1261 001 - media.bizj.usmedia.bizj.us/view/img/2092441/stoll-berne-galena-complaint-02-28-… · 1...

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IN THE CIRCUIT COURT OF THE STATE OF OREGON

FOR THE COLTNTY OF MULTNOMAH

GLEN FAGIN, Derivatively on Behalf ofNominal Defendant GALENABIOPHARMA, INC.,

Plaintiff,

MARK J. AHN, SANFORD J. HILLSBERG,zuCHARD CHIN, STEPHEN S.

GALLIKER, STEVEN A. KRIEGSMAN,RUDOLPH NISI, and WILLIAM L.ASHTON,

Defendants,

140202184Case No

vCOMPLAINT

(BREACH OF FIDUCIARY DUTY, ABUSEÒp coNrRoL, AND LTNJUSTENRICHMENT)

Filing Fee Authority: ORS 21.160(1Xe)Damáges in excess of $11 million

Not Subject to Mandatory Arbitration

and

GALENA BIOPHARMA, INC.,

Nominal Defendant

DEMAND FOR JURY TRIAL

plaintiff Glen Fagin ("Plaintifl'), by and through his undersigned attorneys, brings this

derivative complaint (the "Complaint") for the benefit of nominal defendant, Galena Biophdrma,

Inc. (,,Galena,, ot the "Compâny"), against members of its Board of Directors (the "Board") and

certain of its executive officers seeking to remedy defendants' breaches of fiduciary duties, abuse

of control, and unjust enrichment, as well as disgorgements of profits from the improper stock

sales detailed herein.

STOLL STOLL BERNE LOKTING & SHLACHTER P C

209 S W OAK STREET, SUITE 5OO

PORTLAND, OREGON 97204

TEL (s03) 227-1600 FAX (s03, 227-6840

- COMPLAINT

1 NATURE AND SUMMARY OF THE ACTION

21.3 Galena is a biopharmaceutical company focusing on developing oncology treatments.

42.

5 In the summer of 2013, Galena paid $50,000 to a company to promote a "brand

6 awareness campaign." The campaign was to last240 days. During this time frame, the stock

7 nearly tripled in value. At the close of this time period, Galena insiders made millions of dollars

8 in selling Galena stock.

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3.

As detailed below, there were many articles appearing on SeekingAlpha.com touting

Galena during the same time period. It has been confirmed that at least some of the positive

articles were authored by the same person using different aliases. SeekingAlpha.com removed

two articles promoting Galena. Previously, in January 2013, five articles were removed for

similar reasons.

4.

The majority of Galena's Board faces a substantial likelihood of liability for breaches of

frduciary duties in connection with the allegations herein. A majority of the Board reaped

millions of dollars as a result of the wrongs alleged herein. As a result, Plaintiff has made no

demand on Galena's Board because to do so would be a futile and useless act.

JURISDICTION AND VENUE

5.

This court has jurisdiction over this matter because Galena's principal place of business

is in Multnomah County, Oregon.

6.

Venue is proper in this Court because Galena maintains executive offices in this

Multnomah County, a substantial portion of the transactions and wrongs complained of herein


209 S W. OAK STREET, SUITE 5OO


TEL. (503) 227-1600 FAX (503) 227-6840

Page2 - COMPLAINT

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occurred in Multnomah County, and the Director Defendants have received substantial

compensation in Multnomah County by doing business here and engaging in numerous activities

that had an effect in Multnomah County.

THE PARTIES

7.

Plaintiff is, and was at times relevant hereto, an owner and holder of Galena common

stock.

8.

Nominal defendant Galena is a corporation incorporated under the laws of the State of

Delaware, which maintains its principal executive offices at 4640 SW Macadam Avenue, Suite

270,Portland, Oregon. According to its' public filings, Galena is focused on developing targeted

oncology treatments. Galena presently has, among other things, a breast cancer vaccine in a

phase III study. Galena common stock trades on the NASDAQ Exchange under the symbol

..GALE."

9.

Defendant Mark J. Ahn ("Ahn") has served as the Company's President and Chief

Executive Officer since March 2011 and has been a director since 2007.

