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Breach of Fiduciary Duty re Materials and Correspondence

Corporate officers and directors, beware of fiduciary responsibilities concerning business materials and even correspondence.

Relmada Therapeutics seeks $1.5 million from former president in breach of fiduciary duty suit

January 13, 2014, By Jon Campisi.

New York-based corporation files for breach of fiduciary duty.

Attorney David C. Burger, of the New York firm Robinson Brog Leinwand Greene Genovese & Gluck, filed the federal civil action Jan. 9 at the U.S. District Court for the Eastern District of Pennsylvania on behalf of Relmada Therapeutics against California resident Najib Babul.

Babul, the complaint states, had been acting chief executive officer and chief scientific officer at Relmada’s predecessor, TheraQuest Biosciences LLC, which was organized in late November 2000.

TheraQuest became Relmada in early February 2011, records show.

The plaintiff is a development stage pain management company with what it says is a “diversified portfolio of products for the treatment of acute, chronic and neuropathic pain.”

Babul continued to be employed as president and chief scientific officer of Relmada until his Sept. 28, 2012 resignation, the complaint states.

After Babul left the company, the suit says, Relmada discovered that he had removed scientific materials, including, but not limited to, clinical data, exchanges of correspondence with the FDA, study protocols, manufacturing documents, and correspondence with investigators, as well as an accounting history of Relmada, including tax filings, bank statements, invoices and receipts dating back to the inception of the company.

In early January of last year, Relmada’s attorney sent Babul a letter demanding the return of the removed materials, after which some of the items were returned to the defendant, but others remained missing, according to the lawsuit.

A second demand letter that was sent out informing Babul that some materials and records were still missing was met with no “substantive response” by the defendant, the suit says.

In a third demand letter, the plaintiff’s counsel noted that auditors had discovered approximately $1.5 million in questionable expenses incurred by Babul during his management of the company from 2004 to 2012.

That final letter also stated that Babul had asserted in certain documentation in 2004 that he had made a capital investment of about $1 million into TheraQuest’s various drug development projects, but that the company couldn’t find evidence of any funding “anywhere near that magnitude,” the complaint reads.

The third demand letter went on to state that, “Based on our client’s analysis, it appears that you spent at least $1.4 million of a total of $3.8 million raised (or 40%) on expenses that were not in furtherance of the business mission.”

Babul failed to provide any “substantive response” to that third demand letter, the lawsuit states.

“As CEO of TheraQuest and later as President of Relmada, Babul owed fiduciary duties not to expend TheraQuest and Relmada funds for personal expenses completely unrelated to his duties to those entities,” the complaint states.

The lawsuit also claims that Babul concealed personal expenditures, which came in the form of a check marked “owner draw” in the amount of $85,000, and through an unexplained $50,000 online purchase.

“When Babul resigned from Relmada on or about September 28, 2012, Babul continued the concealment of his prior breaches of fiduciary duty by absconding with the financial records of Relmada,” the complaint reads. “Despite delivery of the First Demand Letter, the Second Demand Letter and the Third Demand Letter, Babul continued to conceal his breaches of fiduciary duty.”

Relmada seeks damages in the amount of $1.5 million, together with other court relief deemed just and proper.

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