BioErgonomics, Inc. Securities Litigation

On October 20, 2010, shareholders who had invested over $30 million in BioErgonomics, Inc. (“BioE”) filed a Complaint in Minnesota state court, alleging that the Company’s former officers had engaged in an asset transfer which rendered their entire investment worthless. BioE is a small, privately held biomedical company based in Vadnais Heights, Minnesota. The company designs, develops and commercializes human umbilical cord blood stem cells. Many of the shareholders were drawn to the company based upon its commitment to use umbilical cord stem cells and because the Roman Catholic Church has publicly supported the use of these types of cells for drug discovery and therapeutic research.

The Complaint alleges that in October of 2009, BioE was worth at least $19 million. However, the company defaulted on $4.6 million in loans to certain board members and, without following proper and lawful corporate procedures, certain BioE “insider” directors fraudulently conveyed $19 million in company assets to set up a new company. That new company was referred to as new Bio: it continued in the same business with the same employees, same website, and in the same location. The outcome of the asset transfer was to put the original BioE out of business and eliminate the shareholders’ entire investment of $30 million in stock. But the officers responsible for the asset transfer are now full owners of the entire new company. The shareholders bring this proposed class action on behalf of 463 former BioE shareholders owning almost 20 million shares of original BioE stock that were rendered worthless by the various officers’ conduct.

Specifically, the shareholders have alleged that the $19 million asset transfer in satisfaction for $4.6 million in loans was a fraud, and constituted a breach of fiduciary duties owed them by the BioE board members and directors who took the value of Old BioE and reconstituted it into New BioE. The outcome of this conduct, the shareholders allege, is that former board members now fully own a prospering company and the shareholders are left empty-handed, shut out of a cutting-edge business. New BioE now owns over 30 patents previously owned by the original company, with over 40 new patents in the pipeline; based on recent commercial developments and FDA approvals for a stem cell product called PrepaCyte-CB, the market for new BioE products is expected to approach $500 million world-wide over the next several years.

In The News

Case Progress in Court

On November 24, 2010, the BioE defendants filed a motion to dismiss, asking the Court to dismiss all of the former shareholders’ claims brought in their lawsuit. The shareholders opposed that effort. A hearing was held on January 6, 2011 and the Court subsequently issued an Order denying defendants’ request. All of the shareholders’ claims survived and the case then was allowed to proceed to the next phase of litigation, which includes document production, depositions and the filing of a formal request that the action be certified by the Court as a class action.

Throughout the summer of 2011, the parties engaged in the discovery process, with each proposed class representative sitting for a deposition and plaintiffs’ counsel taking the deposition of each of the named defendants. The parties also engaged experts to assist the Court and potential jury with issues of valuation and proper conduct for officers and directors.

The parties also briefed the Court on the certification issue and presented their respective positions to the Court at a hearing. On September 9, 2011, the Court granted the shareholders’ request and certified the following Class:

All non-insider persons and entities who held common or preferred stock in BioErgonomics, Inc. f/k/a/ BioE, Inc. on November 9, 2009. Excluded from the Class are defendants, current officers and directors of BioE, LLC, members of their immediate families and their legal representatives, financial representatives, heirs, successors and assigns.

Defendants filed a motion for summary judgment. The court granted the motion on February 8, 2012, dismissing all of the shareholders’ claims. The shareholders are considering appealing the court’s order.

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