The Scientist
Stem cell co. faked success: SEC by Jef Akst 9th September 2009
A stem cell company is in hot water with the US Securities and Exchange Commission (SEC) for falsely representing an early-stage experimental stem cell therapy as nearing human trials.
The SEC yesterday (September 8) filed charges against CellCyte, based in Bothell, Wash., as well as the company's former CEO and former chief scientific officer who were involved in the alleged deception, according to Forbes.com.
"The company really tried to take advantage of the hype over stem cells to give the false impression that they were on the verge of clinical trials when really it was just an early stage project that was going to require years of additional research and testing," SEC staff attorney Steven Buchholz told The Scientist.
In October 2005, CellCyte licensed several compounds that could deliver stem cells to various organs in the body. At that time, they stated that the first organ repair human trials were scheduled to begin in 2008. Several news releases from the company, as well as the required SEC reports after the company became public in 2007, portrayed false progress in developing the treatment, including claiming to have received US Food and Drug Administration (FDA) approval to begin human clinical trials, the SEC said in a statement.
In reality, however, "CellCyte did not know how to properly formulate the stem cell compound, had never attempted experiments with the compound to repair organs, and had not satisfied any of the FDA requirements to begin human clinical trials," according to the SEC statement.
In addition, the SEC reports, CellCyte recruited the help of a Canadian stock promoter, who engaged in a promotional campaign that included millions of spam emails, faxes and newsletters which contained the false information about CellCyte's stem cell progress. During this time, CellCyte's stock price rose dramatically, reaching $7.50 per share and giving the company a market capitalization of nearly $450 million. Later, after the promotional campaign had been halted, the stock plummeted to less than one dollar in January 2008, and now sells for just 5 cents per share.
"It really seems they took advantage of the whole promising stem cell field to give that false impression to investors," Buchholz said.
The SEC reached a settlement between CellCyte and former chief scientific officer Ronald Berninger, who neither admitted nor denied the SEC's allegations, but agreed to pay a $50,000 penalty and be barred from serving as an officer or director of a public company for five years. A separate case against former CEO Gary Reys has not been settled.
CellCyte describes itself in a 2005 press release regarding the licensing of the treatment as "a late-stage clinical development company" looking to develop new methods for using cord blood, adult, and peripheral stem cells for use in bone marrow transplants, heart repair, and other ailments.
Berninger was trained as a chemist and received his PhD from the University of Pittsburgh in 1972. Prior to joining the CellCyte team in 2007, Berninger had worked with several other biotech companies, including Genespan Corporation, Cennapharm Corporation, and CellPro, helping to develop drugs and build companies, according to Forbes.com.
Reys studied finance and accounting at the University of Washington, and has worked for more than 30 years in the pharmaceutical, biotechnology and medical device sectors, Forbes.com reported. In addition to the false statements made about CellCyte's stem cell therapy, the SEC further charges that Reys lied about his past employment and is seeking a monetary penalty, an injunction against further violations, and an order barring Reys from serving as an officer or director of a public company.
CellCyte did not reply to two phone requests for comment.
Update (9th September 2009): Just after this story was posted, CellCyte responded to The Scientist's requests for comment, stating that the claims the company made were based on information from the United States Department of Veterans Affairs (VA), from whom CellCyte had licensed the technology. "Once we realized the technology didn't do what the VA told us it would do, we discontinued working on that technology," said Randy Lieber, CellCyte's acting chief financial officer. The company is currently focusing solely on cell expansion and maintenance through the use of its patented bioreactor technology.
Stem cell co. faked success: SEC by Jef Akst 9th September 2009
A stem cell company is in hot water with the US Securities and Exchange Commission (SEC) for falsely representing an early-stage experimental stem cell therapy as nearing human trials.
The SEC yesterday (September 8) filed charges against CellCyte, based in Bothell, Wash., as well as the company's former CEO and former chief scientific officer who were involved in the alleged deception, according to Forbes.com.
"The company really tried to take advantage of the hype over stem cells to give the false impression that they were on the verge of clinical trials when really it was just an early stage project that was going to require years of additional research and testing," SEC staff attorney Steven Buchholz told The Scientist.
In October 2005, CellCyte licensed several compounds that could deliver stem cells to various organs in the body. At that time, they stated that the first organ repair human trials were scheduled to begin in 2008. Several news releases from the company, as well as the required SEC reports after the company became public in 2007, portrayed false progress in developing the treatment, including claiming to have received US Food and Drug Administration (FDA) approval to begin human clinical trials, the SEC said in a statement.
In reality, however, "CellCyte did not know how to properly formulate the stem cell compound, had never attempted experiments with the compound to repair organs, and had not satisfied any of the FDA requirements to begin human clinical trials," according to the SEC statement.
In addition, the SEC reports, CellCyte recruited the help of a Canadian stock promoter, who engaged in a promotional campaign that included millions of spam emails, faxes and newsletters which contained the false information about CellCyte's stem cell progress. During this time, CellCyte's stock price rose dramatically, reaching $7.50 per share and giving the company a market capitalization of nearly $450 million. Later, after the promotional campaign had been halted, the stock plummeted to less than one dollar in January 2008, and now sells for just 5 cents per share.
"It really seems they took advantage of the whole promising stem cell field to give that false impression to investors," Buchholz said.
The SEC reached a settlement between CellCyte and former chief scientific officer Ronald Berninger, who neither admitted nor denied the SEC's allegations, but agreed to pay a $50,000 penalty and be barred from serving as an officer or director of a public company for five years. A separate case against former CEO Gary Reys has not been settled.
CellCyte describes itself in a 2005 press release regarding the licensing of the treatment as "a late-stage clinical development company" looking to develop new methods for using cord blood, adult, and peripheral stem cells for use in bone marrow transplants, heart repair, and other ailments.
Berninger was trained as a chemist and received his PhD from the University of Pittsburgh in 1972. Prior to joining the CellCyte team in 2007, Berninger had worked with several other biotech companies, including Genespan Corporation, Cennapharm Corporation, and CellPro, helping to develop drugs and build companies, according to Forbes.com.
Reys studied finance and accounting at the University of Washington, and has worked for more than 30 years in the pharmaceutical, biotechnology and medical device sectors, Forbes.com reported. In addition to the false statements made about CellCyte's stem cell therapy, the SEC further charges that Reys lied about his past employment and is seeking a monetary penalty, an injunction against further violations, and an order barring Reys from serving as an officer or director of a public company.
CellCyte did not reply to two phone requests for comment.
Update (9th September 2009): Just after this story was posted, CellCyte responded to The Scientist's requests for comment, stating that the claims the company made were based on information from the United States Department of Veterans Affairs (VA), from whom CellCyte had licensed the technology. "Once we realized the technology didn't do what the VA told us it would do, we discontinued working on that technology," said Randy Lieber, CellCyte's acting chief financial officer. The company is currently focusing solely on cell expansion and maintenance through the use of its patented bioreactor technology.