Charges of Fraud Hit Pharma Company, Execs
Securities fraud charges have been filed by the Securities and Exchange Commission against a California-based pharma company, three shareholder companies, and four senior executives for “misleading” investors about the regulatory status of the firm’s sole product.
According to a complaint filed before the federal court in Chicago on August 1, Immunosyn Corporation misled investors by stating that in various public filings from 2006 to 2010, its controlling shareholder – Argyll Biotechnologies LLC – either planned to start or had started the U.S. regulatory approval process for human clinical trials for SF-1019, a drug derived from goat blood that was intended to treat a variety of ailments.
Last April, another pharma company, Johnson and Johnson, settled charges filed by the SEC in relation to an alleged bribery committed by the firm to public doctors in European countries and to kickbacks paid to Iraq to illegally obtain contracts. The charges came amid the issue faced by its Tylenol product, a medication for attention deficit/hyperactivity disorder, which encountered manufacturing problems and got recalled in 2009.
On the other hand, the SEC said the public filings by Immunosyn failed to disclose that the U.S. Food and Drug Administration (FDA) had already twice issued clinical holds on drug applications for SF-1019, prohibiting clinical trials from occurring.
The SEC alleges that the pharma company also misleadingly stated that the regulatory approval process in Europe for human clinical trials for SF-1019 was underway, when in fact Argyll never submitted an application in Europe to conduct human clinical trials.
According to the SEC, Immunosyn’s CFO Douglas McClain Jr., Argyll’s Chief Scientific Officer Douglas McClain Sr., and Argyll’s CEO James Miceli engaged in insider trading by raising approximately $20 million from their sale of Immunosyn shares while knowing that misrepresentations were being made about the regulatory status of SF-1019.
Three of the executives were additionally charged with insider trading.
They sold most of these shares through Argyll and two other shareholders named in the SEC’s enforcement action: Argyll Equities, which McClain Jr. and Miceli jointly owned, and an offshore entity Padmore Holdings Ltd., which McClain Jr., McClain Sr., and Miceli jointly owned. Immunosyn’s CEO Stephen Ferrone also is charged by the SEC in the securities fraud scheme.
“These executives routinely authorized public filings that told investors a story about the status of the company’s prized drug that was far different from the behind-the-scenes reality,” said Merri Jo Gillette, Regional Director of the SEC’s Chicago Regional Office.
“Three of these executives went one step further to illegally profit from their tall tales by selling their company stock and reaping more than $20 million while repeatedly misleading investors about the drug.”
For example, McClain Sr. misstated the regulatory approval status of SF-1019 in a video on Immunosyn’s website and in a 2008 presentation in which he sold Immunosyn stock he owned through Padmore to patients at a Texas holistic clinic, some of whom were terminally ill. The SEC alleges that McClain Sr. raised approximately $300,000 from these patients, but never gave them the shares they bought.
The SEC’s complaint seeks a final judgment permanently enjoining the defendants from future violations of the antifraud provisions of the federal securities laws, ordering each defendant to disgorge all ill-gotten gains plus prejudgment interest and pay financial penalties, and barring Ferrone, McClain Jr., McClain Sr. and Miceli from serving as an officer or director of a public company.
Tracy Lo, Eric Phillips and John Kustusch of the SEC’s Chicago Regional Office conducted the SEC’s investigation with the assistance of the U.S. Food and Drug Administration.