Last Updated Sep 11, 2009 1:54 AM EDT
Stem cell player CellCyte ran into trouble when it teamed up with investor G. Brent Pierce, who had already been barred from trading in Canada because of his role in pumping and dumping stocks like Lexington Resources and Morgan Creek Energy. You'd think that might have raised a red flag with CellCyte, but CEO Gary Reys told the Seattle Times that his lawyers had investigated Pierce and found nothing wrong.
Pierce blasted out hypey newsletters and brochures claiming CellCyte's technology "truly could be the most astonishing and important medical breakthrough in your lifetime!" and that the stock "could be the chance of your lifetime to turn $10,000 into $4 million, maybe even $15 million!" CellCyte's shares rocketed from $4 to $7.50 â€" but Reys told the Times the activity was simply an "amazing" show of investor confidence.
CellCyte's stock is now trading at four cents. It had $923 in cash as of June 30 and is basically in limbo, trying to fundraise and figure out if the technology it licensed from the government is worth a crap or not.
And this week the SEC sued CellCyte, Reys and former CSO Ronald Berninger for "for falsely telling investors that the company's cutting-edge stem cell technology had been proven successful" and was cleared for clinical trials.
According to the SEC press release:
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.And while the company claimed it had no control over Pierce, the SEC said Berninger approved the misleading statements and Reys approved fraudulent SEC filings.
CellCyte and Berninger agreed to a settlement, accepting a permanent injunction without admitting or denying guilt. Berninger also agreed to pay a $50,000 penalty and be barred from serving as an officer or director of a public company for five years.
Reys case is still pending.
Jail photo by Flickr user D.C.Atty, CC