10.

Defendant Sanford J. Hillsberg ("Hillsberg") has been the Chairman of the Company

Board of Directors since 2007.

11.

Defendant Richard Chin ("Chin") has served as a director of Galena since 2009. Chin is

a member of the Audit Committee, the Compensation Committee, and the Nominating and

Governance Committee.

STOLL STOLL BEIìNE LOKTING & SHLACHTER P C.



TEL (503) 227-1600 F AX (sO3\ 227-6840

- COMPLAINT

I 12.

Z Defendant Stephen S. Galliker ("Galliker') has served as a director of Galena since 2007.

3 Galliker is the Chair of the Audit Committee and is a member of the Nominating and

4 GovernanceCommittee.

5 13.

6 Defendant Steven A. Kriegsman ("Kreigsman") has served as a director of Galena since

7 2006. Kriegsman is the Chair of the Compensation Committee.

I 14.

Defendant Rudolph Nisi ("Nisi") has served as a director of Galena since 2009. Nisi is a

member of the Audit Committee and the Compensation Committee, and is the Chair of the

Nominating and Governance Committee.

15.

Defendant William L. Ashton ("Ashton") has served as a director since }/.ay 2013. The

company's website does not list Ashton as a member of any committee.

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I6

The defendants referenced in tTT 9 - l5 shall be collectively referred to herein as the

"Director Defendants."DEFENDANTS' DUTIES

t7.

By reason of their positions as officers, directors, andlor fiduciaries of Galena and

because of their ability to control the business and corporate affairs of Galena, defendants owe

Galena and its shareholder fiduciary obligations of good faith, loyalty, and candor, and are

required to use their utmost ability to control and manage Galena in a fair, just, honest, and

equitable manner. Defendants are required to act in furtherance of the best interests of Galena

and its shareholders so as to benefit all shareholders equally and not in furtherance of their

personal interest or benefit. Each director and officer of the Company owes to Galena and its

STOLL STOLL BERNE LOKTING & SHLACHTER P C.



TEL (503) 227-1600 FAX (503) 227-6840

- COMPLAINT

1 shareholders the fiduciary duty to exercise good faith and diligence in the administration of the

2 affairs of the Company and in the use and preservation of its property and assets, and the highest

3 obligations of fair dealing,

4 18.

Defendants, because of their positions of control and authority as directors and/or ofÍicers

of Galena, were able to and did, directly andlor indirectly, exercise control over the wrongful

acts complained of herein, as well as the contents of the various public statements issued by the

Company and on behalf of the Company. Because of their advisory, executive, managerial, and

directorial positions with Galen a, each of the defendants had knowledge of material non-public

information regarding the Company.

19.

To discharge their duties, the offrcers and directors of Galena were required to exercise

reasonable and prudent supervision over the management, policies, practices and controls of the

Company. By virtue of such duties, the officers and directors of Galena were required to, among

other things:

a. Exercise good faith to ensure that the affairs of the Company were conducted in

an efficient, business-like manner so as to make it possible to provide the highest

quality performance of their business;

b. Exercise good faith to ensure that the Company was operated in a diligent, honest

and prudent manner and complied with all applicable federal and state laws, rules,

regulations and requirements, and all contractual obligations, including acting

only within the scope of its legal authority;

c. Exercise good faith to ensure that the Company's communications with the public

and with shareholders are made with due candor in a timely and complete fashion;

and

STOLL STOLL BEÌTNE LOKTING & SHLACHTEÌI P C

209 S W OAK STììEET, SUITE 5OO

POÌìTLAND, OREGON 97204

TEL (503) 227-1600 FAX (503)227'6840

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d. When put on notice of problems with the Company's business practices and

operations, exercise good faith in taking appropriate action to correct the

misconduct and prevent its recurrence.

SUBSTANTIVE ALLEGATIONS

20.

In July 2013, Galena paid $50,000 to a subsidiary of The DreamTeam Group

("DreamTeam") for 240 days of advertising, marketing, branding, and other social media

services. During the lifetime of this engagement, Galena's stock price went from approximately

$2.00 per share in July 2013 to $7.50 in January 2014.

