SOURCE: Cellceutix

Cellceutix

October 22, 2015 14:28 ET

Cellceutix Responds to Rosen Law Firm

BEVERLY, MA--(Marketwired - October 22, 2015) - Cellceutix Corporation (OTC: CTIX), Cellceutix was created to tackle some of the worst diseases known to man. We are a company that firmly believes in the strength of our science and technology. It is our science that gives us the belief that we will be successful and that our shareholders will be rewarded. We currently have multiple clinical trials going on across 3 separate drugs; not many companies our size can boast of that. We understand that because of our success we can be targeted by those who can manipulate financial markets using false information, which is why we are now fighting vigorously to set the record straight. We are undeterred and will continue on our mission to bring our promising pipeline to fruition and bring new life saving therapies that this world needs. We would like to share the below excerpted letter the Company's legal counsel, the Ashcroft Law Firm led by Michael J. Sullivan, former United States Attorney for the District of Massachusetts, sent today to Rosen Law Firm to demonstrate our commitment in fighting these fraudulent charges and continuing on our important lifesaving work.

The Company will vigorously seek out those who are illegally manipulating the Company's stock price.

ASHCROFT SULLIVAN

October 22, 2015

Phillip Kim, Esq.

The Rosen Law Firm, P.A.

Re: Demand to Withdraw Complaint and Dismiss Class Action

U.S. District Court (S.D.N.Y) Case No. 1:15-cv-7194 (KPF)

Dear Mr. Kim:

The Ashcroft Law Firm ("ALF" or the "Firm") has been retained by Cellceutix Corporation ("Cellceutix" or the "Company") in connection with the above-referenced matter. This letter is to inform you that, in the event you fail to dismiss this matter within the safe harbor under Rule 11, we will seek a dismissal and sanctions against both you and the Rosen Law Firm, P.A., for, among other things, recklessly filing a frivolous lawsuit and, although obligated to do so, failing to conduct reasonable due diligence prior to filing your complaint.

You have conceded in both your complaint and amended complaint that the factual allegations are based solely upon a "report" posted on the internet. What you fail to disclose in the complaint is that the "report" was authored by an anonymous third party who was a short seller of the stock. As we discuss below, you lacked a legitimate basis in law or fact to rely upon the content of the "report" to file your lawsuit. Indeed, even a modest due diligence on your part would have revealed that the claims in that "report" -- which you relied upon and subsequently reproduced as factual allegations of your own -- were demonstrably false.

Not surprisingly, our client has suffered significant damages (including a substantial diminution in its stock price) as a result of the initial posting of the false "report" referenced above. Those losses, however, have been overshadowed by the catastrophic damages that have come as a direct result of your improper decision to issue a so-called "Equity Alert" and file a class action lawsuit. Your actions also have jeopardized the profound public interest in the development of life-saving drugs.

Please note that this letter should be considered as a formal request to preserve all paper and electronic documents and data relevant to this dispute, including, but not limited to those related to the filing of the complaint in the above-referenced matter, the due diligence you claimed to have conducted prior to filing the complaint, and any communications you may have had with any party related to this dispute, including, as discussed immediately below, Mako Research, Seeking Alpha, Pump Terminator, Pump Stopper, any purported class member or shareholder, or any persons or entities associated with them.

Background

Cellceutix, headquartered in Beverly, MA, is a clinical stage biopharmaceutical company developing innovative therapies in oncology, dermatology and antimicrobial applications. The Company owns the rights to numerous drug compounds, and has clinical trials underway, including at Harvard University's Dana-Farber Cancer Institute and partner Beth Israel Deaconess Medical Center. See "Cellceutix CORPORATE FACT SHEET." June 2015. 21 Oct. 2015. <http://cellceutix.com/wp-content/uploads/2015/06/Cellceutix-Fact-Sheet-June-2015-flattened-1.pdf>.

The website www.seekingalpha.com ("Seeking Alpha") has been described as "a virtual bulletin board and as an open discussion forum where people can publish commentary and articles covering U.S. financial markets." Matter of Nanoviricides, Inc. v Seeking Alpha, Inc., 2014 NY Slip Op 31681(U) (Sup Ct, New York County) (June 26, 2014), at p. 2. It is "overwhelmingly comprised of posts by third-party sources." Id.

