United States Sec. & Exch. Comm'n v. Cell>Point, LLC
| Decision Date | 14 February 2022 |
| Docket Number | Civil Action 21-cv-01574-PAB-KLM |
| Parties | UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff, v. CELL>POINT, LLC, GREG COLIP, and TERRY COLIP, Defendants. |
| Court | U.S. District Court — District of Colorado |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION, Plaintiff,
v.
CELL>POINT, LLC, GREG COLIP, and TERRY COLIP, Defendants.
Civil Action No. 21-cv-01574-PAB-KLM
United States District Court, D. Colorado
February 14, 2022
ORDER
Philip A. Brimmer Chief Judge
This matter is before the Court on that portion of Plaintiff's Omnibus Motion for Expedited Discovery and Emergency Consideration thereof; Motion for Preliminary Injunction, Asset Freeze, and Other Preliminary Relief; and Motion to Exceed Page Limitations that seeks a preliminary injunction [Docket No. 45]. The Court held a hearing on plaintiff's motion on January 25, 2022.[1] See Docket No. 89. The Court has jurisdiction over this action pursuant to 15 U.S.C. § 77v(a), 15 U.S.C. § 77t(d), and 15 U.S.C. § 78u(d).
On June 10, 2021, the Securities and Exchange Commission (the “SEC”) filed this lawsuit against defendants Cell>Point, L.L.C. (“Cell>Point”), Terry Colip, and Greg
Colip, bringing claims for fraud against all defendants in violation of Sections 10(b) and 20(a) of 15 U.S.C. § 78j(b) (the “Exchange Act”), for aiding and abetting violations of the Exchange Act against the individual defendants, for fraud in the offer or sale of securities in violation of Section 17(a) of 15 U.S.C. § 77q(a) (the “Securities Act”) against all defendants, and for aiding and abetting violations of the Securities Act against the individual defendants. Docket No. 1 at 38-42, ¶¶ 156-170. Plaintiff requests a permanent injunction enjoining defendants from violating securities laws, an order prohibiting the individual defendants from acting as director or officer of any public company, an order that defendants disgorge any ill-gotten gains, and an order that defendants pay civil penalties. Id. at 43.
Plaintiff filed a motion for preliminary injunction pursuant to Fed.R.Civ.P. 65 requesting: (i) that defendants be enjoined from violating the Securities Act and the Exchange Act, (ii) an asset freeze against each defendant, (iii) an order requiring repatriation of assets moved outside the jurisdiction of the Court since the matter was filed, and (iv) an order requiring the defendants to provide an accounting. Docket No. 45 at 9-10. Plaintiff's motion also requested that the parties be allowed to conduct limited discovery in advance of a hearing on the preliminary injunction motion. Id. at 6-7. The Court granted the portion of plaintiff's motion requesting expedited discovery. See Docket No. 54.
I. FINDINGS OF FACT
Defendant Cell>Point is a biotech company that was formed in 2001. Exh. A-2 at 2. Defendant Terry Colip is a managing member and the chief financial officer of Cell>Point. Greg Colip is a managing member and the chief executive officer of
Cell>Point. He is also an attorney licensed to practice in the state of Texas. The only employees of Cell>Point are Terry Colip and Greg Colip as well as a part time accountant. Docket No. 1 at 7, ¶ 24.[2] Cell>Point has licensed from the Board of Regents of The University of Texas System on behalf of M.D. Andersen Cancer Center the rights to five platform technologies. Exh. A-4 at 1. Cell>Point entered phase two clinical trials of a radiopharmaceutical compound for clinical oncology, but stopped clinical trials in 2014 and has not resumed them.
Greg Colip formed Cell Theranostics, Inc., a Delaware corporation, in 2021. Exh. A-25. Cell>Point owns Cell Theranostics, Inc. Cell>Point granted sublicenses of its platform technologies to Cell Theranostics, Inc. and assigned all the obligations that Cell>Point was under to Cell Theranostics, Inc. regarding the licenses on May 20, 2021. Exh. A-28 at 1-3. The sublicense agreement states that, “[b]ecause it is difficult to take a limited liability company public and since Cell>Point is a limited liability company, the decision was made by the management to form a ‘C' corporation” which was Cell Theranostics, Inc. Id. at 2. On May 14, 2021, Terry Colip and Greg Colip formed Cell Theranostics, Ltd., a Cayman Island entity. Exh. A-30. Terry Colip represented to Cell>Point investors that Cell Theranostics, Inc. would be the entity that went public several times. See Exh. 37 at 2; Exh. 15 at 3-4.