2r.

DreamTeam is a self-proclaimed "advertiser, atftactingvisibility" to various investors

through social media. DreamTeam has more than 30 different brands, including Home Run

Stocks, Betting On't4tall Street, got stock tips? ", and Serious Traders. These websites, all of

which promote certain stocks, do not state that they are paid advertisers on the home page. This

information is buried on a disclaimer link.

22.

Among other things, DreamTeam published favorable articles about the Company on

SeekingAlpha.com on August 6,2013 and November 22,2013. These favorable articles appeal

to be written by multiple individual investors. There is no mention that either article was drafted

by a paid advertiser.

23.

On August 5,2013, Galena common stock closed at $2.08 per share'

24.

On August 6,2013, DreamTeam posted an article to SeekingAlpha.com under the

username "WonderfulWizard" titled "Galena Biopharma Presents An Attractive Investment

Opportunity," The article touted Galena's "unique approach to science."

STOLL STOLL BERNE LOKTING & SHLACHTER P'C'



rEL (s03) 227-1600 FAX (503) 227-6840

- COMPLAINT

r 25,

2 On November 22, DreamTeam posted an article to SeekingAlpha,com under the

3 username "Kingmaker" titled "Galena Biopharma Continues To Develop A Deep Pipeline Of

4 Product." This article also pumped Galena stock and also failed to disclose its marketing

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pufpose.

26.

Galena's stock price rose to $7.4S per share by close of business on January 16,2014,

well in excess of what could be explained by the performance of the stock market in general

during that time period.

27.

On January 17,2014,Director Defendants Nisi, Kriegsman, and Hillsberg executed the

following stock transactions: (a) defendant Nisi sold 200,000 shares of Galena stock at $6'90 per

share for profits of $ 1 ,3 80,000; (b) defendant Kriegsman sold 450,000 shares of Galena stock at

$6.52 per share for profits of 52,932,500; and (c) defendant Hillsberg sold 200,000 shares of

Galena stock at $6,93 per share for profits of $1,385,000.

28.

On January 27,2014, defendant Ahn sold 796,765 shares of Galena stock at $4.83 per

share for profits of $3,848,375.

29.

On January 29,2074, defendant Nisi sold 250,000 shares of Galena stock at $5.28 per

share for profits of $1,320,000.

30.

On January 30,2074,the following insider stock sales occurred: (a) defendant Hillsberg

sold 250,000 shares of Galena stock at $5.41 per share for profits of $1,352,500; (b) the

Company's Chief Operating Ofhcer, Mark'W. Schwartz, sold 100,000 shares of Galena stock at


209 S,W OAK STÍìEET, SUITE 5OO


TEL (503) 227-1600 F AX (503) 227'6840

- COMPLAINT

1 $5.57 per share for profits of $556,500; and (c) defendant Chin sold 75,000 of Galena stock for

2 $5,5S per share for profits of $418,755.

3 31.

4 On February 3,2014,defendant Galliker sold 300,000 shares of Galena stock at $4.18 per

5 share for profits of $1,253,040.

6 32.

On February I0,2014, in a rare occurrence on SeekingAlpa.com, the two articles referred

to above were removed after it was discovered that both articles had been authored by the same

person. According to the publication's Vice President of Content and Editor in Chief, Eli

Hoffman, the author was required to discloseto SeekingAlpha.com that both pseudonyms

belonged to the same person.

33.

This is not the hrst time that SeekingAlpha.com has had to remove articles published in

connection with Galena. In January 2013, SeekingAlpa.com removed five articles promoting

Galena that were written by one person with three aliases.

34.

On February 12,2}l4,defendant Chin sold 187,500 shares of Galena stock at $4'33 per

share for profits of $812,438.

35.

On February 12,2014, after the markets closed, TheStreet.com published an article titled

"Galena Biopharma Pays For Stock-Touting Campaign While Insiders Cash Out Millions." The

article stated in part:

Two articles touting Galena Biopharma (GALE) were removed from Seeking

Alpha Monday because they were written by the same person using different

aliases.