Mako Research is the pseudonym taken by an anonymous user who, among other things, is responsible for preparing questionable "reports" on various securities in which it is a short seller. Short sellers operate by speculating that the price of a security will decrease, and, as such, "have an obvious motive to exaggerate the infirmities of the securities in which they speculate." See In re Longtop Financial Technologies Limited Securities Litigation, 910 F.Supp.2d 561, 577-78 (S.D.N.Y. 2012).

For the past several months, Mako Research has been successful in submitting several of its sensational "reports" to Seeking Alpha for posting. These "reports" include:

  • "Ocata: Dilution Imminent, SEC Investigation Potentially Underway, Office Appears Empty, Price Target $0.00" (Wed, Sep. 23, 2015);
  • "Digital Turbine: Rush For The Exits Creates Liquidity Crisis, Enduring Overhang (Tue, Sep. 15, 2015);
  • "Digital Turbine: Strong Sell -- Ties To Stock Manipulators, Obsolete Technology, Massive Lock-Up Expiration Just Days Away" (Wed, Sep. 2, 2015);
  • "Ocata Therapeutics: Insider Enrichment, Failed Science, Long History Of Fraud Ties, 77% Downside" (Wed, Aug. 19, 2015);
  • "LifeLogger: Ties To Stock Promotions, 'Pump-And-Dump' Schemes, Price Target Zero" (Mon, Aug. 10, 2015); and
  • "Cellceutix: Empty Office, Unviable 'Science', Misleading Disclosures, 96% Downside" (Thu, Aug. 6, 2015).

In each of these "reports," Mako Research states that it is a short seller of the security that is the subject of the article. A cursory review reveals that there are a number of similarities in the content of the "reports."

For example, multiple "reports" make an identical claim that the target company's office is empty (company "is run out of what appears to be an empty office building" and "[a] visit to [the company's] office revealed an apparently empty office during business hours"). Several articles likewise make a similar claim that the company is associated with questionable individuals (company "has a long history of ties to people accused of a range of securities violations and fraud" and company "has a long history of ties to people accused of a range of securities violations and fraud"). Multiple "reports" further claim that the target company's sciences or products are "failed" or "unviable."

On August 6, 2015, at 10:30 AM, the anonymous Mako Research "report" targeting Cellceutix -- Cellceutix: Empty Office, Unviable 'Science', Misleading Disclosures, 96% Downside" -- appeared on Seeking Alpha. See "Cellceutix: Empty Office, Unviable 'Science', Misleading Disclosures, 96% Downside." Seeking Alpha. Mako Research, 06 Aug. 2015. 21 Oct. 2015. < http://seekingalpha.com/article/3406365-cellceutix-empty-office-unviable-science-misleading-disclosures-96-percent-downside>;. At bottom, the "report" falsely claimed that: (1) Cellceutix is a sham company, without employees or research studies; (2) one of its officers falsely stated receiving his Ph.D. in Pharmacology from Harvard University; (3) the Company's antibiotic drug candidate Brilacidin is ineffective; and (4) its anti-cancer drug candidate Kevetrin is ineffective.

Two hours later on August 6, 2015, at 12:41 PM, The Rosen Law Firm, P.A., located in New York, NY, released an "Equity Alert" in which it announced that it was "preparing a class action lawsuit to recover losses suffered by Cellceutix investors" as a result of the Company's materially false and misleading statements. See "EQUITY ALERT: The Rosen Law Firm Announces Investigation of Securities Claims Against Cellceutix Corporation -- CTIX." Business Wire. The Rosen Law Firm, 06 Aug. 2015. 21 Oct. 2015.

Not surprisingly, the Company's stock price, which opened at $2.47, fell dramatically on news of both the Mako Research "report" and The Rosen Law Firm's "Equity Alert." It closed at $1.71, losing approximately 30% of its value.

A review of publicly-available information on the internet reveals that scientists, investors, and reporters immediately challenged the validity of the assertions in the Mako Research "report."

For instance, Boston Business Journal reporter Don Seiffert visited the Company's headquarters on August 14, and published an article (complete with photographs) entitled "My visit to Cellceutix, the biotech that a short seller recently called a sham, debunking the claim that Cellceutix is a shell company and is run out of an empty office building." See Seiffert, Don. "My Visit to Cellceutix, the Biotech That a Short Seller Recently Called a Sham." Boston Business Journal. N.p., 16 Aug. 2015. 21 Oct. 2015. < http://www.bizjournals.com/boston/blog/bioflash/2015/08/my-visit-to-cellceutix-the-biotech-that-a-short.html>;. The article also highlighted a letter that includes "a statement by Richard Scott, former head of the research department at a biotech named PolyMedix that previously worked on one of the three drugs now in development at Cellceutix." Dr. Scott is now vice president of research at the Fox Chase Chemical Diversity Center in Doylestown, PA.

