(CN) - Panasonic claims in a derivative action that CardioNexus Corp. duped it into investing millions of dollars into the company with allegedly overstated valuations of software undergoing testing for FDA approval related to a new heart disease detection device.
Panasonic Corporation of North America claims that it invested in CardioNexus, which was involved in the optimization and marketing of an ultrasound heart disease detection and prevention device called AIDA. Panasonic claims it developed the product independently and "provided most of the capital to fund the project as well as substantial staffing and know-how to customize and optimize this new technology."
Panasonic claims it has invested more than $6.5 million, while CardioNexus put up about $700,000 of its own cash into the product. Panasonic claims it was "fraudulently induced into investing in CardioNexus" by defendants Leo Womack and Morteza Naghavi "who grossly misrepresented the value of certain software that they proposed to transfer to CardioNexus ... as well as the status of clinical testing required to obtain Food and Drug Administration clearance for that software." Plaintiff claims defendants had, at one point, stated that the software was worth a million dollars, but just mere months after a huge injection of cash from Panasonic, an auditor claimed the software was worth just $40,000. The complaint states that "CardioNexus had not incurred historical costs ... to justify the million dollar valuation."
When investing in October 2010, the complaint states, "Panasonic, CardioNexus and CN LLC agreed on a budget, which delineated how Panasonic's investment was to be spent.The Stock Purchase Agreement contained an express provision requiring the funds invested by Panasonic to be used as set forth in the budget."
Since the initial investment in 2010, CN LLC and Panasonic have been the only two shareholders, with CN as the majority stakeholder. Plaintiff claims that much of its $6.5 million investment went to paying defendants' salaries and to legal fees - which Panasonic believes were paid to prepare for arbitration against itself. Defendants have refused to allow an audit, and plaintiff alleges that "on May 30, 2012, during a meeting with Panasonic, defendants demanded that Panasonic re-work the Master Agreement and corporate structure to immediately 'buy out' all of defendants' ownership of the Company at a substantial profit for CN LLC. Defendants also demanded that CN LLC receive 51 [percent] of the Company's valuation three years after the advanced version of AIDA receives clearance from the FDA."
Panasonic claims that it would take on all the financial risk from such a deal and when the plot failed, defendants allegedly "stepped up their campaign to extort money from Panasonic by taking actions that will wipe out the value of Panasonic's substantial financial investment therein and destroy the Company." Plaintiff alleges that the firm locked out Panasonic employees from the facility and "hobbled the Company by interfering with Panasonic's ability to support the business, stymying research and development on AIDA Advanced." Defendants allegedly got rid of the company's CEO when he refused to go along wither their plans, according to the complaint.
Plaintiff is represented by Gregory P. Williams, John D. Hendershot and Scott W. Perkins of Richards, Layton & Finger P.A. in Wilmington, Del.