This is the second time Seeking Alpha has been forced to take action against

individuals using multiple aliases to tout Galena, a small drug developer with a




TEL (s03) 227-',1600 FAX (s03) 227-6840

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- COMPLAINT

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breast cancer vaccine in aphase III study. In January 2073, the investor'Web site

removed five articles promoting Galena written by the same individual under

three different pseudonyms.

The most recent incident is more serious and potentially damaging because of

evidence linking Galena to a stock-promotions firm which wrote and published

the articles on Seeking Alpha. The articles were part of a broader, coordinated

"brand awareness campaign" designed to boost Galena's stock price, according to

a document obtained by TheStreet.

Aided by this promotional campaign, Galena shares tripled in value from this

summer. Coincldence or not, Galena insiders have made millions of dollars by

selling company stock in JanuarY.

Galena did not respond to phone calls and emails seeking comment.

,1. * {.

Galena was promoted on many of the DreamTeam stock-touting 'Web sites to

create "market buzz aboutthe company to a new group of investors," according to

a DreamTeam document, "Galena Biopharma Case Study: Investor Awareness

Campaign" obtained by TheStreet.

As part of this campaign, DreamTeam published favorable articles about Galena

on Seeking Alpha on A.tg. 7 ,2013 and Nov, 22,2013, according to the case-study

document. But the articles were written under aliases and make no mention ofDreamTeam or its paid marketing relationship with Galena. Instead, they're

written from the perspective of individual investors recommending an investment

in Galena to other readers of Seeking Alpha.

d.*,&

The DreamTeam Group promoted Galena's stock in other ways than just

publishing Seeking Alpha articles.

"By December 20,2013, DTG has published a total of 50 unique GAlE-centered

blogs that were distributed throughout the DTG network and a number ofinvãstor-oriented community site on the Internet such as StockHouse, StockTwits,

Seeking Alpha and Wall Street Cheat Sheet," DreamTeam explains in the

document obtained by TheStreet.

DreamTeam also employs people who promote the stocks of paying clients on

message boards, Facebook and via Twitter, according to the document'




TEL. (s03) 227-1600 FAX (503) 227-6840

- COMPLAINT

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DreamTeam Managing Partner Michael Andrew McCarthy did not respond to a

message left on his cellPhone.

(Emphasis added.)

4 36.

5 On February 14,2014, defendant Ahn issued a letter to shareholders in which he

6 acknowledged that the recent media attention on Galena Biopharma was "' . . having an impact

7 oninvestor confidence." The letter acknowledges retention of the DreamTeam and the

g divestiture of shares by Company insiders, as well as multiple information requests from the

author of TheStreet.com article'

37.

While Ahn made light of the incident and the Company's ties to DreamTeam, a former

DreamTeam blog for the Company, which has since been pulled, read: "This is somewhat

embarrassing, isn't it."

38.

On February 18,2014, TheStreet.coz published a follow-up article titled "Galena CEO's

Response to Stock Promotions Leaves Questions Unanswered," which stated in part:

[A]side from labeling the story superficially^plausible but wrong, Ahn's letter

þrovided no factual e'Tidence to support his or Galena's position.

Ahn also spoke to a reporter for The Oregonian who wrote a story on the Galena

situation Friday night:

"Ahn, Galena's CEO, said the company did not intend to misleadinvesÍors. He [Ahn] did not know the DreamTeam Gloup was notdisclosing thaf its piomotional m by Galena' Infact, he íuid h.'d been told Dre e the Seeking

Alpha articles. It was'an indePen

Ahn's defense contradicts the DreamTeam document which says the- lrmpublished the two Seeking Alpha articles on Aug' 7,20!1and Nov' 22,2013'Theffiñ;;1 áir" á...ribes ãthiid pro-Galena article published on Wall Street Cheat

Sheet on Dec. 5,2013.

