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22nd Century Group being sued by investor over failed Chinese joint venture

Clarence cigarette manufacturer 22nd Century Group is facing a $500 million lawsuit filed by its biggest shareholder, who contends that the company intentionally caused a Chinese joint venture to fail last year so it could cut the investor out of the Far East opportunity.

The lawsuit, filed last month by Crede CG, an entity controlled by investor Terren S. Peizer, alleges that 22nd Century prevented the Asian joint venture from meeting its basic obligations so it could terminate the deal, “cut Crede out and secretly pursue the opportunity for itself.”

Peizer, through Crede, invested $10 million in 22nd Century in 2014, in return for 22nd Century stock and a 25 percent stake in the Chinese joint venture.

Twenty-second Century said the lawsuit is “frivolous and completely without merit.” The company said it believes that the lawsuit is an attempt by Peizer, who owns 9.9 percent of 22nd Century’s stock, to push down the company’s stock price so he can buy more shares through a feature in their agreement that gave Crede the ability to obtain additional shares.

The company terminated that warrant agreement in March, contending that Peizer had violated a portion of the agreement that limited his involvement in 22nd Century’s corporate governance by emailing board members. Peizer and Crede contend that the warrant agreement remains valid.

Twenty-second Century, which wanted Crede’s help to expand into China, also said Crede and Peizer were the ones “who failed to perform under the joint venture agreements and who impeded the company’s efforts to expand into China.” The company said that it “plans to continue its efforts to conduct business in China without Crede and Peizer.”

On Wednesday, 22nd Century shares closed down by 6.58 percent, or 5 cents, to 78 cents.