In that letter, Dr. Scott declares that he "was appalled at the vast number of factual errors and misleading statements presented in the article." See Scott, Richard W. "Letter to Seeking Alpha." Cellceutix Corporation RSS. 11 Aug. 2015. 21 Oct. 2015. <http://cellceutix.com/letter-to-seeking-alpha/#sthash.2NvuPo6l.dpbs>. As a researcher and an expert in Brilacidin, he concluded that "the reference to an 'unviable science' that appears in the [Seeking Alpha] article's title and throughout the text as patently untrue," and that certain "arguments presented in the article that were based on review by an 'independent scientist with Doctorate in Biochemistry' as specious and in certain instances laughable." Id.

Investors and many others likewise posted comments on Seeking Alpha and other websites, similarly voicing their significant skepticism about the Mako Research "report." They particularly questioned the motivations of the anonymous, short-seller author, observing that there may be a pattern showing an ongoing conspiracy to manipulate stock prices in violation of federal securities laws. (These comments are too numerous to reproduce here, but again, a review of "information readily obtainable on the Internet," see Complaint, p. 1, would have revealed this information).

The Company itself also released a point-by-point rebuttal to the claims in the "report" on August 7. See Cellceutix News. "Cellceutix Provides Insight to its Four Clinical Trials". Cellceutix Corporation RSS. Marketwired, 07 Aug. 2015. Web. 21 Oct. 2015. <http://cellceutix.com/cellceutix-provides-insights-to-its-four-clinical-trials-for-the-treatment-of-absssi-completed-phase-2-anti-cancer-phase-1-psoriasis-phase-2-and-oral-mucositis-in-head-and-neck-cancer-patient/#sthash.7RYBLXez.XVbiSnqH.dpbs>.

Fact checking the "report," the Company demonstrated that the three primary claims made by the anonymous author -- namely, that the Company is run out of an empty office building, Brilacidin is ineffective, and Kevetrin is ineffective -- were patently untrue. The Company's release discussed in painstaking detail numerous scientific errors in the "report" that would give any reasonable reader serious doubt as to the authenticity and veracity of both the anonymous author and the "scientist" allegedly hired to review the Company's drugs.

Nonetheless, you and the Rosen Law Firm moved forward and filed your securities class action lawsuit on September 11, 2015, in the U.S. District Court for the Southern District of New York. The complaint was based exclusively on the anonymous "report" targeting Cellceutix, and contains no information that would show that any independent investigation or any reasonable due diligence was conducted regarding the claims in the anonymous "report." The putative class consisted of persons who acquired securities between May 10, 2013 and August 6, 2015.

Astoundingly, the complaint (and later the amended complaint) attributes the "report" solely to Seeking Alpha, and wholly fails to mention that the author of the "report" was anonymous, was a short seller of the Company's stock, and relied on an undisclosed third party for making its key assertions about the efficacy of Cellceutix's drugs.

The only language in the complaint suggesting that you or the Rosen Law Firm conducted any inquiry as to the law or the facts appears in the first sentence of the document. That sentence claims that the allegations in the complaint were based upon an investigation "which included, among other things, a review of the defendants' public documents, conference calls and announcements made by defendants, United States Securities and Exchange Commission ("SEC") filings, wire and press releases published by and regarding Cellceutix Corporation ("Cellceutix" or the "Company"), analysts' reports and advisories about the Company, and information readily obtainable on the Internet." Complaint, at p. 1.

Based on our investigation and review of publicly-available documents, this language regarding your claimed due diligence appears to be nothing more than standard, boilerplate language the Rosen Law Firm uses in federal securities class actions complaints. Compare Complaint, pp. 1-2, in Gary Zagami v. Cellceutix Company, et al., U.S. District Court (S.D.N.Y) Case No. 1:15-cv-7194 (KPF) (filed 09/11/15) with Complaint, pp. 1-2, Thuc Pham v. China Finance Online Co. Limited, et al., U.S. District Court (C.D. CA) Case 2:15-cv-04256-PA-E (filed 06/05/15) (showing identical language except for the defendant's name). Both your complaints also include boiler-plate language that speculates about the evidence that you may later discover to support your-already-filed complaint: "Plaintiff believes that substantial evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery." Id.

