Quinones v. Frequency Therapeutics, Inc.

UNITED STATES DISTRICT COURT

DISTRICT OF MASSACHUSETTS

___________________________________

)

JULIAN QUINONES, )

Individually and on Behalf of )

All Others Similarly Situated, )

)

Plaintiffs, )

)

v. ) CIVIL ACTION

) NO. 21-10933-WGY

FREQUENCY THERAPEUTICS, INC., )

DAVID L. LUCCHINO, and )

CARL LEBEL, )

)

Defendants. )

___________________________________)

YOUNG, D.J. March 29, 2023

MEMORANDUM AND ORDER

I. INTRODUCTION

Lead plaintiff Julian Quinones (“Quinones”) brings a

securities class action against the defendants Frequency

Therapeutics, Inc. (“Frequency”), David L. Lucchino

(“Lucchino”), Frequency’s Chief Executive Officer, and Carl

LeBel (“LeBel”), Frequency’s Chief Development Officer

(collectively “the Defendants”). The essence of Quinones’ case

is that the Defendants deceived Frequency investors into

thinking that the clinical trial for a hearing loss treatment

called “FX-322” was proceeding according to plan -- despite the

Defendants’ alleged knowledge to the contrary. Specifically,

Quinones alleges that the Defendants made fourteen false and

misleading statements regarding Phase 2a of FX-322’s trial in

the period between October 29, 2020, and March 22, 2021,

inclusive (the “Class Period”).

The Defendants moved to dismiss for failure to state a

claim, arguing that Quinones has failed to plead facts with

particularity establishing (1) false or misleading statements,

and (2) a strong inference of scienter.

After careful examination, this Court GRANTS the

Defendants’ motion to dismiss. First, Quinones has failed to

allege sufficient facts to establish that twelve out of the

fourteen challenged statements are false and misleading. Absent

in the complaint are sufficient particularized facts showing

that the Defendants had knowledge of the patients’ unmet hearing

deficit criteria at the time these statements were made.

Moreover, several of the challenged statements are either

opinion statements or statements protected by the safe harbor

provision of the Private Securities Litigation Reform Act

(“PSLRA”), Securities Exchange Act of 1934, § 21E(c)(1), as

amended, 15 U.S.C. § 78u–5(c)(1), and they are thus not

actionable.

Second, even if Quinones has alleged sufficient facts that

might allow this Court to infer that not “all” subjects enrolled

in the study had a meaningful word recognition deficit as

claimed by Frequency, this action must be dismissed because

Quinones’ scienter allegations are not made out. Contrary to

what Quinones alleges, Lucchino’s disposition of a small portion

of his holdings following a steep increase in the price of

Frequency stock is not suspicious and does not support scienter.

This is especially so given that Lucchino is the only Frequency

executive that is alleged to have sold stock during the Class

Period. Moreover, Quinones’ confidential witness’ (“CW1”)

second-hand, unparticularized account of what an unnamed

investigator supposedly told LeBel at an unspecified time cannot

support a strong inference of scienter. Nor can Quinones’ “core

operation” argument by itself bootstrap an otherwise lacking

complaint above the high pleading standard imposed by the PSLRA.

Taken together, Quinones’ allegations fail to articulate a

cohesive theory of fraud. Therefore, the complaint does not

survive the Defendants’ motion to dismiss.

A. Procedural History

Pursuant to Federal Rules of Civil Procedure 23(a) and

(b)(3), a two-count class action complaint for violation of the

Securities Exchange Act of 1934 was initially filed on June 3,

2021 by lead plaintiff Paul Evans (“Evans”), individually and on

behalf of others similarly situated, against Frequency and

Lucchino. Class Action Compl. (“Orig. Compl.”), ECF No. 1.

Evans and the class members alleged a violation of Section 10(b)

of the Securities Exchange Act and Rule 10b-5 promulgated

thereunder (count one) and a violation of Section 20(a) of the

Securities Exchange Act (count two). Id. ¶¶ 46-60.

The Court subsequently consolidated this matter with a

nearly identical class action against Frequency and Lucchino,

Case No. 1:21-cv-11040-WGY, Micheal Hingston, Individually and

on Behalf of All Others Similarly Situated v. Frequency

Therapeutics, Inc. and David L. Lucchino (D. Mass. June 22,

2021). See Order of Consolidation, March 21, 2022, ECF No. 28.

Julian Quinones was appointed as lead plaintiff for the class.

See Elec. Clerk’s Notes, March 15, 2022, ECF No. 27.

On May 16, 2022, Quinones filed a consolidated class action

complaint -- containing the same two counts as the original

complaint -- against Frequency, Lucchino, and Lebel. Consol.

Class Action Compl. (“Compl.”), ECF No. 29; id. ¶¶ 104-18.

Approximately two months later, the Defendants filed a 12(b)(6)

motion to dismiss both counts of the consolidated complaint,

Defs.’ Mot. Dismiss Consol. Class Action Compl. (“Defs.’ Mot.”),

ECF No. 34, and the parties fully briefed the issue, Mem. Law

Supp. Defs.’ Mot. Dismiss Consol. Class Action Compl. (“Defs.’

Mem.”), ECF No. 35; Opp’n Mot. Dismiss Consol. Class Action

Compl. (“Pls.’ Opp’n”), ECF No. 41; Reply Br. Supp. Defs.’ Mot.

Dismiss Consol. Class Action Compl. (“Defs.’ Reply”), ECF No.

42.

This Court has federal question subject matter jurisdiction

pursuant to section 27 of the Exchange Act, 15 U.S.C. § 78aa,

and 28 U.S.C. § 1331. Venue is proper in this district pursuant

to section 27 of the Exchange Act, 15 U.S.C. § 78aa, and 28

U.S.C. § 1391(b).

B. Factual Background

Quinones alleges that the Defendants -- specifically

Lucchino and Lebel acting in their capacity as Frequency

executives -- made fourteen separate false, misleading,

incomplete, or inaccurate statements throughout the class period

between October 29, 2020, and March 22, 2021, inclusive (the

“Class Period”), related to a clinical trial for the company’s

key product that were purportedly deceiving to investors.

Compl. ¶¶ 67-79. The crux of Quinones’ allegations relates to

one of the criteria for admission to the clinical trial: the

requirement that all study participants have some form of

hearing loss. Id. ¶¶ 5, 13, 36, 47, 68, 69, 73, 75, 77, 79, 86.

Specifically, Frequency conveyed to investors that “all

subjects” in the clinical trial “have meaningful word

recognition deficits.” Id. Quinones alleges that Lucchino and

Lebel knew this was not the case. Id. ¶¶ 105-118. Quinones

therefore claims that the challenged statements are false or

misleading and, when combined with the strong inference of

scienter created by, inter alia, Lucchino’s increase in stock

sales during the Class Period, thus constitute a violation of §

10(b) and § 20(a) of the Securities and Exchange Act of 1934.

Id. ¶¶ 105-118.

1. The Parties

Frequency is a publicly traded clinical-stage biotechnology

start-up. Compl. ¶ 2; Defs.’ Mem. 2. Lucchino, co-founded

Frequency in 2014. Defs.’ Mem. 2. Lucchino is the company’s

President and Chief Executive Officer. Compl. ¶ 24. LeBel has

been the company’s Chief Development Officer since 2018. Id. ¶

25.

The plaintiffs are a class of shareholders who purportedly

purchased Frequency’s common stock at artificially inflated

prices between October 29, 2020, and March 22, 2021, inclusive

Id. ¶¶ 1, 22. Quinones claims they were harmed by the false,

misleading, incomplete, or inaccurate statements made by

Lucchino and Lebel throughout the Class Period. Id. These

false or misleading statements ostensibly deceived Quinones into

thinking that the FX-322 trial was proceeding according to plan

-- despite the Defendant’s alleged knowledge to the contrary.

Id. ¶¶ 22, 80-87. Quinones alleges that they would not have

purchased or otherwise acquired Frequency’s stock if Defendants

revealed that the study was methodologically flawed. Id. ¶ 110.