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STOLL STOLL BERNE LOKTING & SHLACHTÉ]I P C

209 S.W, OAK STREET, SUITE 5OO


TEL (503) 227-1600 FAX (503) 227-6840

- COMPLAINT

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There were 26 articles about Galena2013 and last 'WednesdaY -- the timproviding paid stock PromotionalDreamTéam document only highlightAug. 7 and Nov. 22 -- and ignore allWh"ether Ahn knew or not a6out the source of the two articles, The DreamTeamGroup knew and did not disclose pertinent information to investors.

Thestreet has uncovered a second DreamTeam document which further explainshow the firm hires writers to publish articles on Seeking Alpha and other investorWeb sites to promote the stocks of its paying clients'

This second DreamTeam document states:

"Although blogs are widely read and a key part of our social mediarelationJ strategy, they take a more informal approach and don'toffer the deepãi analysis our articles offer. Articles are directedtoward sophisiicated investors who understand complex evaluationof investments, and we publish our articles where these investorscommonly go to seek new investment ideas - ensuring tfat tþe

nt about YOUR company gets seen by the

'îï' ;J,l'ilî":ï: \î5'å:H' ; îi:i:3å'1 J:

through our partners and media contacts, and for those who do

their õwn resèarch, it certainly helps to have positive informationcoming from multiPle sources.

Seeking Alpha, which boasts more than I million members, is the

No, 1 õutlei we use to circulate this kind of detailed informationfor our clients. Recognized as the premier Web site for actionablestock market opinion and analyiis, seeking Alpha handpicksarticles from thè world's top market blogs, money managers,

financial experts and investment newsletters _ - publishing

approximatety zso articles each day. Seekin-g Alpha was. named

'M'ost Informâtive V/eb Site' by Kiplinger's Magazine and has also

received Forbes' 'Best of the Web'award.

utilizing this outlet, we've received more than 6,500 views for asingle afti"le, and our articles are also featured on many.prominentsite-s, including Yahoo! Finance. We not only craft superior content- we maximizè its effectiveness on your behalf."

'å"#åí,#"f ;Í::'Í,i,i¿;'ti,i[The DreamTeam GrouP tried to

erase all of itfrom the Internet?

(Emphasis added.)


209 S.W OAK STREET, SUITE 5OO

PORTLAND, OIìEGON 97204

TEL (503) 227-1600 FAX (503) 227-6840

- COMPLAINT

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39.

In light of the foregoing, the Director Defendants were aware that no material event had

occurred to transform the value of Galena from $2 per share to more than $7 per share during the

relevant period and that the Company had engaged a shadowy stock promoter to disseminate

positive news and analysis about the Company. The Director Defendants nonetheless sold many

millions of dollars' worth of Galena stock at a time they knew the stock price to be artihcially

inflated. No action, legal or otherwise, has been taken against any current or former director or

ofhcer in connection with the misleading disclosures. The entire Board as currently comprised is

responsible for these breaches offiduciary duties.

DAMAGES TO THE COMPANY

40.

Galena has been, and will continue to be, severely damaged and injured by the Director

Defendants' misconduct, As a direct and proximate result of the Director Defendants' conduct,

Galena has been seriously harmed and will continue to be. Such harm includes, but is not

limited to:

a. costs incurred in compensation and benefits paid to defendants that breached their

duties to the ComPanY;

b. substantial loss of market capital;

c. costs already incurred and to be incurred defending any government

investigations, subpoenae, and suits; and

d. any hnes that are a result of the Company's violations federal and state law'

41.

In addition, Galena's business, goodwill, and reputation with its business partners,

regulators, and shareholders have been gravely impaired. The Company has not fully admitted

the nature of its conduct and the true condition of its business. The credibility and motives of

management are now in serious doubt'

STOLL STOLL BERNE LOKTING & SHLACHTER P C'

209 S.W. OAK STREET, SUITE 5OO


TEL (503) 227-i600 FAX (503) 227-6840

- COMPLAINT

I 42.

2 The actions complained of herein have irreparably damaged Galena's corporate image

3 and goodwill. For at least the foreseeable future, Galena will suffer from what is known as the

4 "liar's discount," a term applied to the stocks of companies who have misled the investing

5 public, such that Galena's ability to raise equity capital or debt on favorable terms in the future is

6 now impaired.