On September 24, the Rosen Law Firm filed an amended complaint adding Gary Zagami, as a new named plaintiff. The Rosen Law Firm also responded to the court's order regarding notification of the purported plaintiff class, and, on October 7, requested a Cellceutix officer to waive service of the complaint.

At no time prior to filing the complaint or amended complaint did you, the Rosen Law Firm or any of its agents contact the Company or any of its officers to investigate or take steps to corroborate any of the content in the Mako Research "report."

Applicable Law

Under Rule 11, "an attorney has an affirmative duty to make 'reasonable inquiry into the facts and the law.'" Perez v. Posse Comitatus, 373 F.3d 321, 324 (2d Cir. 2004)(quoting Bus. Guides, Inc. v. Chromatic Commc'ns Enters., Inc., 498 U.S. 533, 542 (1991)). Liability for Rule 11 violations requires only a showing of objective unreasonableness on the part of the attorney signing the pleading. ATSI Commc'ns, Inc. v. Shaar Fund, Ltd., 579 F.3d 143, 150 (2d Cir. 2009) (citation omitted); see also id. at 152 ("[T]he mandate of the [Private Securities Litigation Reform Act] obviates the need to find bad faith prior to the imposition of sanctions.").

It is equally well settled that professional responsibilities under Rule 11 are personal in nature, and cannot be satisfied by merely copying or relying on the work product of another, particularly where the allegations are unsupported by any additional information or independent investigation. See Garr v. U.S. Healthcare, Inc., 22 F.3d 1274, 1280 (3d Cir. 1994)(attorneys violated Rule 11 by failing to personally investigate the law and facts underlying a securities-fraud complaint and instead only relying on a newspaper article, another complaint, and another attorney).

Nor can an attorney conclusory allege that future discovery will support the allegations in the complaint. See, e.g., Garr, 22 F.3d at 1279 ("'A shot in the dark is a sanctionable event ….'") (citations omitted); Rosenman, Colin, Fruend, Lewis & Cohen v. Edelman, 165 AD2d 533 (1st Dept. 1991)(sanctioning an attorney whose motion "promised to furnish additional supporting papers in the future"); Forstman v. Arluck, 149 Misc. 2d 929 (Sup. Ct. Suffolk Co. 1991) (sanctioning a prominent law firm for "employ[ing] a strategy of proceeding to trial and the examination at trial of the defendant ... in the hope that he would provide some previously undiscerned evidentiary predicate on which to base a claim"). This is particularly true where claims of securities fraud are alleged, which must be pleaded with particularity upon filing.

Discussion

Cellceutix demands that you withdraw your complaint immediately and dismiss the class action against it and two of its officers. In the event you decide to move forward with this litigation, we believe it is likely that the court will promptly dismiss the action, and, based on these facts, will impose Rule 11 sanctions on you and the Rosen Law Firm for failing to conduct a reasonable inquiry prior to filing your complaint. We reach these conclusions for the following reasons.

  1. It was unreasonable for you to rely upon the content of the Mako Research "report"

At the outset, we note that it was wholly unreasonable for The Rosen Law Firm to rely upon the content of the "report" by Mako Research posted on Seeking Alpha as a basis for filing your complaint. In fact, there were multiple "red flags" raising a clear indicia of unreliability that a reasonable attorney would have recognized and accordingly declined to give any credence to the assertions in the "report." At a minimum, the content in the "report" should have been viewed with extreme skepticism, thereby heightening the due diligence imposed upon you by the law and professional responsibilities.

First, the "report" author was anonymous. As such, you, as the attorney signing the complaint, would not be in a position to verify any of the factual statements in the "report" personally, or assess the credibility of the author. As you may be aware, New York courts have shown a growing concern to instances where attorneys fail to take adequate steps to verify key statements upon which a complaint is based. SeeIn re Millennial Media, Inc. Securities Litigation, 2015 WL 3443918 (after complaint is dismissed voluntarily, admonishing plaintiffs' counsel to be far more assiduous in confirming statements relied upon in complaint).

Second, as a short seller of the target company of the "report," the author is plainly biased. Indeed, it is well understood that short sellers, in the words of one New York court, "have an obvious motive to exaggerate the infirmities of the securities in which they speculate." See In re Longtop Financial Technologies Limited Securities Litigation, 910 F.Supp.2d at 577-78 (rejecting argument that short seller reports provide a basis for an adequate pleading of scienter in a securities action). This important consideration is confirmed by Mako Research's own on-line profile on Seeking Alpha, which explicitly states: "You should assume that Mako Research stands to profit in the event the issuer's stock declines." See http://seekingalpha.com/author/mako-research.

