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Bankruptcy Reminds Companies of the Need for Registered Broker-Dealers in Capital Raising Efforts
Last year, Neogenix Oncology Inc., ("Neogenix" or "Company") a biotech firm based in Rockville, Maryland and New York, surprised investors by filing for Chapter 11 bankruptcy protection. [1] To those in the biotech industry, Neogenix, by all accounts, was a successful company with more than 500 shareholders and what seemed to be numerous clinical developments. Perhaps even more surprising than the actual Chapter 11 filing was the reason behind it. It seems an inquiry by the U.S. Securities and Exchange Commission in late 2011 into the Company’s capital raising efforts uncovered payments by the Company to unlicensed individuals (i.e., individuals who should have been licensed with a registered brokerdealer) who assisted in the Company’s capital raising. Reliance on unregistered persons resulted in "significant potential rescission liability and the inability to present audited financial statements" leaving the Company "unable to raise funds."
By Amy Natterson Kroll, Carl A. Valenstein and Margaret R. Blake of Bingham McCutchen LLP
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