7 DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS

8 43.

Plaintiff brings this action derivatively in the right and for the benefit of Galena to redress

injuries suffered, and to be suffered, by Galena as a direct result of breaches of hduciary duty by

the Director Defendants. Galena is named as a nominal defendant solely in a derivative capacity.

44.

Plaintiff will adequately and fairly represent the rights and interests of Galena in

enforcing and prosecuting its rights.

45.

Galena's Board of Directors consists of the following six individuals: defendants

Hillsberg, Chin, Galliker, Kriegsman, Nisi, Ashton, and Ahn. Plaintiff has not made a demand

on the Board to institute this action because such a demand would be a futile, wasteful, and

useless act for the reasons set forth below.

Pre-Suit Demand Is Excused Because A Majority Of The Current Board Members Face ASubstantial Risk Of Liability For Their Own Misconduct

Defendant Ahn

46.

Defendant Ahn is the current CEO and President of Galena. As such, he is primarily

employed by the Company and his professional reputation is inextricably bound to his role at

Galena. Defendant Ahn was compensated $1.14 million 1n2012 for his role as CEO of Galena'

STOLL STOLL BEITNE LOKTING & SHLACHTER P C'

209 S.W OAKSTREET, SUITE 5OO


TEL (503) 227-1600 F AX (503) 227-6840

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1 He will receive a similar level of compensation in2013. Defendant Ahn further admitted that

2 Galenahad engaged DreamTeam.

3 47,

4 As described herein, defendant Ahn sold over 790,000 shares of Galena stock for profits

5 of over $3.g million at a time when he knew that the Company had engaged a stock promoter to

6 enhance the value of its shares and that the activities of this stock promoter were not disclosed to

7 thepublic. Defendant Ahn's stock sale on January 27,2014 represented more than 80% of his

8 total Galena stock holdings.

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48.

Due to defendant Ahn's complicity in the wrongdoing alleged herein, he faces a

substantial likelihood of liability and is thus unable to disinterestedly and independently consider

a demand for litigation. As a result, demand on defendant Ahn is futile.

The Audit Committee Defendants

49.

According to Galena's website, defendants Chin, Galliker, and Nisi are the current

members of Galena's Audit Committee. Galliker is the Chair. According to its charter, the

Audit Committee's purpose is to assist the Board's oversight of the Company's accounting and

reporting processes, compliance with legal and regulatory requirements, and performance of the

Company's internal audit function. The Audit Committee is responsible for receipt from the

Chief Executive Officer and the Chief Financial Officer of a report of all significant deficiencies

and material weaknesses in the design or operation of internal controls over financial reporting

and any fraud that involves manqgement or other employees who have a significant role in the

Company's internal controls. As a result, assuming that the Audit Committee functioned

properly, defendants Chin, Galliker, and Nisi were aware that the Company was paying a stock

promoter and, because their committee memberships required them to review the Company's

STOLL STOLL BERNÉ LOKTING & SHLACHTER P C



TEL (503) 227-1600 FAX (503) 227-6840

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1 hnancials and results, knew that no material development had occurred sufficient to explain the

2 over-200% jump in Galena's share price'

3 50.

As described above, defendant Chin sold over 200,000 shares of his Company stock for

profits of over $1.2 million in transactions on January 30,2014 and February 12,2014.

Defendant Galliker sold 3 00,000 shares of his Company stock for profits of over $ I '2 million in

a transaction on Febru ary 3,2014. Defendant Nisi sold 450,000 shares for profits of over $2.7

million in transactions on January 17,2014 and January 29,2014. After the completion of these

transactions, none of defendants Chin, Galliker, or Nisi owned a material amount of Galena

stock.

51.

Thus, even though defendants Chin, Galliker, and Nisi knew that no material event had

occurred to warrant the dramatic price increase in Galena stock, and also knew, consciously

disregarded, or were recklessly unaware that the Company had retained DreamTeam, they

nonetheless executed the foregoing stock sales at a time they knew the value of Galena stock to

be artificially inflated, As a result, demand is excused as to defendants Chin, Galliker, and Nisi

because they face a substantial likelihood of liability for their breaches of fiduciary duties.

