Emerald Health sees CEO, CFO resign as CBD-focused company faces fraud allegations

Emerald Health Pharmaceuticals’ CEO and chief financial officer have both stepped down as the company battles fraud allegations from the Securities and Exchange Commission (SEC). 

The cannabinoid-focused company, which has a sclerosis drug in phase 2 trials, and the two executives each received so-called “Wells notices” from the SEC stating that the agency recommended enforcement action on several fraud allegations.

An SEC filing from the company dated July 8 showed that the alleged violations related to sections 17(a)(1), 17(a)(2) and 17(a)(3) of the Securities Act of 1934, which cover fraudulent practices. They are also related to section 10(b) of the act, which makes it unlawful to “use or employ, in connection with the purchase or sale of any security” a “manipulative or deceptive device or contrivance in contravention of such rules and regulations as the [SEC] may prescribe.”

The pharma company has submitted a settlement proposal and is in discussions with the SEC now, Emerald Health said Monday. “The company cannot predict with confidence or certainty the ultimate outcome of the commission’s process, including whether a settlement with respect to the issues raised in the Wells notices may be reached,” the biotech said.

Emerald Health CEO and Director Jim DeMesa resigned specifically because of the SEC notice and not because of a disagreement with the company, the biotech said. 

CFO Lisa Sanford also resigned, according to the announcement. Emerald Health board Chairman Jim Heppell thanked both executives for building the business into a clinical-stage biotech. 

The alleged breaches didn't relate to the company’s technology or intellectual property, Heppell added. “The board believes that Emerald’s unique technology has significant merit and value, and the company is committed to developing its novel therapeutic candidates to potentially address diseases with unmet needs.”

The company’s lead asset is EHP-101, an oral compound with an active ingredient that's a derivative of cannabidiol (CBD) and that's in a phase 2 clinical trial for the treatment of systemic sclerosis and multiple sclerosis. Its second candidate, EHP-102, is in preclinical development for Parkinson’s and Huntington’s diseases. 

Fierce Biotech has contacted the company for comment.