2. FX-322 Clinical Trial

Frequency was founded to develop a hearing loss treatment

called FX-322, promoted as a potential treatment for patients

with severe sensorineural hearing loss (“SNHL”). Id. ¶¶ 2, 28.

Frequency announced promising safety and efficacy results after

the first phase of the FX-322 clinical trial (Phase 1), but this

study did not have enough patients fully to evaluate the effects

of FX-322 on hearing loss. Id. ¶¶ 3, 31-32. Frequency

announced the launch of a Phase 2a trial of FX-322 in October

2019 further to evaluate the efficacy of FX-322 as a treatment

for SHNL. Id. ¶¶ 4, 35. The Phase 2a trial of FX-322 ran from

September 2020 to December 2020, with study participants

receiving weekly injections of either FX-322 or a placebo. Id.

¶ 8, 9. Trial participants were tracked weekly after the first

injection. Id. ¶ 8.

Ultimately, Phase 2a was “unlikely to deliver results that

could support the efficacy of the FX-322”. Compl. ¶ 66.

Frequency revealed the disappointing results of the study on the

morning of March 23, 2021:

The interim results [of Phase 2a] show that four

weekly injections in subjects with mild to moderately

sever [sic] [SNHL] did not demonstrate improvements in

hearings measures versus placebo. . . . The Phase 2a

interim results also showed an unexpected apparent

level of hearing benefit in the placebo group that did

not occur in previous trials and exceeded well-

established published standards, potentially

suggesting bias due to trial design. Given these

challenges observed in the Phase 2a study design,

there was no discernible benefit of FX-322 over

placebo.

Compl. ¶ 80 (emphasis added).

The market did not react well to these disappointing

results and investors -- including Quinones -- took a beating:

Frequency’s common stock plummeted from a share price of $36.29

at the close of trading on March 22, 2021, to $7.99 at the close

of trading on March 23, 2021, a 78% drop that erased nearly a

billion dollars from Frequency’s market capitalization. Id. ¶

84. Stock analysts directly attributed this precipitous decline

to the revelation that Phase 2a was potentially “bias[ed] due to

trial design,” and one analyst noted that “management makes it

sound like patients may have been faking worse hearing than they

actually had to make sure they could enroll.” Id. ¶ 85.

3. Timeline of Statements by the Defendants

Quinones alleges that fourteen separate statements made by

Lucchino and Lebel throughout the Class Period were false,

misleading, incomplete, or inaccurate in violation of 10(b).

Compl. ¶¶ 67-79; see also Decl. Kevin M. McDonough Supp. Defs.’

Mot. Dismiss, Ex. 2, Appendix of Challenged Statements, ECF No.

36-2. Most important among these is Lucchino and Lebel’s

repeated representation that the FX-322 Phase 2a trial was

conducted on an unbiased and appropriate sample population --

specifically that all participants “[had] meaningful word

recognition deficits.” Compl. ¶¶ 5, 13, 36, 47, 68, 69, 73, 75,

77, 79, 86. Quinones alleges this was known to be untrue and

that the statements by Lucchino and Lebel were thus false,

misleading, incomplete, and/or inaccurate in violation of 10(b).

Id. ¶¶ 66-79, 105-118. The following table summarizes the most

relevant statements throughout the Class Period, each touched on

in more detail below.

Statement Date

“[A]ll subjects [in Phase 2a] have 10/29/2020

meaningful word-recognition deficits.” Id.

¶ 68.

“[A]ll subjects [in Phase 2a] have 01/11/2021

meaningful word recognition deficits.” Id.

¶ 76.

Phase 2a’s “[e]ntrance criteria required all 01/11/2021

subjects have meaningful word recognition

deficits.” Id. ¶ 76.

“Every subject has to have a deficit. Now we 01/19/2021

have not disclosed what the deficit is to

minimize any bias from patients but everyone

has to fall within a certain range in order

to qualify for the study. Id. ¶ 78 (emphasis

removed).

a. October 2020

The Class Period began on October 29, 2020, when Frequency

issued a press release entitled “Frequency Therapeutics

Announces Expanded FX-322 Clinical Development and Upcoming Day-

90 Phase 2a Analysis” and posted a corporate slide presentation

to the company website. Compl. ¶ 67. The press release stated,

inter alia, that all patients in Phase 2a had “mild to

moderately severe acquired SNHL.” Id. The corporate slide

presentation also stated that, in Phase 2a, “all subjects have

meaningful word recognition deficits.” Id. ¶ 68 (emphasis

added). Quinones alleges that this statement was materially

false, misleading, incomplete, or inaccurate, because, as

Lucchino and Lebel knew or recklessly disregarded, not all Phase

2a enrolled patients met the study’s inclusion criteria of

having a meaningful word recognition deficit. Id. ¶ 69.

b. January 2021

On January 11, 2021, after the Phase 2a clinical trial had

ended, the Defendants once again stated unequivocally in a slide

presentation -- posted to the company website and also filed

with the SEC via Form 8-K -- that “[a]ll subjects [in Phase 2a]

have meaningful word recognition deficits” and that Phase 2a’s

“[e]ntrance criteria required all subjects have meaningful word

recognition deficits.” Id. ¶ 76 (emphasis added). Lebel

reiterated this requirement the next week at an investor

presentation attended by Lucchino and others:

[I]n the phase 1 safety study, there was not a

requirement for anybody to fall within a range of word

recognition. . . . In the phase 2A study, we’ve

modified that. Every subject has to have a deficit.

Now we have not disclosed what that deficit is to

minimize any bias from the patients but everybody has

to fall within a certain range in order to qualify for

the study.

Id. ¶ 78 (emphasis added). Like the similar statements from

October, Quinones alleges that these January statements were

materially false, misleading, incomplete, or inaccurate,

because, as Lucchino and Lebel knew or recklessly disregarded,

not all Phase 2a enrolled patients met the study’s inclusion

criteria. Id. ¶ 79.

4. Support for Statements Being Misleading

a. Information From Confidential Witness

Quinones’ confidential witness, CW1, was the Senior Manager

of Clinical Operations at Frequency from January 2018 to

September 2021. Id. ¶ 11. CW1 worked with Lebel and others at

Frequency to develop the design of the FX-322 Phase 2a clinical

trial, which according to Quinones, made them well-situated to

have inside information regarding Phase 2a –- particularly

regarding the sample population. Id. CW1 also oversaw the

implementation of Phase 2a once the clinical trial began. Id.

CW1 claims to have “confirmed that multiple patients enrolled in

Phase 2a had qualified for and participated in the study despite

not having met the inclusion criteria for the study” and that

“such individuals simply ‘faked being deaf’ in order to enroll

in Phase 2A.” Id. Additionally, CW1 “revealed that during the

class period, [Lucchino and Lebel] were well aware that the

Phase 2a’s inclusion and exclusion criteria . . . were being

disseminated online . . . .” Id.

CW1 also claims that multiple “investigators” (i.e. the

doctors who administered the Phase 2a clinical trial) came

forward with concerns about a discrepancy regarding the

patients’ ability to hear sounds at varying decibel levels. Id.

¶ 12. CW1 claims that several investigators contacted Lebel

directly to express their concerns about these discrepancies.

Id.

b. Blog Posts

In addition to guaranteeing that all participants in the

FX-322 Phase 2a trial had meaningful hearing deficits, the

Defendants repeatedly represented that the criteria for

admission to the study were not publicly disclosed. Id. ¶¶ 67-

79. Quinones alleges these statements are undercut by a

plethora of blog posts on numerous online message boards, which,

inter alia, specifically reference the hearing deficit threshold

(85% or less word score recognition) that was purportedly not

publicly disclosed. Id. ¶ 51-55. For example, one forum,

“Tinnitus Talk,”1 has an entire message board related to FX-322,

1 Tinnitus is symptom of an underlying issue with the

auditory system and commonly presents as a ringing in one or

both ears but can also sound like roaring, clicking, hissing, or

buzzing. See Compl. ¶ 49.

including the Phase 2a trial. Id. ¶ 51. As of July 2020, the

FX-322 thread had over 9,000 posts and the thread is nearly 650

pages long. Id. Quinones alleges that those suffering from

tinnitus believed FX-322 was a viable treatment option, based at

least in part on comments made by Lebel,2 and that, as a result,

those seeking treatment for tinnitus infiltrated the Phase 2a

trial despite not actually having a meaningful hearing deficit.

