As we wrote on December 18th, our investigation into Cell Therapeutics, Inc.'s (CTIC) business, management, and board raised serious and troubling issues. In light of CTIC's unexplained
run on Tuesday, we studied the company's recent filings in search of a
reason for the 25% increase. We learned from a disclosure filed
with the SEC on New Year's Eve that Daniel Eramian, the company's
recently terminated corporate communications lead, will receive cash
severance payments of over $500,000 in cash, and continuation of his
health coverage and life insurance payments for up to 18 months. CTIC
also accelerated vesting of certain equity awards. This is hardly news
that would increase the value of the company by 25%.
The departure of the company's head of communications is particularly interesting because according to regulatory filings,
in 2010, CTIC investors filed lawsuits against the company alleging
that CTIC directors and officers breached their fiduciary duties by
making, or failing to prevent the issuance of, certain alleged false and
misleading statements related to the FDA approval process for one of
the company's drugs.
According to CTIC's most recent 10-Q,
filed on November 1, 2012, covering the period ended September 30,
2012, the "court has set a trial date of December 3, 2012 for the
shareholder derivative action." According to court records
the case settled five calendar days after the 10-Q filing. However,
CTIC has not disclosed this fact, perhaps because the terms of the
settlement are not flattering for CTIC's management, its board, or Mr.
Eramian. We pulled the case from the clerk of the court's office, and
learned that the settlement prompts "corporate governance reforms that
directly address the alleged management and board-level breaches of
duty[,] and oversight lapses Plaintiffs contend led [CTIC] to breach
FDA-approved clinical trial protocols for pixantrone (a non-Hodgkin's
lymphoma treatment), and to mislead shareholders regarding those facts
and the prospects for FDA approval." Mr. Eramian's termination may very
well be tied to the terms of the consent decree.
Notably, the
settlement also addresses "insider trading" by CTIC officers and
directors. "The [settlement mandated corporate] reforms directly respond
to Plaintiffs' allegations that certain officers and directors of
[CTIC] engaged in improper insider trading[,] by expanding the
responsibilities and duties of the Company's Trading Compliance Officer
to require monitoring and review of insider stock sales, as well as
mandatory pre-approval of Section 16 officer and director sales....
Taken together, these reforms substantially reduce the risk that [CTIC]
will be tainted by improper insider sales in the future...".
In another lawsuit filed in Federal court, which was disclosed in CTIC regulatory filings
in 2010, CTIC's shareholders alleged that the company violated Federal
securities laws by making false and misleading statements related to the
FDA approval process for one of the company's drugs. CTIC attempted to
have the case dismissed, and failed. CTIC's directors' and officers'
insurance carriers paid $19,000,000 into a settlement fund.
As we
pointed out in the last article, a large payment to a former insider
like Mr. Eramian is troubling because CTIC has operated at an enormous
loss for the entirety of its 20-year existence. In its lifetime, CTIC
has raised over $1.4 billion from the public markets through toxic hedge
fund deals, and its market capitalization today is less than 10 percent
of that, approximately $130 million.
It is unclear whether Mr. Eramian was involved in the United States Department of Justice's lawsuit against CTIC for an elaborate and illegal scam to market its drugs without FDA approval.
Moreover,
he could have been involved in disseminating information about the
company's leadership, while knowing that the company chairman's academic
credentials are fake, as we detailed in our previous article.
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