XML 23 R13.htm IDEA: XBRL DOCUMENT v3.5.0.2
Legal Proceedings
9 Months Ended
Sep. 30, 2016
Commitments and Contingencies Disclosure [Abstract]  
Legal Proceedings
Legal Proceedings
The Italian Tax Authority, or the ITA, issued notices of assessment to CTI (Europe) based on the ITA’s audit of CTI (Europe)’s VAT returns for the years 2003, 2005, 2006 and 2007, or, collectively, the VAT Assessments. The ITA audits concluded that CTI (Europe) did not collect and remit VAT on certain invoices issued to non-Italian clients for services performed by CTI (Europe). We believe that the services invoiced were non-VAT taxable consultancy services and that the VAT returns are correct as originally filed. We are defending ourselves against the assessments both on procedural grounds and on the merits of the case, although we can make no assurances regarding the ultimate outcomes of these cases. As of December 31, 2012, we reversed the entire reserve we had previously recorded relating to the VAT Assessments after having received favorable Provincial Tax Court rulings. The current status of the legal proceedings surrounding each respective VAT year return at issue is as follows:
2003. In June 2013, the Regional Tax Court issued decision no. 119/50/13 in regards to the 2003 VAT assessment, which accepted the appeal of the ITA and reversed the previous decision of the Provincial Tax Court. In January 2014, we were notified that the ITA requested partial payment of the 2003 VAT assessment in the amount of €0.4 million (or $0.6 million), which we paid in March 2014. We believe that the decision of the Regional Tax Court did not carefully take into account our arguments and the documentation we filed, and in January 2014, we appealed such decision to the Italian Supreme Court both on procedural grounds and on the merits of the case.
2005, 2006 and 2007. The ITA has appealed to the Italian Supreme Court the decisions of the respective appellate Regional Tax Court, which ruled in our favor, with respect to each of the 2005, 2006 and 2007 VAT returns.
If the final decisions of the Italian Supreme Court for the VAT Assessments are unfavorable to us, we may incur up to $10.6 million in losses for the VAT amount assessed plus collection fees, notification expenses and additional interest for the period lapsed between the date in which the assessments were issued and the date of effective payment upon conversion from euros as of September 30, 2016.
We are also in the process of providing documents in response to a subpoena received from the SEC in January 2016. The SEC's subpoena requests, among other things; internal and external communications related to pacritinib Phase 3 trials, including communications with the independent data monitoring committee, or IDMC, for pacritinib's Phase 3 trials, our steering committee, our board of directors, our audit committee, representatives of Baxter and Baxalta, and the FDA, and other documents related to pacritinib. We believe that the SEC is seeking to determine whether there have been possible violations of the antifraud and certain other provisions of the federal securities laws related to the Company's disclosures concerning, among other things, the clinical test results of pacritinib. The SEC Staff's letter sent with the subpoena stated that the investigation is a fact-finding inquiry, and the investigation and subpoena do not mean that the SEC has concluded that we or anyone else has violated any law. We are cooperating with this investigation.