Six of the Seven Director Defendants Sold Substantial Amounts of Stock in a Short Period

of Time

52.

Defendants Ahn, Chin, Galliker, and Nisi engaged in the insider stock sales described

above. In addition, on January 17,2014 and January 30,2014, defendant Hillsberg executed

stock sales of over 450,000 shares of Galena stock for profits of over $2.7 million. On January

17 ,2014,defendant Kriegsman sold 450,000 shares of Galena stock for profits of over $2.9

million. After completion of these transactions, defendants Hillsberg and Kriegsman did not

hold a material amount of Galena stock. As a result, these six insider selling directors, a majority

STOLL STOLL BERNE LOKTING & SHLACHTER P C'



TEL (503) 227-1600 FAX (503) 227-6840

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I of the Board, engaged in insider stock sales while Galena stock was artificially inflated by the

2 improper DreamTeam stock promotion'

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53.

These six defendants knew that no material event, such as FDA approval of a major drug

candidate, had occurred that would warrant a greater than200o/o increase in the Galena stock

price, and they knew, consciously disregarded, or were recklessly unaware that the Company had

retained DreamTeam to promote its stock. They thus knew that Galena stock was artificially

inflated. All six decided to divest themselves of nearly all of their Galena stock within less than

two weeks of each other which coincided with the end of the stock promotion. Any legitimate

reason for selling stock is belied by the timing and volume of the sales. As a result, demand is

excused as to all six of these Director Defendants because they face a substantial likelihood of

liability for their breaches of fiduciary duties'

Demand Is Excused Because A Majorify Of The Board Lacks Independence

54.

Defendant Ahn, in addition to facing a substantial likelihood of liability, is interested

because he is primarily employed by the Company. As such, he is unable to disinterestedly and

independently consider a demand for litigation'

55.

In addition to being interested as a result of their threat of personal liability, defendants

Ahn, Chin, Galliker, Nisi, Hillsberg, and Kriegsman are incapable of objectively considering a

pre-suit demand because they participated in the challenged transactions: insider stock sales at a

time that Galena stock was artihcially inflated due to the improper, undisclosed, stock promotion

activities of DreamTeam. Where a majority of the Board has engaged in challenged self-dealing

transactions, demand is excused; As a result, any demand on the entire Galena Board would

have been futile and is excused.

STOLL STOLL BEIìNE LOKTING & SHLACHTEII P C'



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56.

As parlicul arizedherein, to properly prosecute this lawsuit, the Director Defendants

would have to sue themselves and the other defendants, requiring them to expose themselves and

their comrades to tens of millions of dollars in civil liability and/or sanctions. This they have

refused to do thus far, and will not do in the future. A majority of the Director Defendants are

exposed to potential liability for bad faith breaches of fiduciary duties as detailed herein. Thus,

demand on the Director Defendants is futile, and therefore, excused.

FIRST CLAIM FOR RELIEF

(Breach of FiduciarY DufY)

57.

Plaintiff incorporates by reference and realleges each and every allegation set forth

above, as though fully set forth herein.

58.

Each defendant owes and owed to the Company the duty to exercise candor, good faith,

and loyalty in the management and administration of Galena's business and affairs, particularly

with respect to maintaining compliance with applicable laws and regulations in core areas of the

Company's business, as well as controls over disclosure'

59.

Defendants' conduct set forth herein was due to their intentional breach of the fiduciary

duties they owed to the Company. Defendants intentionally breached or disregarded their

fiduciary duties to protect the rights and interests of Galena.

60.

In breach of their fiduciary duties owed to Galena, defendants willfully participated in

and caused the Company to expend unnecessarily its corporate funds, rendering them personally

liable to the Company for breaching their fiduciary duties.


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61.