Cell>Point has no assets outside of its licenses, patents, and a 75% ownership in a biopharmaceutical company. Exh. A-4 at 1-3. Cell>Point has no revenue and no
money coming in other than the loans it solicits and merchant advances it receives. Neither Cell Theranostics, Inc., Cell Theranostics, Ltd., nor Cell>Point has earned positive net revenue in any year. Cell>Point sells equity to investors in the form of “units” in the company, receives loans from investors, and takes out merchant advances to operate. Merchant advances provide cash in exchange for a promise of future receivables at a high interest rate. For example, Cell Theranostics, Inc., doing business as Cell>Point, entered into a merchant advance on December 10, 2021 borrowing $25, 000 for forty days resulting in a total of $36, 250 to be paid back, for an effective interest rate of 45%. Exh. 56. On January 13, 2022, Terry Colip entered into an agreement on behalf of Cell Theranostics, Inc. to try to resolve outstanding debt on four merchant agreements that totaled $88, 385. Exh. 55 at 1-7.
Terry Colip has solicited several loans from investors, acting in his capacity as a representative of Cell>Point, sometimes stating that Cell>Point needed the funding to prepare for an imminent initial public offering. These loans are often sold as investments in Cell>Point through units, which are membership interests, or through notes. Docket No. 1 at 9, ¶ 35.
A. Young Loan in June 2021
On June 23, 2021, Terry Colip sent an email to a Cell>Point investor, David Young, asking Mr. Young if he was interested in making “a short term loan of $70, 000 to $100, 000.” Exh. 23 at 3. He further stated the loan would reach maturity on July 7, 2021 and that it “would pay 10% plus units.” Id. Mr. Young responded that he was “curious about what . . . requires such a loan. As I recall the previous loan was to satisfy attorney fees for the IPO. Are they asking for more . . . ?” Id. Terry Colip
responded that “Cell Theranostics[] is working on a $20 Million pre-IPO investment with the CITIC Group.[3] The $20 Million got allocated by CITIC, and now we are working on the paperwork. This is the linchpin for the IPO.” Id. at 2. Terry Colip also stated that “[t]he attorneys are billing me every two weeks and I don't want to slow them down.” Id. Mr. Young then agreed to have Terry Colip send him the loan paperwork. Id. at 1-2. In a subsequent email, Terry Colip stated, “[b]y [] the time the IPO is completed I am guessing we will spend over $4 Million in legal fees.” Id. at 1. Mr. Young loaned Cell Theranostics, Inc. $100, 000 on June 23, 2021. Exh. 22 at 1. This loan was to be paid by July 9, 2021 with $110, 000 and 400 units in Cell>Point.[4] Id.
When Terry Colip emailed Mr. Young, Cell>Point had not retained outside counsel for an initial public offering and Cell>Point had not been billed for any IPO work.[5] At that time, Cell>Point was only paying legal fees to the law firm Mayer Brown for its representation in this case and legal fees to another firm for matters unrelated to
an IPO. See Exh. 80 at 4. Cell>Point could not use a loan from Mr. Young for IPO filing fees as it did not have attorneys working on an IPO. In response to a SEC request for admission, Cell>Point admitted “that a portion of certain funds loaned by David Young were used for purposes other than to pay attorneys working on the forthcoming IPO.” Exh. 80 at 6. Additionally, Greg Colip testified at the hearing that in June of 2021 he had not had any written communications with the CITIC Group. In response to an interrogatory asking for contact information for any “individuals who have communicated to [y]ou that they, or entities they represent, are interested in being part of, or investing in, [y]our purported forthcoming Initial Public Offering, ” including persons from the “CITIC Group, ” id. at 3, Cell>Point did not disclose any contacts from persons from the CITIC Group. Id.; Exh. 81 at 1. Greg Colip had not directly communicated with the CITIC Group at the time Terry Colip emailed Mr. Young.
B. Lockton Loan in June 2021
On June 16, 2021, Terry Colip emailed a potential Cell>Point investor, Steve Lockton, stating that Cell Theranostics, Ltd. “came to terms with the CITIC Group for a $20 Million pre-IPO investment in Cell Theranostics, Ltd.” and that “[a]s part of the deal CITIC is going to co-manage the IPO.” Exh. 13 at 2. Additionally, Terry Colip stated that “legal counsel [was] drafting the IPO doc[uments].” Id. Terry Colip solicited an investment from...
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