PHILADELPHIA – A New Jersey-based health care corporation has filed suit against its former President and CEO, alleging he breached his fiduciary duty and failed to disclose a prior felony conviction, among other charges.
On Nov. 18, the Estate of ScripsAmerica, Inc., initiated legal action against Robert Schneiderman, claiming the company’s former chief executive committed illegal actions during his tenure leading the corporation.
Schneiderman incorporated ScripsAmerica under Delaware law in 2008, serving as both the CEO and Chairman of the Board of Directors. ScripsAmerica functioned as a publicly-traded company for most of its existence, subject to financial reporting and the laws of the Securities and Exchange Commission (SEC).
According to the complaint, Schneiderman was “a convicted felon of a crime involving moral turpitude with a defrauded victim (involving welfare fraud and forged documents) in 1989 by the Commonwealth of Pennsylvania.” The complaint says this conviction was concealed from ScripsAmerica, its Board of Directors, the SEC and the Financial Industry Regulatory Authority (FINRA).
With Schneiderman at the helm, the company sustained losses and little forward momentum through 2013, and the complaint specifically pertains to events in the company’s history between 2013 and 2015 – during which time, Schneiderman operated ScripsAmerica “with little or no input from any member of the Board of Directors.”
Furthermore, the complaint states though Schneiderman was “charged with the duty of supervising corporate affairs and making reports to the directors and stockholders of ScripsAmerica”, a duty he allegedly ignored (along with the role of the Board of Directors) in overseeing company direction.
First, the complaint states Schneiderman allegedly negotiated a stock-transfer agreement in November 2013 with Ironridge Global IV, Ltd., “a British Virgin Islands entity which was in the business of skirting the securities laws by making loans to public companies and being paid in stock in ‘court approved’ transactions, which created free trading stock under an obscure and much-debated exemption to the securities laws.”
Per this agreement, Ironridge was to satisfy $686,000 of ScripsAmerica debt in exchange for the issuance of ScripsAmerica stock, subject to a potentially-unlimited “adjustment” mechanism in Ironridge’s favor.
Over a three-month period from November 2013 to February 2014, the complaint says Schneiderman delivered 10.2 million shares of ScripsAmerica stock to Ironridge – despite the shares being worth $1.2 million, far more than the agreed-upon ScripsAmerica debt amount of $686,000 to be satisfied.
When Ironridge demanded more stock, Schneiderman sued Ironridge in May 2014, claiming it defrauded him and violated securities laws. This federal lawsuit was ultimately dismissed with prejudice.
However, a California court issued an injunction preventing any further sale of ScripsAmerica stock, before Ironridge received an additional 87 million shares. Ironridge would file other lawsuits related to this matter for damages and malicious prosecution, the defense costs of which to ScripsAmerica have exceeded $2 million and continue to accumulate.
After previously initiating the litigation against Ironridge, Schneiderman signed and gave to Ironridge in June of this year an affidavit which contrarily claimed Ironridge was not guilty of any financial misconduct and had complied in its agreement with him.
“If his June 2016 affidavit were true, Schneiderman recklessly and destructively cost ScripsAmerica over $2 million by wrongly involving ScripsAmerica in litigation he knew was improper and based on unfounded allegations,” the complaint reads. “In any case, the unauthorized Ironridge deal, the entry into which was negligent and grossly reckless, the sine qua non of which was a false sworn statement by Schneiderman filed with the California court, caused serious and catastrophic damage to ScripsAmerica.”
Per the complaint, Schneiderman also allegedly oversaw a large-scale insurance fraud and kickback scheme beginning in 2014, involving an acquired pharmacy in Clifton, N.J. called Main Avenue – which acted as a ScripsAmerica subsidiary and generated millions of dollars in revenue from the sale of pain-relieving creams paid for by insurance money.
In reality, marketers allegedly “rubber-stamped” prescriptions with a physician’s signature, in exchange for receiving a large portion of the insurance money proceeds, sometimes as high as 70 percent. Essentially, marketers used the business as a mill to milk millions of dollars in insurance money, while not collecting copays or deductibles owed by patients.
Despite advice to the contrary, Schneiderman allowed this practice to continue operating without imposing internal corporate controls over these activities. It led to a federal criminal investigation (which remains pending) involving reported violations of fraud and anti-kickback laws, which subsequently destroyed the business at Main Avenue and rendered it valueless.
Schneiderman also reportedly entered into consulting agreements without receiving approval from the Board of Directors, such as one concerning promotion and investor relations with a Joe Zampetti for $4,000 per month over a time period of 18 months. Additionally, Schneiderman promised ScripsAmerica stock shares to other third parties, including creditors from whom Schneiderman had previously solicited loans.
The complaint also accuses Schneiderman of concealing the full extent of his financial misconduct when negotiating his severance agreement and associated release in June 2015, leading to supposed losses of millions of dollars in the process.
The plaintiff seeks damages, attorneys fees and costs, pre- and post-judgment interest and other relief the Court deems just and appropriate for breach of fiduciary duty, plus a declaration that any release in favor of Schneiderman is invalid.
The plaintiff is represented by Albert Anthony Ciardi III and Daniel Sean Siedman of Ciardi Ciardi & Astin in Philadelphia and Jeffrey B. Crocket of Coffey Burlington in Miami.
The defendant has not yet secured legal counsel, according to Court records.
U.S. District Court for the Eastern District of Pennsylvania case 2:16-cv-06081
From the Pennsylvania Record: Reach Courts Reporter Nicholas Malfitano at nickpennrecord@gmail.com