Id. ¶ 48.

c. Lucchino’s Stock Sales

Finally, Quinones claims that the rate of Lucchino’s stock

sales increased throughout the Class Period and increased

dramatically in December 2020 when phase 2A of the FX-322 study

concluded. Compl. ¶¶ 13-14. During the Class Period, Lucchino

sold an average of 57,000 shares per month, an average

significantly higher than the average monthly stock sales prior

2 In July 2020, LeBel was interviewed on a podcast called

“Tinnitus Talk” (which is related to the online forum). Lebel

was asked whether there were “any anecdotes or patient

testimonials that kind of corroborate” that FX-322 “might have a

profound effect on tinnitus.” He responded: “[W]e don’t have

data. Certainly there is anecdotal reports as patients have come

back and visited with ENTs when they have had conversations with

them about how they are doing. Some of them have offered that

they have had improvements in tinnitus, there’s nothing that we

can quantitate there. Again, it adds to the excitement of the

opportunity” of FX-322. See Compl. ¶ 50.

to the start of the Class Period of only 15,000 shares per

month. Id.

II. ANALYSIS

The Defendants seek to dismiss Quinones’ federal securities

action against them on two grounds: (1) Quinones has failed to

plead facts establishing a false or misleading statement, and

(2) Quinones has failed to plead facts to establish a “strong”

inference of scienter. Defs.’ Mem. 6-20.

This Court concludes that Quinones has failed to plead

sufficient facts to survive dismissal on either ground.

A. Standard of Review

To withstand a motion to dismiss, a complaint must “state a

claim upon which relief can be granted . . . .” Fed. R. Civ. P.

12(b)(6). The complaint must include sufficient factual

allegations that, accepted as true, “state a claim to relief

that is plausible on its face.” Bell Atl. Corp. v. Twombly, 550

U.S. 544, 570 (2007). Courts “draw every reasonable inference”

in favor of the plaintiff, Berezin v. Regency Sav. Bank, 234

F.3d 68, 70 (1st Cir. 2000), but they disregard statements that

“merely offer legal conclusions couched as fact or threadbare

recitals of the elements of a cause of action,” Ocasio-Hernández

v. Fortuño-Burset, 640 F.3d 1, 12 (1st Cir. 2011) (brackets,

ellipsis, and quotations omitted).

To plead a viable cause of action under Section 10(b)-5 of

the Securities Exchange Act of 1934, plaintiffs must plead: “(1)

a material misrepresentation or omission; (2) scienter, or a

wrongful state of mind; (3) a connection with the purchase or

sale of a security; (4) reliance; (5) economic loss; and (6)

loss causation.” Hill v. Gozani, 638 F.3d 40, 55 (1st Cir.

2011). In the present case only the first two elements are at

issue.

B. Two Statements Could Be False and Misleading

Quinones challenges statements made by the Defendants

regarding the Phase 2a trial on four different dates between

October 29, 2020, and January 19, 2021. See Compl. Only two of

the challenged statements meet the false and misleading

thresholds but ultimately fail to survive the Defendants’ motion

to dismiss on the scienter requirement.

Quinones uses the same claim for each of the statements

made by the Defendants, stating that they were materially false,

misleading, incomplete and inaccurate because the Defendants

knew, or recklessly disregarded and failed to disclose that the

inclusion criteria set out for the Phase 2a trial was not being

met by some patients who had faked their way in the recognition

screening tests, thus jeopardizing the trial results because of

bias. Compl. ¶ 69, 73, 75, 77, 79.

The Defendants argue that Quinones: (i) fails to allege the

challenged statements were incorrect, (ii) fails to plead that

the Defendant’s forward-looking statements are actionable and

(iii) fails to challenge one of the statements made by the

Defendants because of the well-settled law regarding “puffery”.

Defs.’ Mem 6-13.

To survive a motion to dismiss, plaintiffs “must show ‘that

defendants made a materially false or misleading statement or

omitted to state a material fact necessary to make a statement

not misleading.’” Ganem v. InVivo Therapeutics Holdings Corp.,

845 F.3d 447, 454 (1st Cir. 2017) (quoting Geffon v. Micrion

Corp., 249 F.3d 29, 34 (1st Cir. 2001)). A securities plaintiff

is also required to “specify each statement alleged to have been

misleading [and] the reason or reasons why the statement is

misleading.” Id. at 455 (quoting ACA Fin. Guar. Corp. v.

Advest, Inc., 512 F.3d 46, 58 (1st Cir. 2008)) . The First

Circuit, has further stated that “although “the PSLRA does not

require plaintiffs to plead evidence . . . a significant amount

of ‘meat’ is needed on the 'bones' of the complaint.”” Id. at

455 (quoting Hill, 638 F.3d at 56). If a plaintiff's allegation

regarding the statement or omission “is made on information and

belief, the complaint shall state with particularity all facts

on which that belief is formed.” Hill, 638 F.3d at 55 (citing

15 U.S.C. § 78u-4(b)(1)).

Falsity under the PSLRA can be pled for an untrue statement

of a material fact. Mississippi Pub. Emps.' Ret. Sys. v. Boston

Scientific Corp., 523 F.3d 75, 85 (1st Cir. 2008) (quoting 15

U.S.C. § 78u–4(b)(1)(A)). Also, under the PSLRA “a misleading

statement or omission is alleged when plaintiff claims that

defendant […] ‘omitted to state a material fact necessary in

order to make the statements made, in light of the circumstances

in which they were made, not misleading’.” Id. (quoting 15

U.S.C. § 78u–4(b)(1)(B)). Information is material if a

“reasonable investor would have viewed it as having

significantly altered the total mix of information made

available.” Id. (internal quotation marks and citation

omitted). “[W]hether a statement is ‘misleading’ depends on the

perspective of a reasonable investor.” Omnicare, Inc. v.

Laborers Dist. Council Const. Indus. Pension Fund, 575 U.S. 175,

186 (2015).

1. The Statements Concerning the Patients’ Word-

Recognition Deficit Might Be False and Misleading

This Court concludes that two statements could be found

untrue and misleading, but ultimately fail to pass the PSLRA

pleading standard because they lack evidence of scienter when

made.

On both October 28, 2020, and January 11, 2021, Frequency

represented that “[a]ll subjects have meaningful word

recognition deficits”. Compl. ¶¶ 68, 76. Quinones argues that

this statement is materially false, misleading, incomplete, and

inaccurate because it conveyed that all subjects enrolled in

Phase 2a had “meaningful word recognition deficits”, when, in

reality, as the Defendants knew or recklessly disregarded, this

was not the case because Phase 2a enrolled patients that did not

actually meet the study’s inclusion criteria. Compl. ¶ 69, 77.

On the contrary, the Defendants point out, that Quinones pleads

no facts that show any of the patients who enrolled in Phase 2a

actually faked their word recognition screening, and even had

Quinones done so, he has not alleged that the Defendants could

have known and disclosed the facts at the time the statements

were made. Defs.’ Mem. 8.

To state a plausible claim, Quinones must show that

“defendants made a materially false or misleading statement or

omitted to state a material fact necessary to make a statement

not misleading.’” Ganem, 845 F.3d 447 at 454 (quoting Geffon,

249 F.3d at 34). For this reason, this Court first analyzes the

material information in this statement, and then if the

statement was untrue or misleading.

Phase 2a trial’s success was in large part dependent on the

hearing deficiency of the patients. As stated before, material

information is that which a “reasonable investor would have

viewed [...] as having significantly altered the total mix of

information made available.” Mississippi Pub. Emps.' Ret. Sys.,

523 F.3d at 85 (internal quotation marks and citation omitted).

Therefore, information regarding the patients’ hearing

deficiency is material in this case. This is confirmed by the

fact that Frequency informed their investors they had modified

the trial design to keep from the public the minimum deficiency

required to be part of the trial, so as to avoid bias. Compl. ¶

78. Also, in March 2021, Frequency informed investors that the

trial had finally failed because of a possible bias in the trial

design. Id. at ¶ 80.

