Pharmos Corporation (NASDAQ:PARS) discovers, develops, and commercializes novel therapeutics to treat a range of indications, in particular, neurological and inflammation-based disorders.

The action charges Pharmos and certain of its senior officers with violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder. The alleged violations stem from the dissemination of false and misleading statements, which had the effect -- during the Class Period -- of artificially inflating the price of Pharmos's shares.

During the Class Period, Defendants concealed the fact that Dexanabinol, the Company's flagship drug product in Phase III trials for Traumatic Brain Injury (TBI), was not exhibiting materially favorable reaction. Prior to disclosing this information to the public, Pharmos sold $16.75 million worth of stock in a private placement. Furthermore, the Company's CEO sold 20% of his holdings and its President sold almost 50% of his holdings. Such sales occurred after the close of Phase III enrollment and after the six month post-enrollment period concluded. On December 20, 2004, just weeks after insiders sold 400,000 shares of stock, they announced Dexanabinol was not found to be materially effective in Phase III testing. Furthermore, after years of touting the effectiveness of Dexanabinol, the Company abruptly ceased its effort to gain approval for Dexanabinol for TBI.

On November 29, 2005, the Defendants filed a motion to dismiss the First Amended and Consolidated Class Action Complaint. On June 29, 2006, the Court entered an Order denying the Defendants’ motion to dismiss.

As disclosed by the Company’s FORM 10-Q for the quarterly period ended June 30, 2006, the Company and certain current officers have been named as Defendants in several purported shareholder class action lawsuits alleging violations of federal securities laws. These lawsuits were filed beginning in January 2005 and are pending in the U.S. District Court for the District of New Jersey. These lawsuits assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. The Complaints allege generally that the Defendants knowingly or recklessly made false or misleading statements regarding the effectiveness of dexanabinol in treating TBI which had the effect of artificially inflating the price of the Company’s common stock. The Complaints seek unspecified damages. These class actions have been consolidated by order of the court and lead Plaintiffs and lead Plaintiffs’ Counsel have been appointed. An amended Complaint was filed in September 2005.

On May 31, 2007, the parties entered into a Stipulation of Settlement. The Court granted preliminary approval of the Settlement on July 18. On November 14, the Court granted final approval of the Settlement, including an award of Attorneys’ Fees and Expenses, and entered Final Judgment.

On February 27, 2009, the Court issued an Order granting Distribution of the Settlement fund.