Third, while the author claims to have hired "an independent scientist to review Cellceutix's 'science,'" the name of that individual is kept confidential. Just as is the case with an anonymous author, an attorney accordingly would not have the opportunity to confirm any statements of this alleged scientist -- personally and independently -- for accuracy. This raises serious concerns and "sits at best uneasily alongside" Rule 11. See In re Millennial Media, Inc. Securities Litigation, 2015 WL 3443918, slip op. at 8-9; see id at 9 ("If the unreasonableness of failing to undertake rudimentary fact-checking with a witness were not intuitively obvious, the growing body of cases chronicling the repudiation by [confidential witnesses] of statements attributed to them in securities class-action complaints would cinch the need to insist upon such care.)"

Fourth, the circumstances surrounding how and where the "report" was posted likewise strongly militates against relying on its content. In fact, as one New York court concluded in a pre-action disclosure case, the content of similar "reports" should be better treated as opinion, not fact:

As an initial matter, Seeking Alpha's website's tagline is "Read. Decide. Invest." This clearly gives the impression that the website is designed to give people a place to express their opinions and for the reader to then form his or her own assumptions based on the posted articles. Further, the articles published on the website are almost exclusively published by third-parties and not actual reporters. Indeed, the article herein at issue was posted by an anonymous third-party user. Thus, readers are likely to give less credence to the articles found on this website and view the assertions in the articles, like the one herein at issue, with some skepticism and to treat its contents as opinion rather than fact.

Matter of Nanoviricides, Inc. v Seeking Alpha, Inc., 2014 NY Slip Op 31681(U), at pp. 9-10. In this light, it stands to reason that the caution to be exercised by a law firm filing a complaint should be substantially more pronounced than that of a mere reader, especially given the professional responsibilities and serious consequences involved with a putative securities class action.

Fifth, even a cursory review of Seeking Alpha's vetting and submission policies, which are applicable to anonymous authors, should have strongly cautioned against relying upon the content of the "report." Specifically, that review would show that Seeking Alpha policies do not include "accuracy" as a factor or characteristic for consideration, and editors apparently do nothing to substantiate any of the assertions in the article:

Our editorial team reviews the article to determine whether it's appropriate for our audience. We score submissions (internally) on three characteristics: a) Convincing: What's the author's thesis? Does he do a good job of convincing the reader? b) Actionable: Is the article material to investors in an obvious way? c) Well-presented: readers want content that is clear, focused, and easily understandable.

See Hoffman, Eli. "How Much Does Seeking Alpha Pay Its Contributors?" Seeking Alpha. N.p., 10 Apr. 2014. 21 Oct. 2015. <http://seekingalpha.com/article/2134803-how-much-does-seeking-alpha-pay-its-contributors>; see also "POLICY ON ANONYMOUS CONTRIBUTORS" Seeking Alpha. 21 Oct. 2015. <http://seekingalpha.com/page/policy_anonymous_contributors>. ("Seeking Alpha holds our anonymous contributors to the same compliance and biographical standards as contributors who write under their own name.").

In this light, it is unreasonable for you to assume that because it was posted on Seeking Alpha, the "report" had some degree of credibility. In fact, as discussed above, New York law makes clear that the content of such articles or "reports" should be viewed with skepticism. Matter of Nanoviricides, Inc. v Seeking Alpha, Inc., 2014 NY Slip Op 31681(U), at pp. 9-10.

For all of these reasons, it was reckless for you to rely upon the content of the "report," and you instead should have approached each and every of the assertions with extreme skepticism. In fact, given all of the "red flags" or indicia of unreliability associated with the "report," your professional obligations compelled you to take even greater steps to corroborate the assertions therein, which, as we discuss below, you apparently did not do.

  1. It seems evident that a reasonable inquiry was not conducted because even a modest investigation would have shown that the "report" allegations were false

Unfortunately for Cellceutix, rather than seeking to corroborate the assertions in the "report," it seems evident that you failed to conduct a reasonable inquiry prior to including them as facts in the complaint. We reach this conclusion because even a modest investigation would have shown that they were false.

The following chart demonstrates how a reasonable inquiry would have revealed that the allegations in the "report" and included in the complaint were false. It also suggests that the claim made by the Rosen Law Firm in the first sentence of its complaint regarding the alleged steps it took to gain personal knowledge of the allegations (quoted below) may likewise have been misleading to the court.