These statements claiming that “[a]ll subjects have

meaningful word recognition deficits”, Compl. ¶¶ 68, 76, could

well be untrue. On June 30, 2021, several months after the

trial had ended, and after the statement in March 2021 that

informed the trial had ended unfavorably, Frequency released the

final results from Phase 2a as part of an investor presentation

that was filed with the SEC on Form 8-K, which included, among

other statements, the following:

Another observation of potential bias was also seen in

inconsistent efforts by subjects in completing WR

tests. Specifically, subjects could forego responding

to test words in order to have a WR deficit at

baseline. For example, one placebo subject, had 22 “no

responses” on a 50 WR test given to the patient at

baseline, while only 3 “no responses” were provided at

the day-90 WR test.

Compl. ¶ 86 (emphasis added).

This passage suggests that at least one of the patients

enrolled in the study did not possess the required word-

recognition deficit. On this basis, drawing all the inferences

in favor of Quinones, this Court could conclude that the

statements that all subjects enrolled in Phase 2a had

“meaningful word recognition deficits” could be untrue, and

therefore misleading. This Court need not, however, make that

finding. To plead a viable cause of action under section 10(b)-

5 of the Securities Exchange Act of 1934, Quinones must plead a

“strong” inference of scienter. As is analyzed below, Quinones

has failed to do so. See infra section II.C. Therefore, the

complaint does not survive the Defendants’ motion to dismiss.

2. The Remaining Statements Are Not False and

Misleading

a. The Statements Concerning Enrollment Criteria

Are Not False and Misleading

The Defendants first claim that Quinones has not adequately

challenged the accuracy of the following alleged misstatements:

“(i) the ‘Phase 2a study completed enrollment with 95

patients in September 2020, […]’; (ii) ‘the Phase 2a

study is a double-blind, placebo-controlled, single

and repeat dose study of FX-322 in patients aged 18 to

65 with mild to moderately severe acquired SNHL, […]’;

(iii) Frequency was ‘expanding its FX-322 development

program to evaluate FX-322’s clinical profile in other

SNHL patient types,’ […]; (iv) the study’s objectives

were to ‘evaluate the potential of FX-322 to improve

hearing clarity or intelligibility as measured by

improvements in tests of word recognition (WR) or

words-in-noise (WIN),’[…]; and (v) Phase 2a’s

‘[e]ntrance criteria required all subjects have

meaningful word recognition deficits,’ […].”

Defs.’ Mot. 6 (citations omitted).

The Defendants argue that Quinones’ complaint did not offer

“facts showing that any of these statements were false -- that

the entrance criteria or trial design, strategy, or objectives

were other than as-disclosed […]”. Id. at 6-7. The Court

agrees with the Defendants. As the Defendants have stated in

their motion to dismiss, to establish falsity, a plaintiff must

allege that the challenged statements are inaccurate. Defs.’

Mot. 7 (citing In re iRobot Corp. Sec. Litig., 527 F. Supp. 3d

124, 133 (D. Mass. 2021) (Casper, J). Quinones has not only

failed to allege that the enrollment criteria was anything

different from what the Defendants disclosed, but also expressly

claimed that “[i]n sum, [the] Defendants’ statements were

misleading regardless of their purported accuracy.” Pls.’ Opp’n

7. Therefore, based on the facts alleged by Quinones, and their

own admission, a claim on these statements being misleading

because of falsity cannot be accepted.

Quinones also challenges as false the statement “we have

not disclosed what [the word recognition] deficit is to minimize

any bias [,]” Defs.’ Mot. 8, n.4, to which Defendants respond

that “no facts establish that the score discussed on the message

board was the one used in Phase 2a, much less that Defendants

disclosed it.” Id. This Court agrees. Quinones has not

alleged that the Defendants were the ones to disclose the

deficit required for the trial, therefore the statement in

question is true.

Quinones further argues that “[the] Defendants omitted

material facts necessary in order to make the statements made

not misleading.” Pls.’ Opp’n 7 (citing Ganem, 845 F.3d at 454).

Quinones defends by arguing that “it may have been literally

true that Phase 2a “required all subjects to have meaningful

word recognition deficits,” but it is still misleading because

the criteria and requirements [of the Phase 2a trial] were

violated”. Id.

The Defendants allege that Quinones’ contention that the

statements were misleading because the Defendants “allegedly

omitted that some enrollees in the Phase 2a trial faked their

word recognition screening tests and thus doomed the trial,”

Defs.’ Mem. 7, fails for two reasons: (i) Quinones did not plead

particularized facts showing that any patients who enrolled in

Phase 2a actually faked their word recognition screening tests,

and (ii), even if they did so, Quinones fails to show that the

Defendants could have known and therefore should have disclosed

such information. Id. 7-8. Defs.’ Reply 3. The Defendants are

correct. Quinones has failed to allege particularized facts

because the alleged facts do not address how and why these

specific statements were misleading at the time they were made.

The “mere possession of material, nonpublic information

does not create a duty to disclose it,” Ganem, 845 F.3d at 454

(quoting Hill, 638 F.3d at 57 (internal punctuation omitted)),

but “when a company speaks, it cannot omit any facts ‘necessary

in order to make the statements made, in the light of the

circumstances under which they were made, not misleading.’” Id.

Quinones, relying on In re A123 Sys., Inc. Sec. Litig.,

claims that in their complaint they have offered “factual

allegations that would support a reasonable inference that

adverse circumstances existed at the time . . . and were known

and deliberately or recklessly disregarded by defendants.”

Pls.’ Opp’n 9 (quoting In re A123 Sys., Inc. Sec. Litig., 930 F.

Supp. 2d 278, 283 (D. Mass. 2013) (Stearns, J.)). Their claim

that the “Defendants knew that Phase 2a was biased by patients

who had intentionally ‘faked’ their test results”, id., “‘by at

least October 29, 2020”, id. (quoting Compl. ¶ 89), is supported

by two facts disclosed by their confidential witness, CW1: (i)

the Defendants “learned about bias in Phase 2a in part from

online posts discussing Phase 2a’s particular enrollment

criteria”, which was corroborated by Quinones by “identifying a

post from February 13, 2020, where the existences of Phase 2a’s

word-recognition requirement was disclosed along with study’s

maximum required word recognition score”, id.; and (ii) the

“Defendants separately learned about Phase 2a’s bias straight

from the study’s investigators, who directly observed concerning

discrepancies.” Id. at 10 (citing Compl. ¶ 65).

Quinones further claims that the timing of all the events

involved is critical because patients were tracked weekly. Id.

Enrollment of patients began in October 2019 and was completed

by September 2020. Id. “[T]hen most of the investigators’ word

recognition tests must have been completed before October 29,

2020,” and “reasonable inference based upon these facts is that

Defendants knew of the bias in Phase 2a by at least October 29,

2020, when the first alleged misrepresentation occurred.” Id.

Even when this Court at this stage must draw all reasonable

inferences in favor of the plaintiff, Berezin, 234 F.3d 68 at

70, the allegations in the complaint must meet the standard

under Fed. R. Civ. P. 9(b) and the “heightened pleading

requirements” imposed on private securities litigation,

Mississippi Pub. Emp.s', 523 F.3d at 85, which Quinones fails to

do.

CW1’s statements are insufficient to reasonably infer that

the Defendants, when making the alleged misleading statements,

knew that enrolled patients did not actually meet the study’s

inclusion criteria. Therefore, it cannot be reasonably inferred

from the facts alleged in the complaint that the Defendants

intentionally omitted the information, or even recklessly

disregarded it. See In re A123 Sys., Inc. Sec. Litig., 930 F.

Supp. 2d at 283 (quoting Greebel v. FTP Software, Inc., 194 F.3d

185, 198 (1st Cir. 1999)). The heightened pleading standard

established for these types of cases requires not only “merely

simple, or even inexcusable, negligence”, but at least reckless

disregard. Id.

