Paul Weiss, Reed Smith Accused of Coverup by Whistleblower (2)

Lawyers at two top firms concealed information that could have sidetracked a $500 million biotech deal, according to claims in a whistleblower complaint filed with the Securities and Exchange Commission.

The complaint and two related lawsuits in California revolve around accusations by Joel Cohen, a screenwriter best known for his work on “Toy Story,” that Sofie Biosciences Inc. bilked him and his wife out of at least $38 million. They allege that Sofie deliberately undervalued assets acquired in an earlier deal that they helped finance to reduce the number of preferred shares they were issued – which then watered down their returns when Sofie later agreed to sell a majority stake to private equity firm Trilantic North America.

Jeffrey Marell, head of Paul Weiss’s M&A practice, and Michael Sanders, a Reed Smith partner who works with startups, are accused in the whistleblower complaint of knowing that Cohen was threatening legal action but actively excluding the matter from required disclosures in the Trilantic deal. The SEC complaint alleges the firms could be liable for aiding and abetting or directly violating federal securities fraud rules.

The complaint centers on whether the Cohen-Sofie dispute was material, and therefore needed to be disclosed. It highlights complicated questions about where the line exists between lawyers’ differences of professional judgment, and legal and ethical violations.

“This is a story of brazen greed,” according to the July lawsuit, filed on behalf of Beyond Infinity II, an LLC to which Cohen and his wife Michele Pietra assigned their claims. “It is the story of collusion between a bioscience mogul family, their attorneys, and an over-eager appraisal company conspiring to cheat investors.”

Paul Weiss and Marell are named in the whistleblower complaint, but not the lawsuits. “These allegations are baseless and have no merit,” a Paul Weiss spokesperson said via email.

Sanders, Sofie and Patrick Phelps, the Virginia-based company’s CEO, didn’t provide comments. Reed Smith has disputed much of the allegations in court filings.

Reed Smith in a court filing accused Cohen, previously a Sofie board member, of a pressure campaign to try to force the company to pay him a windfall amount. The shares given to Cohen in exchange for the note were worth nearly $1.5 million, already a return of more than 11 times his $125,000 loan, the firm said.

Lawyers for Sofie have argued that Cohen waived his claims in releases related to the Trilantic deal, according to documents reviewed by Bloomberg Law, with one attorney saying Cohen didn’t respond to a letter refuting his claims for more than a year. The company and its lawyers also said in the documents that the disputed appraisal—central to the earlier deal and to Cohen’s allegations—complied with an agreement it had with Cohen and other noteholders.

The SEC whistleblower complaint, obtained by Bloomberg Law, was filed with the agency on July 22. It includes a cover sheet confirming that the complaint was filed, along with a submission number. The commission doesn’t confirm the existence of complaints, filed by tipsters who may get as much as 30% of any money collected in a successful enforcement action resulting from their information.

The SEC by law must keep names of people filing complaints confidential, but the whistleblower in this case self-identified to Bloomberg Law and spoke on condition of anonymity for fear of reprisal.

A related lawsuit filed in Los Angeles last month, which names Sofie, Reed Smith, and Los Angeles law firm Bird Marella as defendants, focuses on the asset valuation dispute. It also names appraiser Kroll LLC, which didn’t respond to requests for comment. A separate suit filed in LA last year accuses Reed Smith of malpractice for representing both Sofie and the noteholders while helping to orchestrate the valuation scheme.

Sofie, Reed Smith, Bird Marella, and Kroll have not filed responses to the July lawsuit. Reed Smith said in court filings it never represented the noteholders. A Reed Smith spokesperson said the allegations against the firm “are wholly without merit and will be vigorously defended.”

‘The Deal Will Collapse’

Cohen—a Sofie board member at the time—was one of 14 noteholders who loaned the company $950,000 for its 2019 acquisition of Houston Cyclotron Partners, a healthcare facility in Texas, according to documents included in both lawsuits and the whistleblower complaint. They show Sofie agreed to repay the group in the form of Series B Preferred shares. The repayment amount would include a loan fee, based on the fair market value of the subsidiary as determined by an appraisal.

The company eventually used a $2.5 million appraisal by Kroll to value HCP when the payment came due, according to the July lawsuit and the whistle blower complaint. Sofie allegedly turned to Kroll after rejecting a $7 million valuation from another firm.

HCP operates a cyclotron, used to prepare radiopharmaceuticals that are commonly used to test for and treat cancer. Sofie uses HCP’s cyclotron machinery to produce Pylarify, the company’s “crown jewel"—a lucrative product used for PET scans for prostate cancer.

Kroll’s valuation was significantly lower than another firm’s because it excluded Sofie’s use of HCP to manufacture products like Pylarify, on the grounds that HCP wasn’t making Pylarify when Sofie acquired it, according to the July lawsuit. Kroll did not respond to a comment request and has not responded to the lawsuit.

Sofie’s executives and outside lawyers knew that Cohen was threatening legal action over the HCP valuation in 2023 as the company was negotiating its sale to Trilantic, the whistleblower complaint alleges. The deal was announced in January 2024 and closed six months later.

“If we go into aberration or litigation, the deal with Trilantic will collapse,” Michael Phelps, Sofie’s cofounder and chairman, wrote in an Aug. 3, 2023, email to other company officials. The email was included in the SEC complaint.

Michael Phelps did not respond to requests for comment.

Cohen’s lawyers sent a demand letter on Aug. 30, just under a year before the Trilantic deal closed.

