Skip to main content
Premium Trial:

Request an Annual Quote

Arrayit Legal Dispute with Investor Continues Despite Settlement Disclosure


NEW YORK (GenomeWeb) – Roughly six months after disclosing that an investor lawsuit against its management had been settled, Arrayit has been accused of failing to meet the terms of the agreement that would have put an end to the dispute, court documents show.

As a result, the plaintiffs have asked the court overseeing the litigation for as much as $5.9 million in damages. Officials from Arrayit did not respond to GenomeWeb's request for comment.

According to documents filed with the US Securities and Exchange Commission, Arrayit — along with CEO Rene Schena, President Mark Schena, and Executive Vice President Todd Martinsky — were sued in August by investor Reuben Taub, who alleged that had lost his investment in Arrayit due to the defendants' "fraud and failure to properly disclose withholding and other tax liabilities of the company" as well as "misrepresentations concerning the development costs for and company's ownership interest in OvaDx," a microarray-based test for early-stage ovarian cancer that Arrayit is developing with subsidiary Avant Diagnostics.

Taub had been seeking $500,000 plus interest costs, disbursements, and attorneys' fees.

In September, an Arrayit stated in an SEC filing that the suit had been dismissed. Notably, it also stated in the filing that it had signed an agreement to provide a company called Array Molecular, which is owned by Taub and certain other Arrayit investors, with intellectual property for use in developing a DNA microarray platform for detecting pathogens in food. In exchange, Arrayit would receive 24 percent of Array Molecular's outstanding shares.

Paul Haje, director of sales and marketing at Arrayit, told GenomeWeb at the time that the Array Molecular arrangement was "associated with a deal Arrayit is involved in with the US government," but declined to comment further. He also said that Arrayit had agreed to provide Array Molecular with instruments and consumables.

In December, Arrayit announced that it had signed an agreement with the US Department of Agriculture (USDA) to develop and validate a rapid, portable, and high-throughput detection system for the surveillance of multiple bacterial and viral foodborne pathogens using Arrayit's microarray platform and the agency's proprietary DNA sequence-detection technology.

In February this year, however, Taub filed a complaint in the Supreme Court of the State of New York alleging that Arrayit and its management had failed to meet the terms of the agreement with Array Molecular.

In the complaint, Taub provided a copy of the agreement between Arrayit and Array Molecular, which called for Arrayit to transfer ownership of assets related to the pathogen-detection platform including licenses and contracts with the USDA and related scanner equipment.

Arrayit was also required to double the number of its shares that could be purchased through warrants held by Taub and Irwin Zalcberg, another Array Molecular owner and Arrayit investor, and to modify the warrants so that they could be exercised at a purchase price of $.10 a share. Further, Zalcberg was to receive 5 million shares of Arrayit, plus an additional 7 million warrants.

According to a letter submitted last week to the New York court by Taub's attorney, Arrayit and its management have "willfully refused" to abide by the terms of the agreement. Among other things, they have failed to transfer the pathogen-detection test assets to Array Molecular and have not issued any of the securities to Taub or Zalcberg.

In addition to the $5.9 million in damages Taub is seeking, he has asked the court to prevent Arrayit from distributing to its stockholders 10 million shares of Avant, which it had agreed to do following that company's recent merger with a publicly traded shell corporation.

Arrayit's only liquid asset is the 39.4 million shares of Avant it owns and the 10 million shares it is set to distribute to shareholders, making the stock the only asset that could be used to satisfy judgment in the case, Taub told the court.

Attorneys for Arrayit and its management submitted a response to Taub's letter last week, informing the court that the defendants have yet to be served with a formal complaint in the matter.

However, this week the court ordered a pre-motion conference to be held April 1.