As we wrote previously on December 18th, our investigation into Cell Therapeutics, Inc.'s (NASDAQ: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.
Disclosure: I am short CTIC. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: The article has been written by Tourbillon Research. Tourbillon Research is not receiving compensation for it. Tourbillon Research has no business relationship with any company whose stock is mentioned in this article.