WILMINGTON -- Rock Creek Pharmaceuticals and its two wholly-owned subsidiaries have filed for bankruptcy protection with the U.S. Bankruptcy Court in the District of Delaware.
Based out of Sarasota, Rock Creek and its subsidiaries RCP Development Inc. and Star Tobacco Inc. filed bankruptcy petitions under Chapter 7 of the United States Bankruptcy Code after two debt-holders claimed the firm was in default.
According to a U.S. Securities and Exchange Commission (SEC) filing by Rock Creek, Hudson Bay Master Fund Ltd. sent Rock Creek a default notice for nearly $7 million. The filing also said that Tenor Capital Management sent Rock Creek a default notice on behalf of Alto Opportunity Master of $3.8 million. The combined payment claims against Rock Creek totaled more than $10 million.
The Rock Creek filing said, “The company is actively exploring all options for treatment of its debt and funding its operating needs, including, but not limited to, initiation of proceedings under laws related to bankruptcy or insolvency.”
The eventual bankruptcy petition by Rock Creek claimed it had only $35,000 in assets against total liabilities of $21.3 million, which includes escalating legal debt.
Both its subsidiaries had similar troubles. In their Chapter 7 filing, RCP reported total assets of more than $31,000 against total liabilities of approximately $52 million. Star Tobacco reported assets of more than $480,000 with liabilities of approximately $12.25 million.
Rock Creek is represented by John D. McLaughlin Jr. of Ciardi, Ciardi & Astin.
Rock Creek was previously known as Star Scientific and based in Henrico County, Virginia, before relocating to Sarasota in 2014. Rock Creek focuses on the development of anti-inflammatory drugs for chronic inflammatory disease and neurologic disorders. In a quarterly filing on Aug. 10 with the SEC, Rock Creek said it has dedicated all its resources to research and development.
This included alkaloid research on plants, such as potatoes, tobacco and tomatoes, for creating the anti-inflammatory drugs. The company’s primary product was the anti-inflammatory drug Anatabloc. The firm alleged the drug could reduce inflammation associated with Alzheimer’s and could treat multiple sclerosis and traumatic brain injury.
In January 2014, as Star Scientific, the firm’s founder and former CEO Jonnie R. Williams Sr., was involved in a gifts corruption scandal that resulted in the convictions of former Virginia Gov. Bob McDonnell and his wife. As a result, the companies’ legal fees mounted. Federal prosecutors ultimately indicted the McDonnells on charges of illegally accepting more than $175,000 in gifts, vacations and loans from Williams in exchange for promoting the company’s dietary supplements.
The indictment charged that, in return for the gifts, McDonnell used his office to “legitimize, promote and obtain research studies for Star Scientific’s products.” In September 2014, the McDonnells were found guilty of public corruption and sentenced to prison. The convictions were overturned this summer by the U.S. Supreme Court.
In his opinion, Supreme Court Justice John Roberts described McDonnell’s acts as “distasteful” but was more concerned with the “broader legal implications of the government’s boundless interpretation of the federal bribery statute.” The court ruled to impose higher standards in wrongdoing prosecutions of public officials. The U.S. Department of Justice dismissed the convictions last month.
In the aftermath of the scandal, the company has struggled, despite new leadership under current CEO Michael Mullan. The firm tried to reshape its image by changing its name to Rock Creek Pharmaceuticals in June 2014 and moving its headquarters to Sarasota, but the company still had more than $2 million in legal fees and another $2 million in severances to pay, plus legal debt from previous cases. The firm also needed to suspend its sale of Anatabloc, because the U.S. Food and Drug Administration found it to be in violation of federal regulations. In August, the company announced that it was “exploring a variety of additional financing options.”