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Investor sues Soon-Shiong, NantHealth, alleging securities law violations

March 8, 2017

A NantHealth investor filed suit in federal court this week against Dr. Patrick Soon-Shiong and his health technology company, alleging violations of federal securities laws. The lawsuit follows the publication of a STAT investigation that showed how the biotech billionaire used a philanthropic donation to steer business back to his company.

The suit was filed on behalf of a single investor; the complaint indicated that the legal team may ask a judge to expand it to a class action if additional investors come forward.

NantHealth’s stock has plummeted 35 percent since the publication of STAT’s report on Monday.

STAT’s article detailed how Soon-Shiong made a $12 million donation via three of his foundations to the University of Utah for a genetic research project. The contract was worded in a way that effectively left the university with no other choice but to spend $10 million of the gift paying NantHealth for genetic sequencing work. Several tax law experts told STAT the arrangement may violate federal tax rules against self-dealing.

NantHealth did not report the money it brought in as part of the Utah deal as revenue, which the tax experts told STAT was appropriate. But the company did count that work in a tally of tests it conducted with its signature GPS Cancer diagnostic tool.

The company told investors last November that the Utah work represented one third of the 524 GPS Cancer tests it had conducted in the third quarter of last year. But two representatives of the University of Utah told STAT that the sequencing work, which was entirely preclinical, had nothing to do with GPS Cancer, which analyzes the genetics of cancer patients’ tumors and recommends treatments.

The new lawsuit, filed in California, alleges that NantHealth’s lack of transparency about the particulars of the University of Utah deal “artificially inflated” the market price of NantHealth stock. The plaintiff would not have purchased the company’s stock at the “inflated” prices, the suit said, if the facts had been more clear.

Jen Hodson, a spokeswoman for NantHealth, did not immediately return an email and calls placed Wednesday afternoon. The company has declined to return STAT’s calls and emails since the publication of an earlier investigation that showed how Soon-Shiong has used his moonshot initiative to cure cancer to aggressively promote GPS Cancer.

Soon-Shiong is the majority owner and CEO of NantHealth. He’s also the second largest shareholder in tronc, the national newspaper chain that owns the Los Angeles Times.

Late Tuesday, the LA Times published an interview with Soon-Shiong in which he called STAT’s article “maliciously false.” Soon-Shiong told his newspaper that the contract for his gift to the University of Utah was not worded with the intention that NantHealth would win the genetic sequencing work. He was quoted saying he was “befuddled by any other motivation that could be perceived” in the donation beyond what he described as his foundations’ aim of disseminating knowledge to scientists.

Nothing in the LA Times article refuted STAT’s reporting. NantHealth has not pointed STAT to any errors in the story or asked for any corrections.

The NantHealth investor who is the plaintiff in the suit is identified in the complaint as Dona Holmberg. NantHealth’s chief financial officer, Paul Holt, is also named as a defendant.

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