Yep, drive by. It doesn't make the post less true. Nor does the fact that the article did get the tech points wrong alter the fact that there has been a share holder suit.
I'm not a troll, I am a long. But, this does raise some questions. I was not happy to see this. Ignore it, attack it, whatever. But, as I do have a fair bit of skin in the game I do plan to investigate further. I have posted the body of the article from the first link posted as it requires a free registration to access.
Best of luck to all.
A veterinarian and a scientist have been raising millions in capital through Midtown Partners with registered direct offerings for their public biotech company NanoViricides (NNVC). Another $10.3 million of stock in the $250 million market cap company, which was recently uplisted to the NYSE MKT, was sold to institutional investors in mid-September at a 26% discount to the closing price of the shares. But a group of early investors in the company has filed a shareholder derivative suit in Colorado federal court claiming company executives Anil Diwan and Eugene Seymour are abusing company assets and have breached their fiduciary duties.
The investor group is led by Colorado resident Brian Brambell, who helped raise over $2.25 million of early seed money for Diwan and Seymour between 2007 and 2009. The company works on exploratory research to use plastic to attach to virus cells and expel them from the body. According to the lawsuit, their relationship soured in 2010 when Diwan chose to not use investor commitments Brambell had raised and instead chose to go with a PIPE deal that paid a 10% dividend plus stock warrants that could be converted and sold every two weeks, and created a new class of B shares. The PIPE was chosen as a way to raise capital instead of private investor funds with long-term investors who would have a Rule 144 restriction. The PIPE deal was funded by a company named Seaside 88 for $7 million.
Brambell claims that NanoViricides told shareholders they were licensing the biotech’s intellectual property and patents from a company called TheraCour, of which Diwan owns a 70% stake. NanoViricides claimed it was using the capital raised to pay TheraCour to develop the research. Brambell later learned that a licensing contract was never completed. When company executives were confronted by Brambell and the other early investors about this, Diwan allegedly forced NanoViricides to pay a high price for the licensing contract — which Brambell claims wasted precious capital. NanoViricides told Brambell they had a consultant advise on a fair market price for the agreement, but Brambell was never given a copy of it after multiple requests. It was at that time he stopped raising money for the company.
Brambell claims a lack of independent directors is at the heart of the problem plaguing NanoViricides. The company’s recent SEC filings disclose that an outside audit review also claimed there is not enough of independence on the board.
Diwan cashed out his early investment in NanoViricides two years ago and used the proceeds to buy land in West Haven, Conn., to develop a government certified research lab for NanoViricides. The building will only be leased by the biotech company, yet the company is spending money to build it out and has pledged $2.5 million of collateral towards completion of the project.
Worries over public communication about a stock split are also highlighted in the investor lawsuit. The suit claims it was a 4 for 1 split which gave Diwan and Seymour 54% control of the company, but in SEC filings for the June 2010 period the company stated it was a 2 for 1 split. Brambell claims the company latter updated the SEC filings in 2012 to inform shareholders that it was a 3.5 for 1 split without acknowledging the former statements.
The lawsuit also alleges stock promoters are getting inside information from the company and touting it in newsletters and on online message boards. The suit lists Pat Cox and investment newsletter publisher Agora as promoters who might have been given inside information. It also says there is a promoter by the name of “DrFeelGood” who posts non-public information on the company to online message boards. A review of buying volume included in the lawsuit shows a jump in shares a few days before NanoViricides published company news via a press release.
Whether due to promotion and hype, or the licensing of superior biotechnology research, NanoViricides has had a terrific year. While the NASDAQ Biotech index is up 50% year to date, and the Russell 2000 is up 31%, NanoViricides stock has more than doubled since the beginning of the year, closing at $5.05 on Oct. 18.
This is not Eugene Seymour’s first run at a speculative biotech company being traded on the public markets. Joe Siegela, of Dalek Capital, remembers him from the now-defunct Silva Diagnostics. “It was a highly speculative penny stock that ran up but did not end well for long-term investors,” Spiegel told Growth Capital Investor. “When I see multiple executives now at NanoViricides who use to work with Seymour, I find it troublesome.”
Public records show most of NanoViricides’ capital raising is coming from registered direct offerings, which traders buy at a discount on the overnight market and then sell into the market the next day. The latest offering appears to have also needed stock warrants to get the deal sold. Traders bought 5-year warrants exercisable at $5.25 a share and purchased registered shares of stock for $3.50 when it was trading at $4.76 the previous day. As agent for the deal, Midtown Partners received 6% of the proceeds, paid in cash and discounted stock.
Executives at NanoViricides did not return a request for questions and comments for this story. Midtown Partners confirmed the deal terms would not comment on why they have supported this stock on multiple deals.
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