Bankrupt ICU Medical Sues Investment Firm : Litigation: The federal racketeering lawsuit accuses the San Francisco company and several ex-ICU officials of conspiring to gain control of ICU and its patents.
ICU Medical Inc., a small, bankrupt biotechnology firm, said Monday that it has filed a federal racketeering lawsuit that accuses several former company officials and a San Francisco investment firm of conspiring to gain control of the firm and its patents.
ICU’s suit, filed Friday in U.S. District Court in Santa Ana, seeks at least $25 million in punitive damages and an unspecified amount of actual losses. The suit accuses Montgomery Securities and an affiliate, Montgomery Medical Ventures, former ICU chief executive Winslow P. Freeman and several former ICU directors of fraud, breach of fiduciary duty and violations of the Racketeer Influenced and Corrupt Organizations Act, known as RICO.
Officials at Montgomery Securities could not be reached Monday for comment.
Michael Coffino, an attorney for Montgomery Medical Ventures, said the suit was “totally without merit, malicious and was brought as a misguided negotiation tactic to try to settle our bankruptcy claims.”
Irvine-based ICU owes Montgomery Medical Ventures about $5 million, Coffino said. ICU had hired Montgomery Securities and Montgomery Medical Ventures to raise capital for the company.
Dr. George Lopez, who founded ICU in 1984, contended that the firm’s value lies principally in several of its patents, which he said include technology to prevent the transmission of AIDS and other infectious diseases from accidental needle punctures.
Lopez said in an interview that the suit focuses on events that occurred at ICU after he left the company in October, 1986, to take an extended cruise around the world.
Lopez’s suit contends that Montgomery Medical Ventures provided loans to ICU that it realized were beyond the ability of the fledgling company to repay.
Shortly before he and his family left on their cruise, Lopez said, ICU had no significant debt, had between $3 million and $5 million in the bank, employed 14 people and was operating at “break-even.”
The company’s future seemed bright at the time, he said, because it had signed an agreement with Baxter-Travenol, a major medical products concern, to distribute its “stickless needle.”
Lopez said the firm’s troubles began when Montgomery Securities agreed to act as an exclusive agent in the private sale of ICU stock. According to the lawsuit, Montgomery Securities persuaded ICU management to overexpand its production capacity. The cost of that expansion drove the company into the red, the suit said.
Meanwhile, Lopez said, Baxter informed the company that it was having difficulty selling all of the ICU product that it was being shipped and said it wouldn’t be ordering more for many months.
Unable to sell any of ICU’s stock, Montgomery Securities sought assistance from Montgomery Medical Ventures, which in turn provided $3 million in loans to tide the company over until it could raise capital. But the attempts to sell ICU stock never bore fruit, Lopez said.
Lopez said that in August, 1988, when he was vacationing on a Caribbean island, he received an emergency call from some ICU shareholders who told him the financing plans had collapsed and that they feared the loss of their investments. Later, he said, the company’s creditors forced the firm into bankruptcy.
Lopez said the shareholders removed the management of ICU and hired him back as chief executive. He said he slashed the staff from more than 200 people to 14, moved to a smaller facility and changed the company’s business emphasis.
He said the company is now operating profitably and trying to reorganize under Chapter 11 of the Federal Bankruptcy Act.
