Ontario Court Upholds Ruling Against FSD Pharma's Former CEO

The company's also trying to get into the de-buzzing game.

The Ontario Superior Court of Justice upheld a decision on Thursday in favor of Canadian biopharmaceutical FSD Pharma Inc. (NASDAQ: HUGE) against its former CEO Dr. Raza Bokhari.

In May, an arbitration decision directed Bokhari to pay FSD Pharma around C$2.81 million over undisclosed disagreements. Bokhari, now the CEO of Medicus Pharma Ltd., contested the award, but that claim was rejected by the court.

The court’s judgment highlighted Bokhari’s alleged mismanagement of funds, specifically accusing him of trying to transfer $12 million from FSD Pharma’s Canadian bank to an American account under his control.

“In particular, by knowingly and flagrantly breaching the terms of the McEwen J. Judgment and the Hainey J. Injunction, in retaining and paying Santorum, by attempting to divert USD $12 million from FSD’s Canadian bank account to the Bryn Mawr account in the U.S. over which he had control and by attempting to divert funds in the FSD Wheels Up account to his own use, Bokhari breached in a material way, material provisions of the Employment Agreement,” the judgment said.

Challenging the arbitrator’s decision, Bokhari claimed insufficient reasoning for his portrayal as lacking credibility. The court, however, stood by the arbitrator’s judgment, suggesting they found Bokhari’s explanations unconvincing.

Following the ruling, FSD Pharma is set to recover the C$2.8 million awarded in May, alongside an interest rate of 6%. In addition, Bokhari was ordered to compensate FSD Pharma $175,000 for legal expenses.

A previous deposit by Bokhari of $150,000 as security has been forfeited, and he owes an additional $25,000 for motion-associated costs.

Servicing a sober buzz

The company also signed a deal with Celly Nutrition Corp., signaling its intention to distribute a portion of its Celly Nu holdings to its own shareholders.

Celly Nu sells drinks that help accelerate alcohol metabolism to reduce one’s breath alcohol levels. The company, still in its early stages and not yet generating revenue, is directing its efforts towards the dietary supplement market. According to its website, it wants to leverage its intellectual properties to make recreational and consumer prototypes designed to mitigate the effects of alcohol inebriation.

Under the agreement, FSD Pharma will recommend that holders of its Class A and Class B shares, as well as certain warrant holders, receive shares of Celly Nu. For every share of FSD Pharma held, an investor would receive one share of Celly Nu. The company estimates a distribution of about 45.7 million Celly Nutrition shares, while retaining around 154.3 million shares for itself.

The distribution proposal will be discussed in an upcoming special meeting, the company said. Subject to approval from investors, the transaction will take place via a court-approved plan.

The company said that investors’ proportionate ownership in FSD Pharma will be unchanged by this distribution. Adjustments will be made to other types of FSD Pharma investments, such as options and non-distribution warrants, in line with the transaction’s terms.

Adam Jackson

Adam Jackson writes about the cannabis industry for the Green Market Report. He previously covered the Missouri Statehouse for the Columbia Missourian and has written for the Missouri Independent. He most recently covered retail, restaurants and other consumer companies for Bloomberg Business News. You can find him on Twitter at @adam_sjackson and email him at adam.jackson@crain.com.

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