Allegation in Complaint:

  • 23: "… Cellceutix is run out of what appears to be an empty office building … it appears that this is nothing more than a shell corporation"
  • 22: "Defendant Menon did not earn his PhD in Pharmacology from Harvard University"
  • 22: "Brilacidin is not effective"
  • 25: Brilacidin is not effective in combating and treating: (1) ABSSSI; (2) EBSL Enterobacteriaceae; and (3) gram-negative bacteria, such as S. aureus and E. coli.
  • 25: "Incidence of sensory nerve symptoms, such as numbness and tingling of the extremities and elevated blood pressure due to unknown problems were reported as serious adverse events in 65-87% of Brilacidin-treated patients." (emphasis added)
  • 22: "Kevetrin does not activate the p-53 gene, which is a tumor suppressor"
  • 26: "Kevetrin's untold story: It does not stop cancer stem cells"
  • 26: "Kevetrin's ineffective clinical trial design"

What a Reasonable Inquiry Would Have Revealed:

  1. Review of "information readily obtainable on the Internet" prior to filing the complaint would have revealed the August 14 Boston Business Journal article "My visit to Cellceutix, the biotech that a short seller recently called a sham," demonstrating the allegation was false:
  2. http://www.bizjournals.com/boston/blog/bioflash/2015/08/my-visit-to-cellceutix-the-biotech-that-a-short.html.
  3. Review of "the defendants' public documents," "announcements made by defendant," and "press releases published by and regarding Cellceutix" would have revealed the extensive rebuttal by the Company (which included photographs) showing the allegation was false:
  4. http://cellceutix.com/cellceutix-provides-insights-to-its-four-clinical-trials-for-the-treatment-of-absssi-completed-phase-2-anti-cancer-phase-1-psoriasis-phase-2-and-oral-mucositis-in-head-and-neck-cancer-patient/#sthash.7RYBLXez.XVbiSnqH.dpbs
  5. Review of "United States Securities and Exchange Commission ('SEC') filings" would have shown that going back to 2010, the Company's 10-Ks have disclosed that "he earned his PhD in Pharmacology from Kerala University":
  6. http://www.sec.gov/Archives/edgar/data/1355250/000135525010000023/form10k.htm(2010)
  7. These 10-Ks cover the period of time of the putative class, namely purchasers between May 10, 2013 and August 6, 2015.
  8. Review of "information readily obtainable on the Internet" would have revealed that Brilacidin has not failed any clinical trials nor has the FDA taken any adverse position with respect to future approval.
  9. To the contrary, review of "information readily obtainable on the Internet" (specifically, ClinicalTrials.gov) would have revealed detailed information on the "Efficacy and Safety Study of Brilacidin to Treat Serious Skin Infections," see https://clinicaltrials.gov/ct2/show/NCT02052388?term=cellceutix&rank=5, and would revealed that the study was considered a clinical success, a fact reported at the at the European Congress of Clinical Microbiology and Infectious Diseases (ECCMID), a global peer-reviewed meeting of academic experts, scientists, and regulators, see http://cellceutix.com/wp-content/uploads/2014/06/A-Randomized-Double-Blind-Study-Comparing-Single-Dose-and-Short-Course-Brilacidin-to-Daptomycin-in-the-Treatment-of-Acute-Bacterial-Skin-Skin-Structure-Infections-ABSSSI1.pdf
  10. Review of "announcements made by defendant," and "press releases published by Cellceutix" would have revealed independent scientific evidence showing multiple scientific inaccuracies -- including that the clinical trials involve gram-positive bacteria, rather than gram-negative bacteria -- and that the allegation regarding inefficacy is false:
  11. See http://cellceutix.com/cellceutix-provides-insights-to-its-four-clinical-trials-for-the-treatment-of-absssi-completed-phase-2-anti-cancer-phase-1-psoriasis-phase-2-and-oral-mucositis-in-head-and-neck-cancer-patient/#sthash.7RYBLXez.XVbiSnqH.dpbs
  12. Review of independent scientific literature would reveal that Brilacidin recently completed a phase 2b clinical trial to treat patients with ABSSSI infections caused by S. aureus and demonstrated clinical efficacy and safety in all evaluated doses without any serious adverse events.
  13. Contrary to your knowingly false allegations, no treatment related "serious adverse events" (an important term of art) were found in the recent study.
  14. Seehttp://cellceutix.com/wp-content/uploads/2014/06/A-Randomized-Double-Blind-Study-Comparing-Single-Dose-and-Short-Course-Brilacidin-to-Daptomycin-in-the-Treatment-of-Acute-Bacterial-Skin-Skin-Structure-Infections-ABSSSI1.pdf (at page 20)
  15. Review of "information readily obtainable on the Internet" would have revealed that Kevetrin has not failed any clinical trials nor that the FDA has taken any adverse position with respect to future approval.
  16. Review of "announcements made by defendant," and "press releases published by [] Cellceutix" would have revealed independent scientific evidence showing multiple scientific inaccuracies -- including that the drug is in Phase I clinical trial, not Phase II, has not been tested on cancer stem cells, and that the trial design was a collaboration with Dana Farber -- and that the allegation regarding inefficacy is false:
  17. http://cellceutix.com/cellceutix-provides-insights-to-its-four-clinical-trials-for-the-treatment-of-absssi-completed-phase-2-anti-cancer-phase-1-psoriasis-phase-2-and-oral-mucositis-in-head-and-neck-cancer-patient/#sthash.7RYBLXez.XVbiSnqH.dpbs