On February 10, 2016 and February 12, 2016, class action lawsuits entitled Ahrens v. CTI BioPharma Corp. et al, Case No. 1:16-cv-01044 and McGlothlin v. CTI BioPharma Corp. et al., Case No. C16-216, respectively, were filed in the United States District Court for the Southern District of New York and the United States District Court for the Western District of Washington, respectively, on behalf of shareholders that purchased or acquired the Company’s securities pursuant to our September 24, 2015 public offering and/or shareholders who otherwise acquired our stock between March 4, 2014 and February 9, 2016, inclusive. The complaints assert claims against the Company and certain of our current and former directors and officers for violations of the federal securities laws under Sections 11 and 15 of the Securities Act of 1933, as amended, or the Securities Act, and Sections 10 and 20 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, Plaintiffs’ Securities Act claims allege that the Company’s Registration Statement and Prospectus for the September 24, 2015 public offering contained materially false and misleading statements and failed to disclose certain material adverse facts about the Company’s business, operations and prospects, including with respect to the clinical trials and prospects for pacritinib. Plaintiffs’ Exchange Act claims allege that the Company’s public disclosures were knowingly or recklessly false and misleading or omitted material adverse facts, again with a primary focus on the clinical trials and prospects for pacritinib. On May 2, 2016, the Company filed a motion to transfer the Ahrens case to the United States District Court for the Western District of Washington. The motion was unopposed and granted by the court on May 19, 2016. On June 3, 2016, the parties filed a joint motion to consolidate the McGlothlin case with the Ahrens case in order to proceed as a single consolidated proceeding. On June 13, 2016, the court granted the motion to consolidate with the action being captioned In re CTI BioPharma Corp. Securities Litigation, Master File No. 2:16-cv-00216-RSL. On September 2, 2016, the court appointed Lead Plaintiffs and Lead Counsel. On September 28, 2016, the court entered a scheduling order setting November 8, 2016 as the deadline to file a consolidated class action complaint and deadlines for briefing defendants’ motion to dismiss, with briefing concluding February 22, 2016. The lawsuit seeks damages in an unspecified amount. We believe that the allegations contained in the complaints are without merit and intend to vigorously defend ourselves against all claims asserted therein. A reasonable estimate of the amount of any possible loss or range of loss cannot be made at this time and, as such, we have not recorded an accrual for any possible loss.

On March 14, 2016, a Company shareholder filed a derivative lawsuit on behalf of the Company seeking damages for alleged harm to the Company caused by certain current and former officers and directors.  The suit, Wei v. James A. Bianco, et al., 16-2-05818-3, was filed in King County Superior Court, Washington, and names as individual defendants James A. Bianco, Louis A. Bianco, Jack W. Singer, Bruce J. Seeley, John H. Bauer, Phillip M. Nudelman, Reed V. Tuckson, Karen Ignagni, Richard L. Love, Mary O. Mundinger and Frederick W. Telling.  Consistent with the requirements of a derivative action, the Company is named as a nominal defendant against which no monetary relief is sought.  The complaint alleges four claims: (1) breach of fiduciary duty; (2) abuse of control; (3) gross mismanagement; and (4) unjust enrichment (receiving compensation that was unjust in light of the alleged conduct).  Each is based on the assertion that the Company made materially false and misleading statements and omitted material information from its disclosures about pacritinib and its safety.  Plaintiff did not make a pre-suit demand on the current Board to investigate whether to pursue claims against officers or directors, instead claiming demand is excused because the named defendants lack independence, are not disinterested because they lack impartiality, received and want to continue to receive their compensation, have longstanding personal and business relationships, and cannot evaluate a demand since they are facing personal liability. Plaintiff has requested the court to award the Company the damages allegedly sustained as a result of the conduct and to direct the Company and the individual defendants to reform and improve the Company’s corporate governance to avoid future damages.  We understand that the individuals named as defendants believe the allegations contained in the complaint lack merit and plan to vigorously defend themselves against all claims asserted therein. A reasonable estimate of the amount of any possible loss or range of loss cannot be made at this time and, as such, we have not recorded an accrual for any possible loss.

On May 24, 2016, two CTI shareholders filed a derivative lawsuit in the name of the Company seeking damages for alleged harm to the Company caused by officers and directors. The suit, Nahar v. James A. Bianco, et al, Case 2:16-cv-00756, was filed in the United States District Court for the Western District of Washington and names certain officers and directors as defendants. Consistent with the requirements of a derivative action, the Company is named as a nominal defendant. The complaint alleges three claims: 1) breach of fiduciary duty; 2) waste of corporate assets; and 3) gross mismanagement. Each is based on the assertion that the Company made materially false and misleading statements and omitted material information from its disclosures about pacritinib and its safety. Plaintiff did not make pre-suit demand on the current Board to investigate whether to pursue claims against officers or directors, instead claiming demand is excused because a majority of the current Board is predisposed to refuse demand because they lack independence and are not disinterested, have already determined that the allegations lack merit and are facing personal liability. Plaintiffs have requested the court determine and award the Company the damages sustained and to be sustained as a result of the alleged conduct, and directing the Company to reform its corporate governance and internal procedures to comply with applicable laws and protect the Company and its shareholders from reoccurrence of the alleged wrongful conduct. On July 14, 2016, the parties filed a stipulated motion to stay the case pending a resolution of the defendants’ motion to dismiss to be filed in In re CTI BioPharma Corp. Securities Litigation. On August 4, 2016, the court granted the motion to stay. We understand that the individuals named as defendants believe the allegations contained in the complaint lack merit and plan to vigorously defend themselves against all claims asserted therein. A reasonable estimate of the amount of any possible loss or range of loss cannot be made at this time and, as such, we have not recorded an accrual for any possible loss.
