In 	Rio 	Tinto, 	the 	Second 	Circuit 	determined 	that 	Lorenzo 	did 	not
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abrogate 	prior 	circuit 	precedent 	holding 	that 	“misstatements 	and
omissions 	can 	form 	part 	of 	a 	scheme 	liability 	claim, 	but 	an
actionable 	scheme 	liability 	claim 	also 	requires 	something 	beyond
misstatements 	and 	omissions, 	such 	as 	dissemination.” 	41 	F.4th 	at
49. 	The 	Second 	Circuit 	reasoned 	that 	allowing 	individuals 	to 	be
“primarily 	liable 	under 	the 	scheme 	subsections 	for 	participation
in the making of . . . misstatements” would undermine Janus, which
precludes 	primary 	liability 	under 	Rule 	10b-5(b) 	for 	those 	same
actions. Id. at 52.
As 	several 	courts 	have 	recognized, 	Lorenzo 	permits
“considerable 	overlap” 	between 	misstatement 	liability 	claims 	and
scheme liability claims. 587 U.S. at 80; see, e.g., In re Alphabet,
Inc. Sec. Litig., 1 F.4th 687, 709 (9th Cir. 2021); Malouf v. SEC,
933 	F.3d 	1248, 	1259-60 	(10th 	Cir. 	2019). 	Nevertheless, 	the 	Court
agrees 	with 	the 	Second 	Circuit 	that 	“misstatements 	and 	omissions
alone are not enough for scheme liability.” Rio Tinto, 41 F.4th at
54 	(emphasis 	added). 	Rather, 	“something 	extra” 	-- 	of 	which
“dissemination 	is 	one 	example,” 	per 	Lorenzo 	-- 	is 	required. 	Id.
Holding 	otherwise 	would 	render 	the 	misstatement 	liability
provisions 	of 	Rule 	10b-5 	and 	§ 	17(a) 	obsolete. 	Moreover, 	scheme
liability 	cannot 	be 	premised 	solely 	on 	drafting 	a 	misstatement,
see 	id., 	because 	finding 	otherwise 	would 	permit 	the 	SEC 	to
circumvent 	Janus 	entirely, 	see 	Lorenzo, 	587 	U.S. 	at 	82 	(noting
that Janus can still “preclude liability” in some circumstances).
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Here, the SEC alleges two “extra” fraudulent practices beyond
Defendants’ preparation of misleading statements to investors. Rio
Tinto 	PLC, 	41 	F.4th 	at 	54. 	Those 	practices 	were 	related 	to
Allarity’s 	Board 	of 	Directors 	and 	to 	Company 	A 	(the 	licensor 	of
dovitinib), respectively.
First, with respect to Allarity’s Board, the SEC alleges that
Carchedi told the Board that the FDA meeting was “positive” while
not 	disclosing 	the 	FDA’s 	criticisms. 	Dkt. 	1 	¶ 	43. 	Cullem 	was
present 	at 	the 	Board 	meeting 	and 	did 	not 	correct 	Carchedi. 	The
alleged deception of the Board eventually resulted in the Chairman
of 	the 	Board’s 	surprise 	that 	Allarity 	had 	been 	“advised 	. 	. 	. 	to
file 	[the 	dovitinib 	NDA] 	against 	the 	crystal 	clear 	advice 	of 	the
FDA.” 	Id. 	¶ 	60. 	The 	SEC 	thus 	plausibly 	alleges 	that 	Carchedi
deceived the Board into allowing the filing of the NDA and thereby
attracting investment.
Second, 	with 	respect 	to 	Company 	A, 	the 	SEC 	alleges 	that
Carchedi and Cullem redacted all “negative information,” including
details 	regarding 	the 	FDA’s 	“unwillingness 	to 	accept 	[a] 	non-
inferiority” analysis in the NDA, from the FDA meeting minutes to
be 	sent 	to 	Company 	A. 	Id. 	¶ 	45. 	Cullem 	then 	emailed 	the 	redacted
minutes 	to 	Company 	A. 	This 	conduct 	plausibly 	constitutes 	a
fraudulent scheme and act geared toward retaining the license for
dovitinib, 	filing 	the 	NDA, 	and 	attracting 	investment. 	Cf. 	SEC 	v.
Wilcox, 	663 	F. 	Supp. 	3d 	146, 	160 	(D. 	Mass. 	2023) 	(holding 	that
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“provid[ing] 	false 	support 	to 	an 	external 	audit 	firm” 	can
“constitute[] 	a 	deceptive 	act” 	sufficient 	to 	incur 	scheme
liability under Lorenzo).