A visit by an investigator (or any person) to Cellceutix headquarters would have shown that the allegation was false.

We further note here that had you investigated the most simple, yet sensational, allegation found in the "report" -- which was included in the "report" title, namely, that Cellceutix is run out of an "Empty Office" -- you would have immediately found it false. That would have and should have placed the credibility of the entire "report" in doubt, and at a minimum, placed you on notice that the subsequent allegations in the "report" could not be trusted and had to be thoroughly and independently verified, which you apparently did not do.

  1. No lawyer could have formed a reasonable belief that the complaint was well grounded in fact

Based on the foregoing, no lawyer could have formed a reasonable belief that the complaint was well grounded in either the fact or the law.

We are confident that the court will conclude that simply copying and pasting an anonymous, obviously biased posting from what is essentially an internet message board does not constitute a personal, reasonable inquiry that would satisfy Rule 11. Attorneys who have relied on far more objectively reputable sources have been sanctioned for less. See Garr, 22 F.3d at 1280 (attorneys in a securities-fraud case violated Rule 11 by relying on a newspaper article, another complaint, and another attorney).

This is even more likely given at least one New York court's view that articles or "reports" just like these should be met with skepticism by reader and treated merely as opinion. Matter of Nanoviricides, Inc. v Seeking Alpha, Inc., 2014 NY Slip Op 31681(U)(Sup Ct, New York County)(June 26, 2014), at 9-10

We also note here that there was no time constraints or emergency that would have justified anything short of a thorough due diligence, particularly given the numerous red flags inherent in the "report."

  1. No lawyer could have formed a reasonable belief that the complaint was well grounded in law

In addition to the factual shortcomings underlying the complaint, its legal allegations are likewise deficient in at least three respects. These, among other things, would be the subject of a motion to dismiss the action, which more than likely will be successful.

First, the complaint fails to allege and show that venue is proper. As you no doubt are aware, venue with regard to securities law claims under the Securities Exchange Act is controlled exclusively by the venue provision of the Act, without regard to the general venue provisions. See SST Global Technology, LLC v. Chapman, 270 F.Supp.2d 444 (2003); 15 U.S.C. §78aa; 28 U.S.C. §1391(b).

Cellceutix is located in Massachusetts. It does not transact business in New York. None of the statements you recklessly claim as false are alleged to have taken place in New York. In fact, apart from the Rosen Law Firm's address, there is nothing in the complaint to suggest that New York (let alone the Southern District of New York) is related to this dispute and that venue is proper.

Second, for many of the reasons above, the allegations in the complaint regarding securities fraud fail because they insufficiently plead falsity. Moreover, the Company has at all times properly characterized the status of its drugs and clinical trials, and courts have routinely dismissed securities claims on that basis. SeeKleinman v. Elan Corp., plc, 706 F.3d 145 (2d Cir. 2013)(rejecting plaintiffs' allegations that positive statements regarding the results of a failed Phase II drug trial were actionable); accord In re Kery Biopharmaceuticals, Inc., Securities Litigation, slip op. at 1 ("It would indeed be unjust and could lead to unfortunate consequences beyond a single lawsuit if the securities laws become a tool to second guess how clinical trials are designed and managed. The law prevents such a result; the Court applies that law here, and thus dismisses these actions.).