As a direct and proximate result of defendants' breaches of their fiduciary obligations,

Galena has sustained and continues to sustain significant damages. As a result of the misconduct

alleged herein, defendants are liable to the Company'

SECOND CLAIM FOR RELIF

(Abuse of Control)

62.

Plaintiffincorporates by reference and realleges each and every allegation set forth


63.

Defendants' misconduct alleged herein constituted an abuse of their ability to control and

influence Galena, for which they are legally responsible.

64.

As a direct and proximate result of defendants' abuse of control, Galena has sustained

significant damages,

65,

As a direct and proximate result of defendants'breaches of their fiduciary obligations of

candor, good faith, and loyalty, Galena has sustained and continues to sustain significant

damages. As a result of the misconduct alleged herein, defendants are liable to the Company.

66.

By reason of the foregoing, Galena has been damaged.

THIRD CLAIM FOR RELIEF'

(Unjust Enrichment)

67.

Plaintiffincorporates by reference and realleges each and every allegation set forth



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68.

By their wrongful acts and omissions, including illicit insider stock sales, defendants

were unjustly enriched at the expense of, and to the detriment of, Galena'

69.

Plaintiff seeks restitution from each of defendants, on behalf of Galena, and seeks an

order of this Court disgorging all profits, benefits, and other compensation obtained by each of

defendants, as a result of their wrongful conduct and breaches of fiduciary duties'

PRAYER RELIEF

FOR THESE REASONS, Plaintiff demands judgment in the Company's favor against all

defendants as follows:

A. Declaring that Plaintiff may maintain this action on behalf of Galena and that

plaintiff is an adequate representative of the Company;

B. Declaring that the Director Defendants have breached and/or aided and abetted

the breach of their fiduciary duties to Galena;

C. Determining and awarding to Galena the damages sustained by it as a result of the

violations set forth above from each of the defendants, jointly and severally,

together with interest thereon;

D. Directing Galena and the Director Defendants to take all necessary actions to

reform and improve its corporate governance and internal procedures to comply

with applicable laws and to protect Galena and its shareholders from a repeat of

the damaging events described herein, including, but not limited to, putting

forward for shareholder vote the following resolutions for amendments to the

Company's By-Laws or Articles of Incorporation; and the following actions as

may be necessary to ensure proper Corporate Governance Policies:


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1. proposal to strengthen the Board's supervision of operations and develop

and implement procedures for greater shareholder input into the policies

and guidelines of the Board;

2, a provision to permit the shareholders of Galena to nominate candidates

for election to the Board;

3. a proposal to ensure the establishment of effective oversight of compliance

with applicable laws, rules, and regulations;

E. Ordering disgorgement of Defendants' profits from the improper stock sales

described herein;

F. Awarding Galena restitution from defendants, and each of them;

G. Awarding Plaintiff the costs and disbursements of this action, including

reasonable attorneys' and experts' fees, costs, and expenses; and

H. Granting such other and further equitable relief as this Court may deem just and

proper.

JURY DEMAND

Plaintiff demands a trial bY jurY.

DATED this 27th day of February, 2014.

STOLL STOLL LOKTING & P.C

By:SB No.

S. Dubaneivh, OSB No. 975200Jennifer S.'Wagner, OSB No. 024470

209 SV/ Oak Street, Suite 500Portland, OPt97204Telephone: (503)227-1600Facsimile: (503) 227-6840Email: [email protected]

kdubanevich@stollberne. comjwagner@stollberne'com

STOLL STOLL BERNE LOKTING & SHLACHTER P'C'

209 S W. OAK STIIEET, SUITE 5OO


TEL (s03) 227-1600 F AX (s03\ 227-6840

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STOLL STOLL BERNE LOKTING 6E SHLACHTER P.C.

209 S.W, OAK STREET, SUITE 5OO


TEL. (503], 227-1600 FAX (s03) 227-6840

and

Pro Hac Vice)Hac Vice)admitted Pro Hac Vice)

HARWOOD FEFFER LLP488 Madison AvenueNew York, NY 10022(2r2) e3s-7400

Atto r n ey s fo r P I a int íff

Trial Attorney: Steve D. Larson

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