FSD Pharma Inc. (Nasdaq: HUGE) (CSE: HUGE) hired Houston-based litigation firm Christian Attar Law, along with Alan M. Pollack of the New York City law firm Warshaw Burstein LLP, to co-lead an investigation of any potential naked short selling or other market manipulation of common shares of FSD Pharma.
According to Morningstar data, in May the amount of shorted shares was 494,000 and by June that had fallen to 415,000. The stock has fallen from a year’s high of $2.10 to $0.61 and was lately selling at $1.18.
It’s just the latest troubled chapter, as this psychedelics company finds itself in legal battles with its former CEO Dr. Raza Bokhari. Just last week FSD Pharma appointed co-founder Zeeshan Saeed as chief executive officer. Saeed held the position of president since 2019, was elected CEO via unanimous vote at a meeting of the board of directors held on June 29. He succeeds fellow FSD Pharma co-founder Anthony Durkacz, who has been serving as the interim CEO since July 2021.
Saeed made it clear that the company was going to focus on fewer products in order to get the company to become revenue producing. The decision was made to concentrate on the development of of its Unbuzzd product for consumer and hospital markets and Lucid-MS for neurodegenerative disorders.
“The company is confident this strategy is the shortest path to revenue and significant value creation, underscored by the impressive team leading the advancement of UNBUZZD and the compelling laboratory data showing the ability of Lucid-MS to positively effect demyelination,” the company said in a statement. “Pursuant to this strategy, the company will conserve/re-allocate capital by immediately putting on hold and/or terminating any further clinical development of its proprietary ultra-micronized PEA formulation for the treatment of inflammatory diseases and Lucid-Psych for mental health disorders.”
Bokhari received more than 1.1 million shares as awarded by the board and stated that he received those shares as compensation for his CEO work. However, a new board at the company decided those shares were in violation of the Ontario Business Corporations Act and issued a resolution cancelling those
shares. Bokhari fought back in court saying his employment contract stated he could receive compensation in the form of shares. That case was sent to arbitration in 2021.
Bokhari is seeking to set aside the Arbitral Award issued by Arbitrator J. Douglas Cunningham in November 2022. He alleges that Cunningham and FSD Pharma’s attorneys – Blake, Cassels & Graydon LLP – did not disclose past and ongoing business relationship between themselves.
“Blake’s makes a claim on their website that they are ‘adept at selecting the right arbitrators,'” Bokhari said.
In June, Bokhari filed two new claims against FSD Pharma. The statement read, “The two matters filed with the Ontario Superior Court of Justice seek damages from FSD Pharma alleging breach of his employment contract and for tortious and intentional interference with economic relations during and subsequent to Bokhari’s tenure as FSD’s Executive Chairman and CEO. The filings further claim negligence, misrepresentation and other causes on the part of FSD’s founders, Anthony Durkacz and Zeeshan Saeed before, during and after the proxy fight that ultimately led to his constructive dismissal in 2021.”
Bokhari claims the fight began when Bokhari opposed Durkacz and Saeed’s demands to acquire Lucid Psycheceuticals Inc., a shell company without any clinical stage products in which Durkacz had a significant financial interest – something Durkacz initially did not fully disclose.
Bokhari is now the managing partner of RBx Capital LP and is nominated as the executive chairman and CEO of Medicus Pharma Ltd., a biotech company developing non-invasive therapies to treat cancerous melanomas. The company is expected to begin trading on Toronto Stock Exchange TSXV.
FSD Legal Woes
In addition to the disputes outlined above, FSD Pharma was recently sued for $53,047,000 by GBB Drink Lab in United States District Court, District of Florida, for misappropriating trade secrets and breaching non-disclosure agreements.
The claim relates to alleged actions engaged in by Saeed, Durkacz, and others at FSD Pharma after Bokhari’s departure from the company.