Palmaz Scientific investors lose in federal court

A federal judge in Dallas, Texas has dealt investors in the bankrupt Palmaz Scientific another blow, tossing five of their negligence claims 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 the ruling. But despite the fact that the Wall Street firm severed its ties with Palmaz Scientific in 2011, according to the San Antonio Express-News, the medical device company continued to list Jefferies as the placement agent for another two years in marketing materials.

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.

Investors purchased securities in Palmaz Scientific based upon investment information prepared by Jefferies, according to the latest court order. But 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.

The Palmaz Scientific investors have been trying to regain more than $3 million in actual damages, plus punitive damages against Jefferies for allegedly making misrepresentations in the offer and sale of shares in Palmaz Scientific. In this week’s ruling, Judge Karen Gren Scholer dismissed their claims of negligent misrepresentation against Jefferies under Texas securities law, saying that any relevant work performed by Jefferies occurred in New York, where it is headquartered, and was subject to New York law.

The judge also dismissed the investors’ three other claims of negligence without prejudice, writing that the investors could try again to establish that Jefferies had a legal duty of care not to harm them. They have 30 days to respond.



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