Bankrupt Biotech Targets Nixon Peabody, Mintz Levin

Bankrupt Biotech Targets Nixon Peabody, Mintz Levin lily/Fotolia

Did Nixon Peabody and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo usher in the demise of a biotech startup that was poised to thwart cancer and potentially earn billions in the process?

That’s the premise of a 45-page complaint filed Tuesday in U.S. district court on Long Island by Neogenix Oncology Inc., a bankrupt developer of cancer diagnostic and treatment products. The suit claims that the two law firms stood idly by for years while Neogenix’s chief financial officer blatantly violated securities laws, leading to an investigation by the U.S. Securities and Exchange Commission and financial ruin.

“This case is a textbook example of how a few greedy insiders and negligent professionals can take down a company,” wrote Neogenix’s lawyers at Reid Collins & Tsai, led by William Reid IV.

Here’s the backstory, as described in Neogenix’s complaint:

Founded by a surgical oncologist in 2003, Neogenix aimed to break into the $74 billion global cancer therapeutics market. The company hired a CFO named Peter Gordon to raise capital, and by 2009 Neogenix had amassed more than $30 million.

The problem, Neogenix asserts, is that Gordon’s capital-raising strategy ignored a clear SEC prohibition against paying commissions to unregistered brokers. Instead of using only authorized middlemen to drum up investments, Gordon allegedly implemented a finder’s fee program that awarded both licensed and unlicensed brokers. The system was not only illegal, the complaint claims, but it created a huge liability for Neogenix, because investors are permitted to claw back improperly brokered sums. The company ultimately raised $35 million through unlicensed finders, according to the suit.

That brings us to the lawyers. The complaint says that an unnamed Mintz Levin attorney advised Gordon in 2005 that his finder’s fee program violated SEC rules. According to Neogenix, however, both Gordon and the Mintz Levin partner who served as outside general counsel, Samuel Feigin, actively ignored the advice. Then they kept on ignoring it, year after year, as the finder’s fee program continued and Feigin moved to Nixon Peabody and took the company with him as a client.

Neogenix says Feigin and other lawyers kept the company in the dark until 2011, when Neogenix finally hired new outside counsel who pulled the plug on the finder’s fee program and commenced an internal investigation. The SEC began its own probe soon after, the investments stopped pouring in and Neogenix entered Chapter 11 in 2012.

Both Mintz Levin and Nixon Peabody are named as defendants in the case, though Feigin is not. Among other claims, Neogenix alleges breach of fiduciary duty against Gordon, breach of fiduciary duty and legal malpractice against Mintz Levin, and legal malpractice and aiding and abetting breach of fiduciary duty against Nixon Peabody. The complaint also alleges legal malpractice against a former in-house lawyer, Daniel Scher of Great Neck, N.Y., who became Neogenix’s chief legal officer in 2010.

Feigin, who joined Crowell & Moring earlier this year, didn’t respond to a request for comment. Both Mintz Levin and Nixon Peabody declined to comment.

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