In oral arguments in a consolidated appeal over an asset freeze sought and secured by the US Securities and Exchange Commission, a US appeals court left unaddressed claims by Reven Holdings, maker of Rejuveinix, that the relief ordered by a Colorado federal judge leaves it unable to maintain its patent portfolio. Last summer, the biotechnology and pharmaceutical company launched a $100 million lawsuit against the federal government in connection with the SEC inquiry, which it says constitutes an impermissible taking under the Fifth Amendment.
A bid by Reven Holdings and its founders Brian Denomme, Peter Lange and Michael Volk to lift a freeze on Reven’s assets to resume clinical trials on the cardiovascular and anti-inflammatory drug Rejuveinix, explore licensing opportunities for the same and pay patent maintenance fees seemingly fell flat today.At a hearing before the US Court of Appeals for the Tenth Circuit, the judges were more interested in findings by US Judge Daniel D. Domenico that the defendants likely violated US securities law than the scope of relief he ordered to halt any further violations.
John Schreiber of Winston & Strawn, representing Reven, told the panel that the asset freeze was overly broad.
“We're not talking about blocking the transfer of a particular parcel of property or enjoining the company from selling particular assets. This was an asset freeze that applied to all assets, funds or other property of any kind, including, without limitation, intellectual property, including patents and trademarks,” Schreiber argued.
“It also applied to any and all bank, brokerage and other financial accounts, both of the company and of the individuals. In other words, the asset freeze was intended to and unfortunately did, shut down the company's operations entirely, as well as the lives of the individual defendants,” he added.
The asset freeze, originally in the form of a temporary restraining order later converted to a preliminary injunction, came in response to a complaint by the US Securities and Exchange Commission that the individual defendants were misusing Reven funds on personal expenses and misled investors on their executive compensation packages by as much as $5.75 million.
Later, Domenico modified the terms of the relief to allow Reven to “explore alternative methods of obtaining the financing necessary to preserve Reven’s assets and keep the company afloat.”
But the biotechnology and pharmaceutical company says that carveout was too little, too late.
It launched dual appeals to the Tenth Circuit, challenging not only Domenico’s finding the SEC is likely to succeed but also his refusal to lift the freeze outright, which Reven said — and Domenico conceded — diminishes the value of Reven’s intellectual property.
To that end, Reven maintains the SEC was misled by Reven investors Leah Schaatt and Lee-Ann Frost about Reven’s alleged misrepresentations, as part of a scheme they devised with a “disgruntled” former Reven executive to “usurp Reven’s management and seize Reven’s intellectual property.”
Schaat and Frost largely succeeded when Reven’s assets were frozen, Reven observes in its October 2024 appellant brief (see here).
In support, Reven cited submissions by the duo to Domenico which acknowledge the freeze has the “effect of preventing Reven from maintaining its patent portfolio and advancing its pharmaceutical candidates.”
Those submissions were made in the context of a request, denied by Domenico, by Schaat and Frost to intervene, and for the appointment of a receiver or liquidation agent of their choosing to “marshal and sell the assets of Reven.”
But the SEC says the district judge was well within his discretion, arguing in a December 2024 appellee brief that “a temporary freeze is appropriate to preserve the status quo and prevent the defendants from further dissipating investor funds” (see here).
Reven’s portfolio concerns are overblown, according to the SEC.
To that end, the SEC notes that not only did Domenico refuse to force a sale of Reven’s assets, he modified the asset freeze in order to “permit the defendants to preserve and maintain Reven’s intellectual property and patents in various ways,” by allowing third parties to pay expenses on behalf of Reven and its affiliates.
At today’s arguments Schreiber said the SEC failed to meet its burden of proving his client committed a clear violation of federal securities law, that Reven’s executives were not overpaid, and that the statements to investors singled out as problematic were “innocent mistakes” or, at most, reckless.
But, he continued, “even if” those same statements were false, which Reven disputes, it does not mean they were likely to recur — the impetus behind an asset freeze.
“That is a scienter analysis that goes beyond the first showing [of a violation]. They had to show something akin to intent. Negligence is not enough,” Schreiber said.
Paul Alvarez, representing the SEC, defended Domenico’s asset freeze and subsequent modification, asserting that although Reven may have wanted to resume its clinical trials and normal business operations, they lacked the necessary capital.
According to Alvarez, per Domenico’s findings, at the time the asset freeze was entered Reven “had approximately $200,000 in the bank.” In assessing the public interest factors for injunctive relief, Alvarez told the panel, “you have to take that into account.”
“The evidence clearly showed that [Reven] had, for a period of years, engaged in multiple acts in different areas of securities fraud and obtained millions of dollars in doing so. They simply didn't have the ability to do what they wanted to do,” Alvarez added.
Reven in August 2024 sued the US government in the Court of Federal Claims for $100 million in damages.
In the lawsuit, it says that the asset freeze runs afoul of the Takings Clause of the US Constitution by depriving it of “all beneficial use of its intangible and tangible property … without just compensation, in violation of the Fifth Amendment.”
The complaint further says Reven, as a result of the relief ordered by Domenico, “has now lost four of its five patent families and has been forced to abandon prosecution of many patent applications.”
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