CW1’s allegations that the Defendants knew of patients that

did not meet the enrollment criteria are all his own inferences,

and do not meet the heightened pleading standard required for

these cases. Quinones states in the complaint that CW1 worked

with LeBel, overseeing the implementation of Phase 2a on behalf

of Frequency, and “confirmed that multiple patients enrolled in

Phase 2a had qualified for and participated in the study despite

not having met the inclusion criteria for the study.” Compl. ¶

11. Yet there is no allegation that CW1 ever communicated

anything he knew about test defects to the Defendants that there

had been patients who had enrolled in the study despite not

possessing the required word recognition deficit. See Compl. ¶¶

11, 12. Moreover, CW1 does not give a specific date when the

Defendants gained knowledge of the fact that patients had faked

their word recognition screening tests, and that this was

affecting the ongoing trial. Wasson v. LogMeIn, Inc., 496 F.

Supp. 3d 612, 629 (D. Mass. 2020)(Burroughs, J.) (although

confidential witnesses all state that prices were raised for

customer, they do not state when those price increases

occurred). Nor the “concerns” raised by the unnamed

“investigators” suffice to establish that the Defendants knew

that one or more patients had “fake their way” into the

study. See infra (C.)(2.). Even if there was information in the

company that patients were not meeting the enrollment criteria,

from the facts alleged it is not reasonable to infer the

Defendants’ knowledge.

As to the alleged blog posts that supposedly disclosed the

word recognition scores for the enrollment test, even with

Quinones confirming that the posts are from early 2020, it is

merely speculation that the Defendants knew about the posts at

that time and then disregarded them when making the statements.

Meyer v. Biopure Corp., 221 F. Supp. 2d 195, 206 (D. Mass. 2002)

(Harrington, J.) (“[T]he Court cannot speculate that, because

former consultants themselves experienced problems, [the

company’s] executives must have had knowledge of the problems in

compiling the data and fraudulently concealed them.”).

For the above reasons, Quinones has “failed to plead with

particularity facts establishing the falsity of” the statements

regarding the trial’s entrance criteria, and they cannot be

deemed untrue. Guerra v. Teradyne Inc., No. 01-cv-11789, 2004

WL 1467065, at *8 (D. Mass. Jan. 16, 2004) (Dein, M.J.). Nor

can they be deemed misleading. Quinones does not allege facts

sufficient to demonstrate that the Defendants had knowledge of

the patient’s unmet hearing deficit criteria at the time these

statements were made. Therefore, even had the entrance criteria

leaked, there are not enough facts alleged to demonstrate that

the Defendants knew or recklessly disregarded the breach when

making their statements, so as to consider them misleading. In

re A123 Sys., Inc. Sec. Litig., 930 F. Supp. 2d at 283 (quoting

Greebel, 194 F.3d at 198).

b. The Private Securities Litigation Reform Act's

Safe Harbor Provision Applies to the Forward-

Looking Statements

The Defendants argue that the challenged statements on the

press releases dated October 29, 2020, and November 16, 2020,

and those on the Quarterly Report on Form 10-Q filed with the

Securities and Exchange Commission on November 16, 2020, cannot

be actionable false statements because they are “textbook

examples of ‘forward-looking statements’, immunized from

liability under the PSLRA ‘safe harbor’ . . . ..” Defs.’ Mem.

10. The Defendants further contend that Quinones fails to make

a showing (i) that the statements either lacked any meaningful

cautionary language, or (ii) that the Defendants had actual

knowledge (“actually knew”) that the statements were false when

made. Id. at 10-11.

Quinones does not deny that the statements are forward-

looking. Quinones does claim, however, that these statements

are not protected under the PSLRA safe harbor because “(i) their

risk warnings were inadequate, (ii) the [complaint] alleges

[the] Defendants knew of the bias in Phase 2a before the

statements were made, and (iii) omissions of existing facts are

not protected by the PSLRA safe harbor.” Pls.’ Opp’n 12.

Under the safe harbor provision, a person shall not be

liable with respect to any “forward-looking statements when not

made with knowledge of falsity or when the statement itself is

identified as forward-looking and is accompanied by ‘meaningful

cautionary statements identifying important factors that could

cause actual results to differ materially from those in the

forward-looking statement.’” Hill, 638 F.3d at 54 (quoting 15

U.S.C. § 78u–5(c)(1)(A)(i)).

The forward-looking statements in the press releases dated

October 29, 2020, and November 16, 2020, and those in the

Quarterly Report on Form 10-Q filed with the Securities and

Exchange Commission on November 16, 2020 include cautionary

language as required under the PSLRA “safe harbor”. See 15

U.S.C. § 78u–5(c)(1). Quinones describes the cautions as vague

and boilerplate disclaimers, and therefore insufficient. Pls.’

Opp’n 13 (citing In re Sepracor, Inc. Sec. Litig., 308 F. Supp.

2d 20, 34 (D. Mass. 2004) (Lasker, J.)). The Defendants,

however, assert the cautionary language “warned of exactly the

risks that [Quinones] says materialized.” Defs.’ Reply 5.

Determining the sufficiency of the cautionary language is not an

easy duty. Quinones cites to Sepracor, where the disclaimer

language was ruled insufficient because the information omitted

was of relevance to the studies, more than a “bump in the road”,

and therefore “[d]efendants would have been obliged under the

circumstances to disclose known facts about the animal studies

that undermined their predictions of [the company’s] success.”

In re Sepracor, Inc. Sec. Litig., 308 F. Supp. 2d at 34.

Here, it is the second aspect of these statements that is

dispositive. Only if, when the statements were made, the

Defendants knew of the existence of bias in the trial and

omitted that material information, would the statements be

unprotected by the PSLRA safe harbor. As analyzed above, see

supra Section II.B.2.1, Quinones has failed to allege

particularized facts that allow this Court reasonably to infer

under the PSLRA standard that the Defendants knew of patients

faking their hearing condition to be enrolled in the trial, and

so had actual knowledge that the statements they were making

were false. Thus, as the Defendants rightly contend, these

statements are protected by the safe harbor provision, and are

not actionable.

c. The Defendant’s Opinion Statements Are Not

Actionable

In their final argument, the Defendants argue that

statements including language such as “we expect that” and that

the data “will enable us” are statements of opinion that under

Omnicare, are not actionable. Defs.’ Mem. 11-12 (citing

Omnicare, Inc., 575 U.S. at 186).

Quinones counters that the statements with this particular

language are not opinion statements shielded by Omnicare. Pls.’

Opp’n 11. Quinones’ main argument is based on the contention

that the Defendants knew of the trial’s bias, and deliberately

omitted this material information. See Id. at 11-12. As

already discussed above at length, see supra Section II.B.2.1,

this contention fails.

C. The Scienter Allegations Are Not Made Out

To be actionable under the PSLRA, a statement must be more

than merely material and misleading; it also must have been made

with the requisite scienter. ACA Fin. Guar. Corp. v. Advest,

Inc., 512 F.3d 46 (1st Cir. 2008). As this Court recently

recalled in Sharp, Congress has heightened the pleading standard

for scienter allegations in private enforcement actions. S.E.C.

v. Sharp, 2022 WL 4085676 (D. Mass. 2022) (citing Merrill Lynch,

Pierce, Fenner & Smith, Inc. v. Dabit, 547 U.S. 71, 81 (2006).

The reasons underlying this important legislative intervention

were described in Galileo:

In particular, Congress sought to reform private

securities litigation to discourage unmeritorious

class actions, including actions brought because of a

decline in stock prices. The aims of the PSLRA are

three-fold: (1) to encourage the voluntary disclosure

of information by corporate issuers; (2) to empower

investors so that they—not their lawyers—exercise

primary control over private securities litigation;

and (3) to encourage plaintiffs' lawyers to pursue

valid claims and Defendants to fight abusive claims.

The PSLRA seeks to curtail the filing of abusive

lawsuits at the pleading stage of litigation by

establishing uniform and stringent pleading

requirements.

In re Galileo Corp. S’holders Litig., 127 F. Supp. 2d 251, 260

(D. Mass. 2001) (Lindsay, J.).