Although 	these 	two 	sets 	of 	allegations 	plausibly 	subject
Carchedi 	and 	Cullem 	to 	scheme 	liability, 	the 	SEC’s 	corresponding
allegations 	about 	Foegh 	are 	relatively 	threadbare. 	Foegh 	is 	not
alleged to have been present at the Board meeting in which Carchedi
characterized 	the 	FDA’s 	feedback 	as 	“positive.” 	Dkt. 	1 	¶ 	43. 	The
SEC 	alleges 	that 	Foegh, 	along 	with 	Carchedi 	and 	Cullem, 	was 	a
“regular presenter[] at Board meetings thereafter,” id. ¶ 44, but
nowhere 	describes 	the 	subject 	matter 	of 	Foegh’s 	presentations 	or
explains why her not discussing the FDA’s feedback at those Board
meetings 	was 	fraudulent. 	Similarly, 	Foegh 	is 	not 	alleged 	to 	have
participated in the redaction of the FDA meeting minutes; rather,
the 	SEC 	merely 	alleges 	that 	Foegh 	was 	copied 	on 	Cullem’s 	email
transmitting 	the 	redacted 	minutes 	to 	Company 	A. 	While 	a 	“failure
to 	correct 	[another]’s 	misstatements 	c[an] 	trigger 	[scheme]
liability” 	in 	some 	circumstances, 	Malouf, 	933 	F.3d 	at 	1260; 	see
Rio 	Tinto, 	41 	F.4th 	at 	54 	(leaving 	open 	the 	question 	of 	whether
“conceal[ing] information” can give rise to scheme liability), the
SEC identifies no precedent for the notion that being copied on a
single email, and failing to inform the recipient about misleading
information 	contained 	in 	an 	attachment 	to 	that 	email, 	can 	(in
conjunction 	with 	only 	the 	preparation 	of 	other 	misstatements)
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support 	scheme 	liability. 	The 	Court 	instead 	concludes 	that 	this
allegation 	is 	too 	“tangential[]” 	to 	give 	rise 	to 	such 	liability.
Lorenzo, 587 U.S. at 79.8
Accordingly, the SEC has plausibly alleged that Carchedi and
Cullem are subject to scheme liability under Rule 10b-5(a) and (c)
and § 17(a)(1) and (3), but the complaint falls short with respect
to Foegh. The Court rejects Cullem’s argument that the SEC did not
adequately plead that he acted with scienter. Like Carchedi, Cullem
allegedly 	knew 	of 	the 	FDA’s 	negative 	feedback 	but 	took 	steps 	to
conceal 	it, 	including 	by 	redacting 	the 	FDA 	meeting 	minutes 	and
sending 	them 	to 	Company 	A. 	And, 	also 	like 	Carchedi, 	Cullem’s
actions 	allegedly 	played 	in 	a 	role 	in 	his 	receiving 	a 	bonus 	and
Allarity’s 	avoiding 	bankruptcy. 	The 	SEC 	thus 	has 	alleged, 	with
particularity, 	facts 	plausibly 	demonstrating 	scienter 	(and
negligence). See supra Section I.
ORDER
For the foregoing reasons, Carchedi’s motion to dismiss (Dkt.
52) is DENIED, Cullem’s motion to dismiss (Dkt. 47) is DENIED, and
8 Foegh’s alleged failure to correct the misleading nature of the
email is a far cry from the conduct at issue in Malouf. There, the
Tenth Circuit held that the defendant could incur scheme liability
for 	his 	failure 	to 	correct 	a 	company’s 	misstatements 	about 	the
defendant’s 	own 	conflict 	of 	interest. 	933 	F.3d 	at 	1259-60. 	The
company’s 	misstatements 	were 	directly 	caused 	by 	the 	defendant’s
failure 	to 	disclose 	his 	conflict 	of 	interest 	to 	the 	company, 	and
the 	defendant 	had 	“participat[ed] 	in 	deciding 	what 	[the 	company]
would disclose.” Id. at 1254.
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Foegh’s 	motion 	to 	dismiss 	(Dkt. 	49) 	is 	ALLOWED 	without 	prejudice
to the SEC moving to amend its complaint within sixty days of the
date of this order.
SO ORDERED.
/s/ PATTI B. SARIS________________
Hon. Patti B. Saris
United States District Judge
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