CENTRAL ISLIP, N.Y. (CN) - The CFO of Neogenix Oncology and a group of attorneys sidestepped SEC regulations, exposed the company to $31 million in liabilities and drove the company to bankruptcy, the biotech company claims in Federal Court.
"This case is a textbook example of how a few greedy insiders and negligent professionals can take down a company once promising enough to merit 940+ shareholders investing more than $50 million in its potential," Neogenix says in the 45-page complaint.
It claims its chief financial officer, lead defendant Peter Gordon, directed the payment of commissions for the sale of the company's stock to people who were not licensed to sell securities. This is forbidden by the Securities and Exchange Commission.
Gordon "pursued these faulty methods for years, never explaining to the board their impropriety or the risks they created," according to the complaint.
The biotech company worked to develop genetically engineered cancer treatments.
Defendants' alleged scheme allowed lawyers to take in more than $4 million in "excessive and unwarranted fees," and the "CFO and his cronies enjoyed six-figure (or more) paydays and lavish lifestyles on the company's dime, while leaving Neogenix exposed to as much as $31 million in rescission liability to investors," according to the lawsuit.
"But the hubris of its former CFO and the willingness of certain conflicted insiders and attorneys at two AmLaw 100 firms to turn a blind eye to his misdeeds proved disastrous."
Despite their alleged attempted coverup, the SEC launched an investigation and discovered "that those entrusted with securing Neogenix's future had, instead poisoned it."
"This liability was crippling," the lawsuit states. Neogenix was forced to file for bankruptcy in Maryland and sell its assets under the court's supervision.
Named as defendants are Peter Gordon; Mintz Levin Cohn Ferris Glovsky and Popeo PC; Nixon Peabody; Daniel J. Scher; Harry Gurwitch; John L. Squire; John Buckley; and Brian Lewis.
Neogenix seeks damages for breach of fiduciary duty, legal malpractice, aiding and abetting and unjust enrichment.
It is represented by William T. Reid with Reid Collins & Tsai.