Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

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Tuesday, September 8, 2009

SEC Charges Start-up Biotech Company with Securities Fraud

The SEC charged CellCyte Genetics Corporation, a biotechnology company based in Bothell, Wash., and its former CEO and Chief Scientific Officer, for falsely telling investors that the company's cutting-edge stem cell technology had been proven successful and was headed for human trials. In reality, the SEC alleges, the company merely had a license for a very early stage technology and no reasonable basis for its claims. According to the SEC, stock promoters hired by the company then spread the false information to investors, briefly driving the stock price to $7.50 before it plummeted back down to under a dime.

The SEC's action against CellCyte and Berninger alleges that CellCyte violated Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-11 and 13a-13. The SEC alleges that Berninger violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and that Berninger aided and abetted CellCyte's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder. CellCyte and Berninger agreed to a settlement, without admitting or denying the SEC's allegations, in which they each consented to a permanent injunction; Berninger also agreed to pay a $50,000 civil penalty and be barred from serving as an officer or director of a public company for five years.

In a separate litigated action, the SEC charges Reys with violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and with aiding and abetting CellCyte's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder. The SEC's action against Reys further alleges that he made false statements about his past employment and that he concealed CellCyte's role in the spam campaign. The SEC seeks injunctive relief, a monetary penalty, and an order barring Reys from serving as an officer or director of a public company.

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