Lawsuit claims Arkin misled eCam shareholders

A NIS 60 million lawsuit filed Sunday to the financial department of Tel Aviv District Court claims that entrepreneurs Moshe (Mori) Arkin, Ran Nusbaum and Pinchas Rosen deliberately misled or deceived minority shareholders in biomed company cCam Biotherapeutics. The three allegedly caused them to sell their shares for a substantially low price while hiding a planned exit deal the company conducted a year later, as well as other critical factors that affected the value of the shares.

The lawsuit is based on evidence collected by intelligence firm Black Cube. Arkin and Nusbaum were shareholders and directors at cCam and Rosen acted as the head of pharma at Arkin Holdings (an investment fund managed and owned by Mori Arkin), as well as a director in cCam until the exit deal took place in July 2015. Arkin and Nusbaum owned company Pontifax as well as OrbiMed and attorney Yuval Horn who allegedly represented cCam are also being sued.

In July 2015, cCam Biotherapeutics, which develops immunotherapies for treating different kinds of cancer, was sold to US pharmaceutical giant Merck & Co. for $625 million. $95 million was paid in cash when the deal was done, and the balance was meant to be paid at a later stage, providing cCam met the milestones that were set. The company also obtained a breakthrough with regards to US FDA recognition for its flagship product, in a manner that impacted the potential value of the deal.

The plaintiffs, Gefen Biomed Investments and Meytav Technological Incubator, claim that Arkin, Nusbaum and the other defendants deliberately misled them, causing them to dispose of their shares in the company a year before the planned exit. They further claim that they concealed the negotiations with Merck & Co. and the fact that the flagship product was about to be approved by the FDA.

The lawsuit, filed by Advs. Guy Gissin, Yoel Freilich and Gadi Kay argues that Arkin and the other shareholders presented the minority shareholders with a false representation of cCam’s value, and pressured them through repeated talk about the need for capital injections and threats of dilution. Taking this false impression into account, Gefen and Meytav agreed to sell their shares in the company for just $780,000, while under the terms of the exit deal the shares’ value could have reached $100 million.

This claim states that it “deals, in a best case scenario of misleading, and in a worst case scenario, with a deliberate, pre-planned fraud initiated by the defendants or some of them, in attempt to rob the plaintiffs of their rights and while taking advantage of the additional information held by the defendants or some of them about the business potential of cCam Biotherapeutics and the value of the shares they held in the company."

Merck buys cCAM Biotherapeutics for up to $605m

The plaintiff companies claim that Arkin and others wrongly took advantage of the knowledge and experience they had, in order to create a false representation of cCam’s business potential, conceal crucial information from the plaintiffs against their liabilities and hide information from the board of directors of cCam itself. The plaintiffs further argue that the defendants created a troubling impression regarding cCam’s financing needs, in order to put false pressure on the minority shareholders and cause them to believe that they were required to inject large sums of money (which they did not have), should they wish to maintain their rights in the company.

As part of their claim, Gefen and Meytav state that “these deeds and wrongdoings committed by the defendants or some of them were aimed at getting the plaintiffs consent for a deal as part of which they would sell all their holdings in cCam for a negligible sum of money. If it was not for the deeds and wrongdoings of the defendants or some of them, and if the actual business potential of cCam, the FDA approval status of its products and the advance preparations for the exit deal were known to the plaintiffs - as well as the exit’s potential yield for the company and its shareholders - the plaintiffs would not have given their consent to move forward with the deal”.

Gefen and Meytav held 17.02% of the issued and paid up share capital of cCam until August 2014. In August 2014, an agreement was set with regards to the purchase of Gefen and Meytav’s shares in cCam by the companies owned by Arkin and others, allowing the latter to hold the entire issued and paid up share capital of cCam.

The claim suggests that Arkin and others concealed cCam’s business opportunities and full potential from the minority shareholders, in order to “make income at the expense of the plaintiffs and while initiating moves that were meant to rob the plaintiffs of their holdings in the company without getting anything substantial in return”.

It is also claimed that instead of acting as expected from a strategic partner, Arkin and the other defendants decided to make a wrongful use of their accumulated knowledge whilst hiding information from the plaintiffs and their representatives in cCam’s directors board. It is argued that the defendants’ representatives repeatedly approached Gefen and Meytav’s representatives in order to encourage them to sell their shares in cCam for sums that turned out to be completely unreasonable, considering the actual business potential that was later revealed to the plaintiffs.

