A group of 13 shareholders of biopharmaceutical tech company Sorrento Therapeutics allege in a new lawsuit that Dallas-based Jackson Walker’s decision to file its bankruptcy case in the Southern District of Texas was done to enrich the firm at the expense of the shareholders.
The allegations stem from a bankruptcy scandal involving a previously undisclosed romantic relationship between a former Jackson Walker bankruptcy partner, Elizabeth Freeman, and a then-sitting bankruptcy judge, David Jones, that rocked the Southern District of Texas and resulted in Jones’ resignation from the bench. In the 43-page lawsuit filed Friday in the Southern District of California, the shareholders allege that the decision to file “fraudulent” bankruptcy proceedings for Sorrento — a Delaware corporation headquartered in San Diego — in the Southern District of Texas “would never have” happened “but for the unlawful actions committed by defendants as described herein.”
The lawsuit, which also names as defendants — Sorrento’s former CEO Henry Ji, M3 Advisory Partners, Sorrento’s former Chief Restructuring Officer Mohsin Meghji and former members of the company’s board of directors — brings claims for violations of the Racketeering Influenced Corrupt Organizations Act, breach of fiduciary duty and conspiracy.
According to the lawsuit, in 2019 and 2020, the company’s board “rejected multiple buyout offers ranging from a half billion to a billion dollars for the company’s immature assets.” After rejecting a $1 billion offer from a private equity firm in early 2020, according to the lawsuit, the board stated it made the decision because the deal “significantly undervalues the company and is not in the best interest of shareholders.”
The shareholders allege the defendants used an adverse $175 million arbitration judgment against Sorrento, issued in December 2022, was “a pretext to file a sham bankruptcy in a bankruptcy forum that enabled defendants to control the bankruptcy proceedings in the unlawful and wrongful manner described herein and manipulate the outcome to ultimately benefit Ji and the other defendants, which caused significant damage to plaintiffs.”
Before the bankruptcy petition was filed in February 2023, the shareholders allege that it was “apparent” that a restructuring or financing process wasn’t necessary.
“Despite these readily apparent facts, Ji used willing and able co-conspirators who were handsomely rewarded with over $50 million in direct fees,” the suit alleges, noting Jackson Walker and M3, a defendant company where Meghji was managing partner, received more than $13.6 million “for working in concert with Ji and the Sorrento board of directors to use an ethically-compromised bankruptcy forum that would allow Ji to fraudulently obtain control of Sorrento’s assets at the end of the bankruptcy, paying a fraction of what the assets were actually worth.”
The shareholders allege that to make it appear that Sorrento had assets in Texas, a former Jackson Walker bankruptcy partner, Veronica Polnick, rented a mailbox at a UPS in The Woodlands on behalf of Sorrento’s subsidiary two days before the bankruptcy was filed and directed that $60,000 be wired from a Sorrento account to a bank account for the subsidiary in Houston.
The lawsuit also alleges that in April 2022, Meghji and his firm, M3, mailed invitations to “a private party at a swanky New York restaurant, Le Bernardin, touting that Chief Judge Jones and another colleague on the Houston bankruptcy court bench, Judge Christopher Lopez, would be guests of honor.” Meghji and M3 were later chosen by Ji and the Sorrento board of directors to serve as chief restructuring officer and financial advisor in Sorrento’s bankruptcy.
“Bankruptcy court records show that Judge Lopez was initially assigned the Sorrento bankruptcy in February 2023, but Chief Judge Jones then reassigned it to himself,” the lawsuit alleges.
The plaintiffs are represented by Bradley P. Boyer, Victoria H. Buter and Thomas H. Dahlk of Kutak Rock.
Counsel for the defendants had not filed an appearance as of Tuesday. A spokesman for Jackson Walker declined to comment Tuesday.
The case number is 3:26-cv-02113.