“As you and Sofie are aware, Cohen has serious concerns about the Company’s compliance with and conduct related to its duties and obligations under the Note Agreement and Promissory Note,” an attorney for Cohen wrote in the letter, which was included in the complaint.

Cohen demanded in the letter that Sofie pay the loan fee based on a higher valuation, asserting that the company had previously agreed to the figure. Both sides told the other to preserve evidence.

Ronald Nessim, a partner at LA’s Bird Marella who was Sofie’s litigation counsel, responded to Cohen’s demands in a September 30 letter, which was included in the whistleblower complaint.

“Please know that if your client chooses to initiate litigation, Sofie reserves all rights to assert that he breached his duties to Sofie and preserves all rights and remedies for such conduct,” Nessim wrote.

The accusations entangle “two separate victims,” said Ann Lipton, a University of Colorado Law professor.

“One, the private equity buyer that was made unaware of some pending liability, but also the noteholders, or whichever noteholder it is, who’s claiming that their rights were subverted,” Lipton said.

Trilantic declined to comment.

Appraisal Dispute

Nessim told the board on Oct. 9, 2023, that the threat of litigation could “significantly impair” Sofie’s ability to sell stakes in the company, according to minutes of the meeting, reviewed by Bloomberg Law.

“Mr. Nessim stated that he and his colleagues believe that based on what they have seen and learned to date they believe that the Company has acted appropriately and complied with its obligations under the Notes and has strong defenses to the claims that have been or may be asserted by Mr. Cohen,” the minutes show.

Still, Nessim told the board that a majority of the noteholders signed a document acknowledging that the shares issued to them based on the Kroll valuation was full payment on the loan. A majority of the noteholders agreed to amend the loan agreement to specifically accept the Kroll valuation.

The move was meant “as an additional layer of protection” according to the meeting minutes.

At least one Sofie executive, Philipp Czernin, raised concerns about the appraisal, according to the July lawsuit. Nessim allegedly threatened Czernin with “significant personal and professional reprisals if he did not toe the company line” before the board approved the Kroll valuation, the suit alleges.

Czernin didn’t respond to requests for comment.

Smrity Randhawa, an accounting professor at the University of Southern California, said valuations have to be done in good faith.

“If the company knew that the subsidiary was manufacturing a product with significant potential for growth in sales or profits, that information should have been included in the subsidiary’s valuation,” said Randhawa, who was not involved in the matter.

“Leaving it out could be considered a material omission,” she said, or the information may have been properly excluded if the deal with the noteholders specified that the valuation be based on historical cost.

Sofie has declined to turn over communications and other documents related to the Kroll appraisal, according to court filings, arguing that they are shielded as attorney work product because the company’s lawyers from Reed Smith hired Kroll for the review.

The Merger

Marell, the Paul Weiss partner, was responsible for drafting and finalizing the Trilantic agreement and disclosures, the whistleblower said. He “begged” the company’s officers to settle the Cohen dispute before closing the Trilantic deal, according to the SEC complaint, which cited an unnamed company insider.

Marell did not respond to requests for comment on the accusations against him and his firm.

Sofie’s merger documents—"personally drafted” by Marell—referenced two other disputes unrelated to Cohen, according to the whistleblower complaint, at least one of which had already been settled. The documents allegedly stated that otherwise no members of the company were the target of any reasonably material actions.

“Paul Weiss had actual knowledge of the claims and their materiality, yet proceeded to draft and certify representations to Trilantic stating that there only two threatened claims—omitting Cohen’s entirely,” the whistleblower said in the complaint.

Sanders, the Reed Smith partner, advised Phelps that Sofie didn’t need to disclose the claims, arguing the noteholders signed a waiver, according to the SEC complaint.

Cohen and Pietra on April 26, 2024 signed broad releases when their shares were purchased as part of the merger agreement. But the waivers don’t bar fraud claims, according to the whistleblower complaint. Additionally, the documents relate to Cohen and Pietra rather than the LLC they’d assigned claims to, the complaint said.

“If the noteholders are saying, ‘Well, we’re waiving our rights, except for this inner slice of things,’ then you can see why the lawyers for the target would say, ‘Well, this isn’t something that needs to be disclosed to the buyer,’” said Lipton, the law professor.

However, “if there’s a plausible argument here that somebody messed with the financial statements or the valuation in a way that either screwed the private equity buyer or screwed the noteholders’ rights to obtain shares, then that could be a significant liability.”

Trialntic and Sofie announced they had closed the deal on June 4, 2024.

Records Fight

Cohen and Pietra are trying to obtain Kroll valuation documents as part of the 2024 malpractice suit against Reed Smith filed in California Superior Court.

Reed Smith’s lawyers advised the noteholders while also representing Sofie at the same time, according to the suit. The noteholders initially planned to form their own company to buy the HCP assets and then make a deal with Sofie to use the assets, according to the suit and a sworn declaration by Czernin, who continues to work as the company’s chief revenue officer. The lawyers allegedly convinced them to instead loan the funds to Sofie to buy the HCP assets and structured the terms in a way that benefited Sofie.

Reed Smith has denied having an attorney-client relationship with the noteholders in court documents. The said it cannot disclose information about the Kroll valuation because Sofie has not waived attorney-client privilege and attorney work product protections.

A judge is expected to soon issue a ruling in the malpractice case that could determine whether Cohen and Pietra can obtain the Kroll records.

The cases are Beyond Infinity II, LLC v. Sofie Biosciences, Inc., Cal. Super. Ct., No. 25STCV21482, 7/21/25 and Pietra v. Reed Smith, Cal. Super. Ct., No. 24STCV13051, 8/5/25.