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CytoDyn Board Battle Opens Second Front as Proxy Sponsors Sue

Aug. 26, 2021, 9:22 PM

The legal fight for control of CytoDyn Inc. spread to a second forum, when investors backing a dissident slate of board nominees—whom the drugmaker sued three weeks ago in federal court in Delaware—filed suit in state court against the company and its current directors.

The lawsuit was filed Wednesday in Delaware Chancery Court by Paul A. Rosenbaum, Jeffrey P. Beaty, and Arthur L. Wilmes, who are leading a proxy battle aimed at taking over the board at the company’s annual meeting in October. It targets CytoDyn, CEO Nader Z. Pourhassan, and five other directors.

The lawsuit, which refers to the board as “besieged and corrupt,” accuses its members of an “unlawful attempt to have the company thwart a fair proxy contest” so they can “entrench themselves in self-serving positions” and “continue bestowing bloated benefits on themselves.”

The board’s “do-whatever-it-takes strategy” involved waiting “a full month after timely receipt of the nominating notice” before seeking to “ambush” the proxy sponsors with “purported deficiencies” under CytoDyn’s bylaws, according to the complaint.

That “means the company needed to think long and hard about” its “contrived arguments,” the lawsuit says. “This baseless maneuver should be seen for what it is.”

CytoDyn declined to comment specifically on the complaint Thursday, but it has issued several press releases recently assailing the dissidents and laying out its own position.

The company urged shareholders Wednesday “to ignore” proxy cards from Rosenbaum and his affiliates, warning investors their votes may not be “counted at all” if they support the dissidents, whose filings “failed to comply with the company’s bylaws.”

“Therefore, the group’s director nominations will be disregarded, and no proxies or votes in favor of its nominees will be recognized or tabulated,” the statement said.

CytoDyn also issued a statement Aug. 19 portraying the proxy effort as a “shadow campaign” by investors tied to “a secretive investment fund” and other unidentified interests whose “motivations and goals” are “unclear.”

The company’s earlier lawsuit—filed Aug. 5 in the U.S. District Court for the District of Delaware—sounds similar themes.

It accuses the proxy sponsors of violating federal securities laws “in myriad ways” with their statements seeking to oust the current board, including by hiding the relevant identities of some affiliates—like former board members—and trying to drum up support through anonymous Reddit posts.

But those claims “clearly” reflect “forum-shopping to avoid this courthouse,” where CytoDyn and its board have recently been hit with adverse rulings and a harsh rebuke in another case, the Chancery Court lawsuit says.

Cause of Action: Section 111 of the Delaware General Corporation Law.

Relief: A declaratory judgment and an injunction.

Attorneys: The dissidents are represented by Greenberg Traurig LLP and Baker Botts LLP. CytoDyn is represented in federal court by Potter Anderson & Corroon LLP and Sidley Austin LLP.

The case is Rosenbaum v. CytoDyn Inc., Del. Ch., No. 2021-0728, complaint filed 8/25/21.

To contact the reporter on this story: Mike Leonard in Washington at mleonard@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Peggy Aulino at maulino@bloomberglaw.com

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