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id: 347, Created by Stan Denisov, Investor
Synergy Pharmaceuticals (SGYP) Misconduct Case
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E.D. New YorkCourt
10 Nov 2016Class period Start
13 Nov 2017Class period End
On November 14, 2017, Synergy conducted an SPO that was materially dilutive of current shareholders’ equity interests, contrary to the most recent Company's and its Leaders' representations.
Particularly, there was the 10% dilution of the outstanding equity (20% dilution if the warrants are exercised), which resulted in an immediate 10% drop in the Company’s stock price. This dilutive capital increase was described by investors as “unexpected,” “blindsiding,” “reducing confidence in management,” stoking “fears about further unexpected dilution,” “sending the stock into a tailspin,” and supposedly “unnecessary given current cash reserves and access to the CRG Loan non-dilutive debt financing.”
As the market digested the news, and the full extent of the Company's recent materially false and misleading statements became apparent, Synergy’s share price continued its drop to $1.68 on the following day, November 15, 2017, thus seriously damaging investors.
Going back to September 5, 2017, Synergy announced that it closed on a $300 million senior secured loan from CRG Partners III L.P., providing an immediate cash infusion of $100 million with a second $100 million tranche of CRG Loan financing less than six months later, on or before February 28, 2018, and the third tranche of up to $100 million in the following 13 months.
Synergy's CFO, Gemignani extolled the newly-secured loan as “non-dilutive” to the equity interests of the Company’s shareholders while providing a material boost to Synergy’s “cash position.” Gemignani represented that the CRG Loan gave Synergy the “financial flexibility to continue to execute on the launch of Trulance and achieve our business objectives, which we are confident will ultimately maximize long-term shareholder value” by providing the Company “with access to capital for support of our commercialization of Trulance and funds our current plans for the Company through 2019 when, based on our current assumptions, we expect to be cash flow breakeven.”
As a result of these and further assurances that Synergy had:
- arranged ample debt financing to keep its operations running through 2019,
- maintained a large capital cushion to achieve its business objectives,
- and· had a manageable cash burn rate,
the investing public was led to believe that Synergy could and would successfully develop and profit from Trulance without needing to raise additional capital through additional equity offerings and without diluting stockholders’ outstanding equity interests.
The CRG Loan was, however, subject to various significant onerous terms and conditions undisclosed by the Company, that rendered materially false and misleading their statements regarding the CRG Loan, its non-dilutive effect, its availability “if and when needed,” and its sufficiency to fund the Company’s operations through 2019 and permit it to achieve its business objectives.
On November 9, 2017, in both a press release and a Form 8-K filed with the SEC, Synergy announced its financial results for Q3 2017. Discussing Synergy’s Q3 2017 earnings on its conference call with financial analysts, CFO Gemignani stated the following about the CRG Loan, which he characterized as “ensuring [Synergy] a strong financial foundation”. He pointed out that "Under the terms of the agreement, we have access to an additional $100 million on or before February 28, 2018, and up to two additional tranches of up to $50 million on or before March 29, 2019 subject to certain conditions. While I cannot comment on specific conditions required to access the additional tranches beyond what’s publicly disclosed, I can tell you that we are confident in our ability to meet the conditions that will allow us to access the additional capital if and when we need it..."
However, just a few days after management's statements, on November 14, 2017, the truth finally came out, Synergy revealed that terms of the loan agreement, omitted from the Company and its Leaders' prior statements regarding the loan, prevented it from accessing $200 million of the loan without conducting a dilutive secondary offering or offerings of shares to raise cash and, as such, the Company was conducting a secondary offering of its shares. Thus, contrary to the Company and its Leaders' statements, the loan was not available to Synergy "when needed," which would result in the dilution of the outstanding shares, and would not be sufficient to fund the Company's operations through 2019 without dilution.
As a result of the questionable SGYP Leader's decisions and actions on December 2018, Synergy filed a voluntary petition for reorganization under Chapter 11 of the U.S. Code with the U.S. Bankruptcy Court for the Southern District of New York.
Legal Proceedings Chronology.
- On February 08, 2018, the first identified complaint was filed in the Eastern District of New York under Hon. Ann M Donnelly. The complaint alleged specific violations (misleading, failure to disclose, financial misrepresentations, and fraud) by specific company leaders on specific dates, the grounds for which are public, and provable, and all causal relationships are easily traced.
- · On June 22, 2018, the Court issued an order consolidating cases and appointing the Lead Plaintiff and Counsel. Unreasonably consolidated complaint mixed a straightforward specific Case with a Case with vague grounds for suspicion, and hard-to-prove facts of intentional violations, mainly related to the subjective biotech and marketing aspects, and this Case became the cornerstone of the accusations, putting plaintiffs in a weak position.
- Later, on September 3, 2021, after the remaining individual Defendants filed a Motion to Dismiss the second consolidated amended Complaint, the Court issued an Order granting the Defendants' Motion to Dismiss.
- On October 28, 2021, the Lead Plaintiffs filed a notice appealing the Court's Dismissal Order.
Taking into account all the facts that are in the public domain, the injured investors have every reason to believe that the litigation in all its aspects was and is being conducted in a way that is not in accordance with their best interests and in a negligent manner that undermines the fundamental values of the law, principles, and practices in the United States of America.
Failure to Disclose,
Breach of Fiduciary duty,
Shock Event Date
14 November 2017
08 February 2018
Hon. Ann M Donnelly