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Law360 (May 27, 2020, 9:09 PM EDT ) A shareholder filed suit against Carnival Corp. on Wednesday, accusing the world's largest cruise company of concealing COVID-19 infections on its ships and spreading the virus "at various ports throughout the world."
The proposed class action in Florida federal court lobs a slew of allegations at Carnival over its handling of the coronavirus pandemic and seeks to hold the company, CEO Arnold W. Donald and Chief Financial Officer David Bernstein liable for stock-drops allegedly tied to revelations that Carnival continued to operate after learning of COVID-19's proliferation on its ships.
Carnival is facing similar accusations in proposed class actions from passengers, though Wednesday's suit appears to be the first securities fraud case brought against the cruise giant in connection with the pandemic.
"This action alleges that Carnival and several officers of the company made a series of false and misleading statements and concealed material information relating to the company's adherence to its health and safety protocols in the wake of the COVID-19 pandemic, carnival's role in facilitating the transmission of the virus, and the company's violations of port-of-call regulations," according to the complaint. "As a result of these false and misleading statements and omissions made throughout the class period, Carnival common stock and securities traded at inflated prices."
The institutional investor behind the suit proposes a class period that starts on Jan. 28, when Carnival filed its annual report with the U.S. Securities and Exchange Commission and announced in a press release the resignation of director Debra Kelly-Ennis, who was a member of Carnival's Health, Environmental, Safety and Security committee.
The resignation was effective Jan. 27, enabling Kelly-Ennis to "step out from under her obligation as a director to sign" the annual report, the complaint notes. By the following week, Carnival and COVID-19 started sharing headlines.
As of Feb. 5, some 3,700 passengers and crew were quarantined aboard the Diamond Princess, a ship operated by Carnival subsidiary Princess Cruises, according to the complaint. Then on Feb. 20, another Carnival-owned ship known as the Grand Princess docked in San Francisco and let at least one passenger infected with COVID-19 disembark, despite that passenger having exhibited symptoms for nearly a week while aboard, the suit says.
In between the two events, Carnival issued a press release insisting that the safety of its guests and employees was its top priority, and announced on March 12 a "voluntary and temporary pause" of operations for its Princess Cruises, followed by a similar pause for Carnival Cruise Line the following day.
Then on April 16, while Carnival still had two cruise ships at sea, a news article revealed that company executives may have failed to adequately protect passengers from COVID-19 and "continued to operate new cruise departures despite its knowledge that the threat posed by COVID-19 had materialized on its ships and was likely to proliferate further," according to Wednesday's lawsuit. Carnival's share price dropped $0.53 that day.
On May 1, another news article detailed how cruise ships like those operated by Carnival and Princess facilitated the spread of the virus despite early warning signs available to Carnival and its affiliated cruise lines, and further revealed that the government had initiated a records request regarding Carnival's response to the pandemic, the suit claims. This news allegedly caused Carnival's stock price to drop $1.97 that day to $13.93 per share.
The securities suit contends that Carnival and its executives concealed from the investing public that its own medics were reporting increased incidence of COVID-19 illness on its ships, that it was violating port of call regulations by hiding the severity of its on-board infections, and that its response to the pandemic generally ignored Carnival's own health and safety protocols.
"By continuing to operate, Carnival ships were responsible for continuing to spread COVID-19 at various ports throughout the world and, as a result of the foregoing, defendants' positive statements about the company's business, operations, and prospects, were materially misleading," the suit claims.
A representative for Carnival and counsel for the investor did not immediately respond to requests for comment Wednesday.
Carnival competitor Norwegian Cruise Line is also facing securities claims related to the coronavirus outbreak, though investors in that heavily watched case are accusing the company of downplaying the seriousness of the pandemic to prospective customers.
The investor is represented by Daniel E. Bacine and Jeffrey A. Barrack of Barrack Rodos & Bacine, James M. LoPiano of Pomerantz LLP and Jayne A. Goldstein of Shepherd Finkelman Miller & Shah LLP.
Counsel information for Carnival is not yet available.
The case is Service Lamp Corporation Profit Sharing Plan v. Carnival Corporation et al., case number 1:20-cv-22202, in the U.S. District Court for the Southern District of Florida.
--Editing by Amy Rowe.
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