Third, the allegations in the complaint regarding securities fraud fail because they insufficiently plead scienter, the mental state embracing an intent to deceive, manipulate, or defraud. See Tellabs, Inc. v. Ylakor Issues & Rights, Ltd., 551 U.S. 308, 319, 323 (2007). In fact, the complaint does not contain any particular alleged facts that would give rise to a strong inference of scienter. Moreover, under New York law, allegations limited to the type of "corporate profit" motive possessed by most corporate directors and officers do not suffice. Kalnit v. Eichler, 264 F.3d 131, 138 (2d Cir. 2001).

In sum, just as the allegations in the complaint lack a well-founded basis in fact, so too do its legal claims. As such, we have no hesitation concluding that should this case move forward, a court would dismiss the claims as a matter of law, and impose sanctions in the process.

Deleted….

On that note, we wish to inform you that -- and to be clear, we do not by any means suggest that the Rosen Law Firm has been or is engaged in any impropriety beyond filing a frivolous complaint -- we anticipate providing this communication, as well as intelligence that we have uncovered showing a potential conspiracy to commit securities manipulation, to regulatory and enforcement officials at both the state and federal level.

Deleted….

ASHCROFT SULLIVAN

Alerts:

Sign-up for Cellceutix email alerts is available at http://cellceutix.com/email-alerts/#sthash.CRfqSmmY.dpbs

Cellceutix clinical trials on Clinicaltrials.gov:

https://clinicaltrials.gov/ct2/results?term=cellceutix&Search=Search

About Cellceutix:

Headquartered in Beverly, Massachusetts, Cellceutix is a publicly traded company under the symbol "CTIX". Cellceutix is a clinical stage biopharmaceutical company developing innovative therapies in oncology, dermatology and antimicrobial applications. Cellceutix believes it has a world-class portfolio of compounds and is now engaged in advancing its compounds and seeking strategic partnerships. Cellceutix's anti-cancer drug Kevetrin is currently in a Phase 1 clinical trial at Harvard Cancer Centers' Dana Farber Cancer Institute and Beth Israel Deaconess Medical Center. In the laboratory Kevetrin has shown to induce activation of p53, often referred to as the "Guardian Angel Gene" due to its crucial role in controlling cell mutations. Cellceutix is in a Phase 2 clinical trial with its novel compound Brilacidin-OM for the prevention of Oral Mucositis in patients with head and neck cancer. Brilacidin-OM, a defensin mimetic compound, has shown in an animal model to reduce the occurrence of severe ulcerative oral mucositis by more than 94% compared to placebo. Cellceutix's anti-psoriasis drug Prurisol is in a Phase 2 trial. Prurisol is a small molecule that acts through immune modulation and PRINS reduction. Cellceutix's lead antibiotic, Brilacidin, has completed a Phase 2b trial for Acute Bacterial Skin and Skin Structure Infections, or ABSSSI. Top-line data have shown a single dose of Brilacidin to deliver comparable clinical outcomes to the FDA-approved seven-day dosing regimen of daptomycin. Brilacidin has the potential to be a single-dose therapy for certain multi-drug resistant bacteria (Superbugs). Cellceutix has formed research collaborations with world-renowned research institutions in the United States and Europe, including MD Anderson Cancer Center, Beth Israel Deaconess Medical Center, and the University of Bologna. More information is available on the Cellceutix web site at www.cellceutix.com.

Forward-Looking Statements

This press release contains forward-looking statements made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 that involve risks, uncertainties and assumptions that could cause Cellceutix's actual results and experience to differ materially from anticipated results and expectations expressed in these forward looking statements. Cellceutix has in some cases identified forward-looking statements by using words such as "anticipates," "believes," "hopes," "estimates," "looks," "expects," "plans," "intends," "goal," "potential," "may," "suggest," and similar expressions. Among other factors that could cause actual results to differ materially from those expressed in forward-looking statements are Cellceutix's need for, and the availability of, substantial capital in the future to fund its operations and research and development; including the amount and timing of the sale of shares of common stock to Aspire Capital; the fact that Cellceutix's compounds may not successfully complete pre-clinical or clinical testing, or be granted regulatory approval to be sold and marketed in the United States or elsewhere. A more complete description of these risk factors is included in Cellceutix's filings with the Securities and Exchange Commission. You should not place undue reliance on any forward-looking statements. Cellceutix undertakes no obligation to release publicly the results of any revisions to any such forward-looking statements that may be made to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events, except as required by applicable law or regulation.

Contact Information

  • Contact:
    INVESTOR AND MEDIA CONTACT:
    Cellceutix Corporation
    Leo Ehrlich
    Email contact