Specifically, the pleaded facts must give rise to a

“strong” inference of scienter. Tellabs, Inc. v. Makor Issues &

Rights, Ltd., 551 U.S. 308, 322 (2007). This means that the

complaint must “with respect to each act or omission . . . state

with particularity facts giving rise to a strong inference that

the defendant acted with the required state of mind.” 15 U.S.C.

§ 78u–4(b)(2)(A); see also In re Boston Scientific Corp. Secs.

Litig., 686 F.3d at30. “It does not suffice that a reasonable

factfinder plausibly could infer from the complaint's

allegations the requisite state of mind.” Tellabs, 551 U.S. at

314. Instead, the inference of scienter must be “cogent and at

least as compelling as any other opposing inference of

nonfraudulent intent.” Id. at 328.

Quinones maintains that the facts alleged in their

complaint raise a “strong” inference of scienter. Specifically,

Quinones argues that (1) Lucchino’s stock sales, (2) CW1’s

statements, and (3) FX-322’s importance for Frequency establish

that the Defendants knew that not all study subjects had

meaningful hearing loss. Quinones also asserts that (4) the

culpable inference is at least as compelling as the non-

fraudulent one. See generally Pls.’ Opp’n.

After careful consideration, this Court rejects all

Quinones’ scienter allegations in the same order they were

presented.

1. Lucchino’s Stock Sales Do Not Raise a Strong

Inference of Scienter

Quinones contends that Lucchino’s stock sales are

suspicious in amount and timing, and hence they support a strong

inference of scienter. Compl. ¶ 90. Not so. If assessed in

the proper context, Lucchino’s disposition of a small portion of

his Frequency holdings at an unsuspicious time is insufficient

to raise an inference of scienter. This is especially so given

that Lucchino is the only Frequency executive that is alleged to

have sold stock during the Class Period. Therefore, this Court

cannot infer scienter from Lucchino’s stock sales. See Tharp v.

Acacia Commc'ns, Inc., 321 F. Supp. 3d 206, 229 (D. Mass.

2018)((citing Lirette v. Shiva Corp., 27 F. Supp. 2d 268, 283

(D. Mass. 1998) (requiring a securities plaintiff to show that

“sales by insiders were in fact unusual or suspicious in amount

or timing.”)).

As to the amount of Lucchino’s stock sales, the gist of

Quinones’ argument is that Lucchino suspiciously intensified his

trading activity during the Class Period from 15,000 to 57,000

shares per month, generating a total profit exceeding

$9,000,000. Compl. ¶¶ 14-15. If appraised in the proper

context, however, these numbers are far from suspicious.

To begin, Quinones’ argument ignores that Lucchino’s sales

were accompanied by a similarly intensified volume of

acquisitions, which courts have consistently ruled undercuts an

inference of scienter. Fire & Police Pension Ass'n of Colorado

v. Abiomed, Inc., 778 F.3d 228, 246 (1st Cir. 2015)(holding that

an individual defendant's purchase of company stock during the

class period “negates any inference that he had a motive to

artificially inflate [the company's] stock during that

period.”); Mehta v. Ocular Therapeutix, Inc., 955 F.3d 194, 210,

n.18 (1st Cir. 2020)(“The district court correctly determined

that [the defendant’s] purchase of [the company’s] shares during

the class period somewhat ‘[f]urther negat[es] an inference of

scienter.’”). Including Lucchino’s acquisitions in the count,

Lucchino’s total disposition of his Frequency stock amounts to

less than 15% of his total holdings, an amount that courts have

usually deemed insufficient to support scienter. Brennan v.

Zafgen, Inc., 853 F.3d 606, 615-16 (1st Cir. 2017) (ruling that

“insider trading allegations drifts toward the marginal end of

that spectrum” when the insider’s sales do not exceed 15% of his

holdings); Archdiocese of Milwaukee Supporting Fund v. Investors

Fin. Servs. Corp., 2007 WL 9797841, at *21 (D. Mass. July 31,

2007) (Dein, U.S.M.J.) (noting that the defendants’ retention of

a significant portion its holdings “suggest[s] that [the

defendant] ha[s] every incentive to keep [the company]

profitable,” thereby undercutting the inference of scienter).

Quinones pushes back arguing that courts have found that

sales of 2% of holdings were enough to support scienter. Pls.’

Opp’n 16. To make their case, Quinones relies on Nursing Home

and In re MicroStrategy. That reliance is misplaced. In

Nursing Home, the court accepted that a sale of 2.1% sufficed to

establish scienter solely because such a percentage constituted

a “truly astronomical figure” -- $900,000,000. Nursing Home

Pension Fund Loc. 144 v. Oracle Corp, 380 F.3d 1226, 1232 (9th

Cir. 2004). There is not such an astronomical profit here.

Similarly, In re MicroStrategy, the court ruled that a 2.1% sale

sufficed because it generated profits in excess of $45,000,000 –

- which in today’s money would exceed $75,000,000 -- and

amounted to a “significant dilution” of the defendant’s control

power. In re MicroStrategy, Inc. Sec. Litig., 115 F. Supp. 2d

620, 646 (E.D. Va. 2000). Again, not so here.

In fact, there exists a much simpler explanation for

Lucchino’s decision to ramp up his sales: the price of Frequency

stock steeply increased during the Class Period. As the

complaint acknowledges “Lucchino’s Class Period sales were . . .

significantly more profitable.” Compl. ¶ 15. Therefore, it is

hardly surprising Lucchino decided to cash out at least some

portion of his Frequency holdings. This further undermines an

inference of scienter. Loc. No. 8 IBEW Ret. Plan v. Vertex

Pharms. Inc., 140 F. Supp. 3d 120, 136 (D. Mass. 2015) (Saylor,

J.), aff'd sub nom. Loc. No. 8 IBEW Ret. Plan & Tr. v. Vertex

Pharms., Inc., 838 F.3d 76 (1st Cir. 2016) (“[T]he portfolios of

corporate insiders are often heavily weighted with the stock of

the company. It is hardly surprising that such executives have

a strong incentive to cash out at least some portion of their

holdings when prices are high.”); In re Wayfair, Inc. Sec.

Litig., 471 F. Supp. 3d 332, 348 (D. Mass. 2020) (Woodlock, J.)

(“[I]t would be perfectly natural for the defendants to sell

their stock as share price increased; that they did so is not,

on its own, material evidence of scienter.”).

In addition, the absence of sales from any other Frequency

insider during the Class Period further undercuts an inference

of scienter. New Jersey Carpenters Pension & Annuity Funds v.

Biogen IDEC Inc., 537 F.3d 35, 56 (1st Cir. 2008)(citing Abrams

v. Baker Hughes Inc., 292 F.3d 424, 435 (5th Cir. 2002) (“Noting

that ‘even unusual sales by one insider do not give rise to a

strong inference of scienter’ when other insiders had not

engaged in suspicious trading during the class period.”)); Id.

(citing Ronconi v. Larkin, 253 F.3d 423, 436 (9th Cir.

2001) (“One insider's well timed sales do not support the

‘strong inference’ required by the statute where the rest of the

equally knowledgeable insiders act in a way inconsistent with

the inference . . . .”); see also Southland Sec. Corp. v.

INSpire Ins. Solutions, Inc., 365 F.3d 353, 369 (5th Cir.

2004); San Leandro Emergency Med. Grp Profit Sharing Plan v.

Philip Morris Cos., 75 F.3d 801, 814 (2d Cir. 1996); Acito v.

IMCERA Group, 47 F.3d 47, 54 (2d Cir. 1995).

Quinones counters that the absence of sales from the other

Frequency executives is evidence of scienter because it is

“entirely reasonable for [Defendants] to refrain from selling

stock during the Class Period to avoid the appearance of

wrongdoing.” Pls.’ Opp’n 17 (citing Collier v. ModusLink Global

Soloutions, Inc., 9 F. Supp. 3d 61, 74 (D. Mass. 2014) (Casper,

J.). Quinones’ argument is somewhat paradoxical and is devoid

of merit. As a matter of principle, it is difficult to see how

the act of refraining from engaging in an unlawful activity can

be evidence that such activity took place. In fact, if the

absence of sales were evidence of scienter this would

essentially reverse the burden of proving scienter and place it

on the Defendants. This cannot be, as it is settled law that

the burden lies with the plaintiffs. Simon v. Abiomed, Inc., 37

F. Supp. 3d 499, 523 (D. Mass. 2014) (Saylor, J.), aff'd sub

nom. Fire & Police Pension Ass'n of Colorado v. Abiomed, Inc.,

778 F.3d 228 (1st Cir. 2015) (“Plaintiff bears the burden of

demonstrating that sales by insiders were ‘unusual or suspicious

in amount or timing.’”) (Citation omitted); Tharp, 321 F. Supp.

