A federal judge in Dallas, Texas, has dismissed a lawsuit by investors in the bankrupt Palmaz Scientific against investment bank Jefferies & Co.
Co-founded by coronary stent pioneer Dr. Julio Palmaz in 2008, San Antonio-based Palmaz Scientific tapped Jefferies for a $7.5 million fundraising round in 2010, according to a previous ruling. The investors claimed that they relied upon Jefferies’ alleged misrepresentations in the offer and sale of shares in Palmaz Scientific when they invested — and eventually lost — more than $3 million in stock.
The court ruled in 2017 that because the investors placed their money through a different bank or directly with Palmaz Scientific, they were not Jefferies’ “customers” and could not force the Wall Street bank into arbitration over their claims of a state securities law violation and negligence.
Five of their negligence claims from an amended complaint were dismissed in February 2019, but the investors filed a third amended complaint restating Jefferies’ alleged “duty of care” toward them. Judge Brantley Starr dismissed that claim on Friday.
“The investors have yet again failed to plausibly plead their negligence-based claims,” Starr wrote in his ruling. The judge cited New York law, which says that security brokers only owe a plaintiff a duty of care when the broker does business with the plaintiff. The investors did not buy the securities directly from Jefferies, Starr wrote.
The Wall Street firm severed its ties with Palmaz Scientific in 2011, according to the San Antonio Express-News. Palmaz Scientific reported a $26.3 million round in 2013 and later added another $1.3 million of a hoped-for $4.2 million; the firm had raised more than $40 million by the time of its bankruptcy filing in 2016.