(CN) - A Delaware judge declined to dismiss a shareholder suit challenging Sorrento Therapeutics board's decision to transfer valuable assets to subsidiaries.
In fiscal 2015, five Sorrento Therapeutics subsidiaries granted Sorrento directors a series of stock options in return for millions in capital funding.
Shareholders challenged the deals in court, claiming the grants were part of an illegal scheme to siphon assets away from the parent corporation for the personal benefit of its directors.
Vice Chancellor Tamika Montgomery-Reeves of the Delaware Chancery Court ruled that the transactions must pass an "entire fairness review" under these circumstances where every single member of the board received stock options and no disinterested member voted to approve the deals.
While the company defended the grants as "routine compensation pursuant to the subsidiaries' stock option plans," the grants were not disclosed as compensation in Sorrento's proxy statement.
"Instead, they were disclosed as related-party transactions," Montgomery-Reeves said. "Those allegations give rise to at least a reasonably conceivable inference of unfair process."