3d at 229 (citing Lirette, 27 F. Supp. 2d at 281 (A plaintiff

“bears the burden of showing that sales by insiders were in fact

unusual or suspicious in amount or timing.”)). Moreover, the

Collier opinion does little to advance Quinones’ argument. In

that case, the court limited itself to noting that the absence

of insider trading did not conclusively undercut an inference of

scienter based on other facts. Collier, 9 F. Supp. 3d at 73.

Here the basis of the Quinones’ scienter allegation is insider

trading. Quinones’ inability to plead sufficient facts showing

that insider trading occurred undermines their position.

The timing of Lucchino’s dispositions of stock is not

suspicious. Quinones argues the opposite is true because most of

the sales occurred after the alleged misrepresentations in

October 2020 and January 2021. Pls.’ Opp’n 16. Quinones also

argues that Luchino’s sales were “clumped around” specific

dates, which evinces the Defendants’ intent to defraud

investors. Pls.’ Opp’n 17.

Quinones is incorrect and the authority they offer in

support of their position contradicts them. It is true that

most of the sales occurred after the allegedly misleading

statements in October 2020 and January 2021. Pls.’ Opp’n 17.

These trades, however, occurred weeks after the statements. Id.

In Wayfair -- the only case offered by Quinones to argue that

Lucchino’s sales timing is suspicious -- the court concluded

that the timing was not suspicious even if some trades occurred

on the day or days after the alleged misstatements. Wayfair,

471 F. Supp. 3d at 347. The court explained that the dates of

the alleged misstatements were “not uniquely aligned with sales

made by Defendants . . . [because] the defendants traded four or

five days after each alleged misstatement.” Id. By Quinones’

own argument, Lucchino engaged in “10 separate sales in the

month following the November 16, 2020 [announcement]” and “18

separate sales in the weeks following the January 11 and January

19, 2021 statements . . . .” Pls.’ Opp’n 17. These trades were

roughly evenly spread out through the Class Period; they were

not “clumped around” specific dates as Quinones incorrectly

alleges. McDonough Decl., Ex. 3, ECF No. 36-3. The table below

aggregately summarizes Lucchino’s sales during the Class Period:

Date(s) Number of shares sold

(aggregate)

11/2/2020 15,714

12/1/2020 15,714

12/7/2020-12/9/2020 27,028

12/14/2020-12/17/2020 41,662

1/4/2021-1/6/2021 61,690

1/27/2021 9,196

2/1/2021-2/3/2021 49,656

2/8/2021 16,554

3/1/2021 9,386

Id. It is also notable that, as shown by the table, most of

Lucchino’s sales occurred before the alleged misstatements of

January 11 and January 19 2021. Had Lucchino sought

fraudulently to profit on his sales, he would presumably have

waited to make the bulk of his sales after those dates, when the

price of Frequency stock peaked. This is not what Lucchino did.

Hence, the timing of the sales can hardly be said to have

“uniquely aligned” with the alleged misstatements.

In sum, Lucchino’s sales during the Class Period are not

suspicious in amount or timing and do not raise a strong

inference of scienter.3

2. CW1’s Statements Are Insufficient to Establish

Scienter

Second, Quinones contends that CW1’s statements raise a

strong inference of scienter. The crucial passage of the

complaint is set out below:

CW1 also detailed how [Frequency] was aware of the

self-selection and volunteer bias from the reports of

“investigators”—i.e., the doctors responsible for

administering the drug (or placebo) directly to

patients and tracking them after treatment. CW1 said

that many of the Phase 2a investigators had identified

a concerning discrepancy between certain patient’s

responses during the screening process for admission

and subsequent examinations by the investigators.

Specifically, at screening, these patients informed

the investigators that they could not hear certain

sounds at varying decibel levels. Then, in subsequent

examinations, they reported being able to hear those

same sounds. According to CW1, several investigators

contacted LeBel about this discrepancy to express

their concerns to him. Again, CW1 worked directly with

the investigators, even claiming to have a “very good

relationship with all the physicians,” so was in a

position to know this information.

3 The Defendants have devoted substantial efforts to argue

that Lucchino’s stock sale cannot establish scienter because

they were made pursuant to an SEC Rule 10b5-1 plan. Defs.’ Mem.

14-15. This Court disagrees. Lucchino’s 10b5-1 plan is not

public and has not been produced by Defendants. Nor have the

Defendants provided alternative evidence that Lucchino’s SEC

Rule 10b5-1 plan “removed entirely from [his] discretion the

question of when sales would occur, or that [he] we[s] unable to

amend these trading plans.” Mississippi Pub. Emps.' Ret. Sys.,

523 F.3d at 92. Accordingly, this Court rejects the Defendants’

argument.

Compl. ¶ 65 (emphasis added).

Contrary to what is urged by Quinones, this passage does

not support a strong inference of scienter. The first problem

with this passage is that it does not identify any conversation

to which CW1 was privy. Rather, it relies on what unnamed

investigators supposedly told LeBel to establish what LeBel

knew. This “multi-layer hearsay” undercuts the inference of

scienter. In re Vertex Pharms., Inc., Sec. Litig., 357 F. Supp.

2d 343, 353-54 (D. Mass. 2005) (Saris, J.) (discrediting

confidential witness allegations based on multi-layer hearsay);

In re iRobot Corp. Sec. Litig., 527 F. Supp. 3d at 141 (citing

Zucco Partners, LLC v. Digimarc Corp., 552 F.3d 981, 996 (9th

Cir. 2009), as amended (Feb. 10, 2009) (“Some courts have looked

askance upon confidential sources that . . . ‘report only

[multi-layer] hearsay’ . . . .”).

Second, CW1’s statement is insufficiently particularized to

establish falsity. See In re Cabletron Sys., Inc., 311 F.3d 11,

29–30 (1st Cir. 2002) (whether facts provide an adequate basis

for inferring scienter depends upon “an evaluation, inter

alia, of the level of detail provided by the confidential

sources . . . .”). All that CW1 asserts is that “several

investigators” expressed “concerns” about a “concerning

discrepancy” regarding the patients’ ability to hear sounds at

varying decibel levels. See Comp. ¶ 12. “[Adjectives and]

adverbs are not facts.” Special Situations Fund III QP, L.P. v.

Deloitte Touche Tohmatsu CPA, Ltd., 96 F. Supp. 3d 325, 344

(S.D.N.Y. 2015). Conspicuously missing in the complaint is any

allegation that the discrepancy identified by the investigators

is incompatible with Frequency’s statement that every patient

enrolled in the study had a meaningful recognition deficit. See

Metzler Asset Management GmbH v. Kingsley, 928 F.3d 151, 162

(1st Cir. 2019) (noting that to find scienter “one would need to

know . . . whether what [the defendant] learned was at odds with

any of his . . . statements.”). That some patients could not

hear certain sounds at varying decibel levels and at subsequent

examinations they reported being able to hear those same sounds

does not establish that they did not possess a meaningful

recognition deficit when they enrolled in the study –- let alone

that this information was conveyed to LeBel. In fact, the

complaint is devoid of any factual allegation that the

investigators knew or even believed that some patients had

successfully enrolled in the study despite not possessing the

required meaningful word recognition deficit. Absent these

crucial facts, this Court cannot draw a “strong” inference of

scienter. In re A123 Sys., Inc. Sec. Litig., 930 F. Supp. 2d at

286 (a “statement that an unnamed person in no specified

position of authority “made suggestions” . . . that [managers]

may or may not have heard (or paid attention to) is a meager

fount for even a whiff of a fraudulent scheme, much less a

particularization of its details.”);

The Complaint asserts that a confidential source formerly

employed by Praecis “informed management that the pricing

structure for Plenaxis was significantly flawed[]” . . . .

