Celsion Investor Claims CEO Tried To Bribe Him
December 6th, 2011 // 2:16 pm @ jmpickett
Earlier this week, an aspiring drugmaker named Celsion announced that a $15 million private stock placement had succeeded in attracting investors. But one investor – the largest Celsion shareholder, in fact – claims Celsion ceo Michael Tardugno felt a little threatened by him and so offered the equivalent of a bribe before allowing him to participate in the placement.
Specifically, Nathaniel August of Mangrove Partners, which holds 7.85 percent of Celsion stock, maintains that Tardugno offered to direct the underwriter to allocate some of the shares to Mangrove if August would sign an agreement that would prevent the firm from “becoming activists and therefore a threat†to Celsion management, according to a December 1 letter August wrote to the Celsion board.
“In my view, this was equivalent to a bribe: I would be paid in exchange for going away,†he continued. The private placement, by the way, consisted of stock, plus warrants to purchase additional shares (read here). August contends that he was offered $1 million in stock, and the warrants could have been worth anywhere from $186,000 to $400,000.
He rejected the offer, but “without the intention of accepting and merely as means of determining management’s view of their own poor performance and vulnerability, I requested an even higher payoff and I was offered a $1.5 million allocation. I did continue to negotiate to see how far he would go. Perhaps you can take some perverse solace in the fact that there was some limit, though I wonder whether the limit was merely a function of his inability to reallocate more shares.
“While participating in the deal would have been profitable for the investors in our fund, my dignity and honor are priceless and I will not be paid to go away. This bribe represents the basest of actions and we strongly suggest that you explore terminating for cause all of the individuals involved. As regards the company’s board of directors, you were either inattentive to management’s actions or complicit with them. In either case, this suggests a strong need for change at the board level,†he charged.
The behind-the-scenes dueling between executives and activist investors often gets heated, and it is not hard to imagine the sort of vitriol that is exchanged. But not every rough-hewn allegation or suggestion finds its way into SEC filings. As Adam Feuerstein of The Street noted in a tweet, these are ‘ugly words and serious accusations.’
There is more, though. August claims that Celsion bankers were then instructed not to allow the firm to particpiate at all, while some board members were allocated shares at “below-market†prices “for their own accounts… Actions such as these should raise serious questions, such as whether the board is acting as a fiduciary for stockholders or simply acting for self enrichment†(here is his letter).
And so, August wants to replace two board members with his own designees, “hire an independent investment bank to explore strategic alternatives, set measurable goals for management that carry the potential for termination if they are not met, and review the actions of management in their attempt to silence a stockholder.†We asked Jeff Church, a senior vp for corporate business strategy and investor relations, for comment, but have not yet heard back. We will update you if we do.
[UPDATE: Later in the day, Celsion filed a statement with the SEC: “The company does not concur with such characterization and views. During the discussions preceding the company’s pending private placement financing…Mangrove approached the company, seeking to be included as an investor in that financing. The company negotiated with Mangrove on the terms of a potential investment and proposed as part of the negotiations that Mangrove enter into a customary standstill agreement. The entities were unable to agree on terms.
“The board…has also considered Mangrove’s request for two seats on the board and concluded that, while the board will continue regularly to assess the company’s governance and strategy, it is in the best interests of the company and its stockholders at this time to maintain the current composition of the Board and continue the company’s current strategic plan and direction.”]
Earlier this week, Celsion announced that a pivotal Phase III clinical trial of its experimental Thermodox cancer med will have to proceed to a final analysis late next year, and the disclosure sent the stock down 13 percent. ThermoDox is being studied for treating both hepatocellular carcinoma, or primary liver cancer, and recurrent breast cancer at the chest wall.