The proposal to purchase cCam’s holdings was brought up during a breakfast meeting that took place in Turquoise Café in Herzliya in the third quarter of 2013. Participants at the meeting included Benny Sydon and Limor Cohen - directors at cCam on behalf of Gefen and Meytav, and Ran Nusbaum - a director in cCam and the representative of the defendants.

During the meeting and in response to Sydon and Cohen’s query about cCam’s cash situation and sustainability, Nusbaum was compelled to confirm that cCam could sustain itself until the end of 2015 without needing to raise any additional capital. Nusbaum was therefore informed that the defendants had no interest in selling their holdings in cCam.

However, the lawsuit claims that several, wrongful acts were made from that point onwards, in attempt to dismiss the plaintiffs’ rights, hide crucial information from them, mislead them and pressure them, until their holdings in cCam were eventually taken away from them.

It is argued that Gefen and Meytav were repeatedly presented with information that differed from the data presented by Nusbaum during the meeting, according to which all shareholders of cCam were required to urgently raise substantial capital - and if they failed to do so their shares would be significantly diluted, to the extent that they would be practically dismissed from cCam without getting anything in return.

The pressure under which the minority shareholders were put eventually persuade them to sell their holdings to the current shareholders for a value that was lower than their actual worth, as the minority shareholders later learned.

The claim states that in July 2015 (less than a year after the sale), the plaintiffs were surprised to find out that cCam was sold as part of a large-scale deal to the pharmaceutical giant Merck & Co.. It also become clear that the company managed to obtain a breakthrough with regards to the recognition of the American FDA authority.

It is claimed that this matter was not properly reported to the company’s board of directors, apart from a laconic mention of the company’s general discussions with the FDA. This misled the directors who were not privy to the information and essentially neutralized them, as they did not grasp the importance and significance of the progress made by the company.

The plaintiffs claim they hold accumulated information that raise a substantial suspicion, according to which, the talks with Merck & Co. ahead of the exit deal commenced two years prior to its completion - and a year before the sale of cCam’s shares - but were hidden from the plaintiffs and their representatives at cCam’s board of directors.

The lawsuit refers to the way in which the “defendants deliberately concealed crucial information from the plaintiffs and their representatives in cCam’s board, including information that they were legally required to reveal to the plaintiffs and their directors”. It is argued that “if this information was revealed and if the true potential and worth of cCam were known to the plaintiffs, they never would have given their consent to the deal and the sale for the aggregated amount of only $780,000, which is in practice worthless.

The lawsuit that was filed included a report prepared by the business intelligence firm Black Cube, founded by Dan Zorella and Dr. Avi Yanus, which was hired by the plaintiffs and conducted recorded interviews with key figures in cCam, who were involved in and exposed to the talks with Merck & Co. and the FDA.

The plaintiffs argue that these interviews prove a deliberate and systematic attempt to conceal the talks with Merck. “The recorded statements of the aforementioned figures leave no doubt with respect to the ongoing communication between cCam and Merck & Co., which were hidden from cCam’s board of directors, including the plaintiffs’ representatives”, states the claim supported by Black Cube’s evidence.

During a recorded interview conducted by Black Cube with Dr Tehila Ben-Moshe, cCam’s first CFO and development vice-president, Ben-Moshe states that “cCam had many potential buyers and offers for collaborations, including with companies that have various approaches to promoting the product…”. “With Merck”, she says, “it was quite clear that they were committed to the plan and that they believed in the new medicine. We have had many email correspondences, including a thorough and professional process of background checks. They sent us many questions and we had many answers, and we had many conference calls regarding different aspects of the project, and it took time”.

The plaintiffs claim that this interview, amongst others, prove that “the deal with Merck & Co. was not completed over night, but rather after a long and carefully considered process”.

Ran Nusbaum, a partner in Pontifax Holdings, said today that “the shareholders at the time of the deal were Moti Menashe and Benny Saydon. They both wanted to sell their holdings in cCam due to the company’s shortage of cash. Saydon was previously involved in a plea bargain that took place in 2005 and during which he was sentenced for 9 months and fined with 24,000 Shekels. The plea bargain refers to Saydon and his partner’s activity as part of a strategic and financial consultancy firm that was suspected of stock manipulation in 1995. I have had the chance to speak to Moti Menashe, Saydon’s partner, who was imprisoned for another offense and was recently released. Menashe is no longer involved in Gefen, whose main shareholder is Nissim Dagladeti, who was convicted by the district court and sentenced for 30 months in jail. He is currently waiting for his verdict’s appeal in the high court of justice, which also instructed on tax offences. In short, they are not saints."

Published by Globes [online], Israel business news - <a href=http://www.globes-online.com>www.globes-online.com</a> - on March 9, 2017