Assuming it to be true that the source had so “informed

management,” more than that would be needed to support an

allegation that "management" itself knew the structure to

be flawed, as opposed to knowing simply that someone else

(of unclear qualifications) thought that to be the case.

The complaint thus deals in merely faux specificity. There

are specific facts alleged, but those isolated facts, for

all their concreteness, cannot support the broader

conclusory allegations without help from other, missing

facts.

In re Praecis Pharmaceuticals, Inc. Sec. Litig., 2007 WL 951695,

at *19 n.14 (D. Mass. Mar. 28, 2007) (O’Toole, J.)

Third, Quinones is unable to identify when the supposed

conversation between the investigators and LeBel occurred. Many

courts have ruled such a failure to be fatal. Abiomed, Inc.,

778 F.3d at 245 (ruling that the statements of several

confidential witness failed to establish scienter because they

“did not identify the time period to which most of their

statements related.”); In re Ariad Pharm., Inc. Sec. Litig., 842

F.3d 744, 751 (1st Cir. 2016) (ruling no strong inference

of scienter where complaint failed to plead “any specific facts

about when the Defendants learned of the[ ] adverse events or

even when the adverse events occurred.”); Biogen IDEC Inc., 537

F.3d at 52-53 (discounting probative value of observations

by confidential sources in part because the sources did not

disclose when those observations were made).

Attempting to circumvent this flaw in the complaint,

Quinones argues that since “[p]atients were tracked weekly” and

“Phase 2a started enrolling patients in October 2019 and

completed enrollment by September 2020” then it is reasonable to

infer that “most of the investigators’ word recognition tests

must have been completed before October 29, 2020.” Pls.’ Opp’n

9-10. From that, according to Quinones, it is possible to infer

that the “Defendants knew of the bias in Phase 2a by at least

October 29, 2020, when the first alleged misrepresentation

occurred.” Pls.’ Opp’n 10. This is mere conjecture, which is

not a substitute for well-pleaded facts. See Ganem, 845 F.3d at

457. For example, the complaint does not allege facts that

would allow this Court to determine that most of the

investigators’ word recognition tests had been completed before

October 29, 2020. What is missing is any allegation that most

patients enrolled in the early phase of the study rather than

closer to enrollment completion. Moreover, there is no

allegation that would allow this Court to establish that a

majority of studies completed before October 29, 2020, were

conveyed to LeBel. Very simply, what if the concerning patients

were among the minority that had yet to complete the study by

October 29, 2020? Even assuming that it is possible to draw the

inference suggested by the plaintiffs, CW1’s inability to

identify when the supposed communication happened is an

indication in and of itself of the unreliability of CW1’s

statement.

In sum, CW1’s second-hand, unparticularized account of what

an unnamed investigator supposedly told LeBel at an unspecified

time cannot support a “strong” inference of scienter.

3. Quinones’ “Core Operations” Argument Does Not

Raise a Strong Inference of Scienter

Quinones argues that the importance of FX-322 to Frequency

establishes an inference of scienter. Compl. ¶ 92.

Under the so called “core operations doctrine,” “facts

critical to a business’s core operations . . . may be attributed

to the company and its officers.” Crowell v. Ionics, Inc., 343

F. Supp. 2d 1, 19 (D. Mass. 2004)(alteration and citation

omitted). Courts, however, have refused to apply this doctrine

absent “other significant evidence of a defendant’s intent or

recklessness, or a ‘plus factor.’” In re Biogen Inc. Sec.

Litig., 193 F. Supp. 3d 5, 51 (D. Mass. 2016) (Saylor, J.),

aff'd, 857 F.3d 34 (1st Cir. 2017) (quoting In re A123 Sys.,

Inc. Sec. Litig., 930 F. Supp. 2d at 285); In re Psychemedics

Corp. Sec. Litig., No. 17-10186, 2017 WL 5159212, 6 (D. Mass.

2017) (Stearns, J.) (ruling that “plaintiff's ‘core operation’

theory stands naked, unadorned by any other piece of evidence

purporting to establish the essential ‘plus’ factor -— guilty

knowledge on the part of [the Defendants]”).

Here, there is little doubt that FX-322 was central to

Frequency’s success. However, Quinones has failed to plead with

particularity any plus factor that would allow this Court to

consider their argument. Quinones’ conclusory assertion that

“there can be no doubt that Defendants knew of (or, at best,

recklessly disregarded) that Phase 2a had been compromised by

the enrollment of patients that did not meet the study’s

inclusion criteria,” Compl. ¶ 92, certainly cannot be such a

plus factor. Nor does Quinones’ reliance on iRobot advance

their case. Consistent with the jurisprudence referred to

above, the iRobot court rejected the scienter allegations before

it because the plaintiff had “fail[ed] to allege particularized

facts as to [a] plus factor . . .” In re iRobot Corp. Sec.

Litig., 527 F. Supp. 3d at 141. Put simply, the core operation

doctrine cannot itself bootstrap an otherwise insufficient

complaint above the high pleading standard imposed by the PSLRA.

Given the absence of a plus factor here, Quinones’ “core

operation” argument fails.

4. The Non-Fraudulent Inference Is More Compelling

Ultimately, Quinones has failed to articulate a cohesive

theory of fraud. According to Quinones, the facts alleged show

that “the Defendants” were aware that not all study subjects had

meaningful hearing loss. Pls.’ Opp’n 19. Rather than

disclosing that information, they “effectively ‘held their

breaths’ hoping the bias would not materialize while in the

meantime Defendant Lucchino cashed in.” Id.

A closer analysis of the facts alleged, however, reveals

that this theory is unpersuasive. According to the complaint,

it was LeBel, not Lucchino, who was contacted by the

investigators about the alleged “concerning discrepancy.” See

Comp. ¶65. LeBel is not alleged to have sold any Frequency

stock during the Class Period. This makes no sense. Had LeBel

known that the prospects of Phase 2a were doomed, he would

presumably have proceeded to sell his stock. Instead, the stock

sales upon which Quinones relies to assert scienter were made by

Lucchino, who is not alleged to have had any interactions with

CW1 or the investigators. Nor are there any allegations that

LeBel conveyed to Lucchino what he learned from his interactions

with the investigators. The flaws in Quinones’ theory are

apparent.

Quinones attempts to plug these flaws by speculating that

LeBel might have not been in a position to sell during the Class

Period. See Pl.’s Opp’n at 17. Perhaps, LeBel’s Frequency

stock could have been restricted. But this argument does not

hold much water. LeBel joined frequency in 2018 as the

Company’s CDO. Compl. ¶ 25. It is highly unlikely that he did

not own any unrestricted or partly unrestricted Frequency shares

three years later in 2021.

The more compelling inference is that neither Lucchino nor

LeBel were aware that patients had managed to elude their word

recognition screening and to enroll despite not possessing the

requisite word recognition deficit and, seeing the uptick in

Frequency shares price, Lucchino decided to cash in a modest

portion of his stock. This is not securities fraud. Therefore,

the complaint does not survive the Defendants’ motion to

dismiss. See Brennan v. Zafgen, Inc., 199 F.Supp.3d 444, 471

(D.Mass., 2016)(Saylor, J.)(dismissing claims where “the

fundamental theory of plaintiffs’ case” was “unpersuasive”).

III. CONCLUSION

Quinones has failed to plead sufficient facts to establish

that the challenged statements are false and misleading, except

for two. For those statements, however, Quinones has failed to

allege sufficient facts to support a strong inference of

scienter. Therefore, this Court GRANTS the Defendants’ motion

to dismiss.

SO ORDERED.

/s/ William G. Young

WILLIAM G. YOUNG

JUDGE

of the

UNITED STATES4

4 This is how my predecessor, Peleg Sprague (D. Mass. 1841-

1865), would sign official documents. Now that I’m a Senior

District Judge I adopt this format in honor of all the judicial

colleagues, state and federal, with whom I have had the

privilege to serve over the past 45 years.