Hello, Sorrento fam!

Great write up by Alexander Gladstone of the Wall Street Journal, as follows: 

“Sorrento Therapeutics Lawyers Battle Bankruptcy Fraud Allegations
Latham & Watkins and Jackson Walker lawyers say that a bank account and mailbox created days before Sorrento’s bankruptcy justify filing in Houston court

By Alexander Gladstone 
Feb. 23, 2024 3:58 pm ET|
 
Lawyers for biopharmaceutical company Sorrento Therapeutics disputed allegations that they committed bankruptcy fraud, saying that a bank account and mailbox created in Texas justified a chapter 11 filing in the state days later.

The U.S. Justice Department’s bankruptcy watchdog alleged last week that the bankruptcy filed in Houston by Sorrento subsidiary Scintilla Pharmaceuticals in February 2023 falsely represented that its principal assets and business are in Texas when it is actually based in San Diego. A Sorrento shareholder had separately made allegations in court that the company’s lawyers committed fraud by filing the case in Texas.

San Diego-based Sorrento had used Scintilla’s chapter 11 petition in the U.S. Bankruptcy Court in Houston as the basis to file its own petition in that court. The U.S. trustee for the Southern District of Texas said that the Sorrento and Scintilla cases should either be dismissed or transferred out of state, noting that Scintilla is a Delaware-incorporated company that made repeated representations to the California secretary of state in June 2023 that its principal address was in San Diego.

Sorrento’s lawyers from Latham & Watkins and Jackson Walker said in their Wednesday rebuttal that the Scintilla bankruptcy petition truthfully answered the form when checking a box stating that the “debtor has had its domicile, principal place of business, or principal assets in this district for 180 days immediately preceding the date of this petition or for a longer part of such 180 days than in any other district.”

They said that Scintilla was a dormant, nonoperating entity, and that other than opening the bank account and mailbox, it hasn’t had operations or assets since 2019. Therefore, the bank account and mailbox opened days before the filing constitute the company’s principal assets and place of business because their existence there amounted to the longer part of the 180 days preceding the filing than in any other district.

“The factual record clearly shows that Scintilla’s petition was not fraudulent and that there was no perjury; venue here was and is proper,” the Latham and Jackson Walker lawyers said.
On Feb. 10, 2023, Sorrento wired $60,000 to a Scintilla bank account at, which had headquarters in New York and a local office in a Houston office suite, according to a document filed by Sorrento’s lawyers. 

Two days later, Jackson Walker partner Veronica Polnick set up a mailbox at a UPS store in the Woodlands, a Houston suburb. The next day, Scintilla and Sorrento filed their chapter 11 petitions in Houston, signed by Jackson Walker partner Matthew Cavenaugh and the chief executive of both Sorrento and Scintilla, Henry Ji.

The U.S. Trustee alleged that the Signature bank account that Sorrento had transferred $60,000 to was in New York rather than Texas. Sorrento’s lawyers disputed that, claiming that at the time of the filing, the cash was at Signature’s local office in Houston. 

Timothy Culberson, the shareholder who earlier presented findings that he said showed Scintilla’s principal place of business was in San Diego rather than Texas, filed another motion this week seeking monetary sanctions against Latham and Jackson Walker. In the motion, he says metadata in the Scintilla chapter 11 petition that he alleges is fraudulent shows a Latham associate was the document’s author.
Culberson cited an affidavit from former Sorrento Chief Financial Officer Elizabeth Czerepak saying Latham and Jackson Walker lawyers presented a plan in a meeting on Feb. 11, 2023, to file for bankruptcy in the Southern District of Texas.

Czerepak said in the affidavit “I didn’t understand why we were filing in Texas, since I believed Scintilla to be a Delaware corporation with an address in California,” and that Ji had responded that “the law firms knew what they’re doing, and this is the best plan for us.”
Culberson said on Thursday in a response to Sorrento’s rebuttal that the asset in question is the cash in the checking account, not the account itself. The cash had only been in the account for three days before Scintilla filed, compared with 177 days preceding the filing that it had been in a Sorrento account that wasn’t located in Texas, he said.

The Sorrento and Scintilla bankruptcy cases were initially assigned to Judge David R. Jones. He resigned from the bench last year after a federal court found that he had been in a romantic relationship with another Jackson Walker bankruptcy partner, Elizabeth Freeman, who had been working on cases before him and billing hours, which he approved, without either of them disclosing their relationship. Following Jones’s resignation, the case was assigned to Judge Christopher Lopez.

The U.S. Trustee is also challenging roughly $13 million of fees that Jackson Walker earned over at least 26 cases, not including Sorrento, while Freeman was both a Jackson Walker partner and living with Judge Jones. Freeman resigned from Jackson Walker in 2022 and established her own law firm. She wasn’t officially retained by Sorrento following its bankruptcy filing, but her name appears in the billing records of Jackson Walker and other firms representing the company.

Write to Alexander Gladstone at 
alexander.gladstone@wsj.com (mailto:alexander.gladstone@wsj.com)”

GLTAL!

Kimberly