On June 16, 2016 a CTI shareholder filed a derivative lawsuit in the name of the Company seeking damages for alleged harm to the Company caused by officers and directors. The suit, England v. James A. Bianco, et al., 16-2-14422-5, was filed in King County Superior Court and names certain officers and directors as defendants. Consistent with the requirements of a derivative action, the Company is named as a nominal defendant. The complaint alleges four claims: 1) breach of fiduciary duty; 2) abuse of control; 3) gross mismanagement; and 4) unjust enrichment (receiving compensation that was unjust in light of the alleged conduct). Each is based on the assertion that the Company made materially false and misleading statements and omitted material information from its disclosures about pacritinib and its safety. Plaintiff did not make pre-suit demand on the current Board to investigate whether to pursue claims against officers or directors, instead claiming demand is excused because the named defendants lack independence and are not disinterested because they lack impartiality, received and want to continue to receive their compensation, have longstanding personal and business relationships and cannot evaluate a demand since they are facing personal liability. Plaintiff has requested the court determine and award the Company the damages sustained as a result of the alleged conduct, and directing the Company and the individual defendants reform and improve its corporate governance to avoid future damages. On August 25, 2016, the plaintiff in Wei v. James A. Bianco jointly moved with the plaintiff in England v. James A. Bianco to consolidate and stay the cases pending a resolution of the defendants’ motion to dismiss in In re CTI BioPharma Corp. Securities Litigation. On September 2, 2016, the court granted the motion to consolidate and stay the cases.We understand that the individuals named as defendants believe the allegations contained in the complaint lack merit and plan to vigorously defend themselves against all claims asserted therein. A reasonable estimate of the amount of any possible loss or range of loss cannot be made at this time and, as such, we have not recorded an accrual for any possible loss.
On August 9, 2016, a CTI shareholder filed a derivative lawsuit in the name of the Company seeking damages for alleged harm to the Company caused by officers and directors. The suit, Hill v. James A. Bianco, et al., 2:16-cv-1250, was filed in the United States District Court for the Western District of Washington and names certain officers and directors as defendants. Consistent with the requirements of a derivative action, the Company is named as a nominal defendant. The complaint alleges three claims: 1) Breach of Fiduciary Duty; 2) Gross Mismanagement; and 3) Unjust Enrichment (receiving compensation that was unjust in light of the alleged conduct). Each is based on the assertion that the Company made materially false and misleading statements and omitted material information from its disclosures about pacritinib and its safety. Plaintiff did not make pre-suit demand on the current Board to investigate whether to pursue claims against officers or directors, instead claiming demand is excused because the named defendants lack independence and are not disinterested because they lack impartiality, received and want to continue to receive their compensation, have longstanding personal and business relationships and cannot evaluate a demand since they are facing personal liability. Plaintiff has requested the court determine and award the Company the damages sustained as a result of the alleged conduct, and directing the Company and the individual defendants reform and improve its corporate governance to avoid future damages. On November 4, 2016, the plaintiff in Nahar v.  James A. Bianco  jointly moved with the plaintiff in  Hill v.  James A. Bianco to consolidate and stay the cases pending a resolution of the defendants’ motion to dismiss in In re CTI BioPharma Corp. Securities Litigation. That motion is pending. We understand that the individuals named as defendants believe the allegations contained in the complaint lack merit and plan to vigorously defend themselves against all claims asserted therein. A reasonable estimate of the amount of any possible loss or range of loss cannot be made at this time and, as such, we have not recorded an accrual for any possible loss.

In addition to the items discussed above, we are from time to time subject to legal proceedings and claims arising in the ordinary course of business.