SEC hits out at paid-for bioanalysts, CEOs and firms, charges 27

ImmunoCellular Therapeutics, CytRx Corporation, and Galena Biopharma, as well as two CEOs, were charged by the SEC.

The Securities and Exchange Commission (SEC) has charged 27 companies and individuals over allegations of fraudulent promotion of stocks, as it says it has uncovered a number of writers, sometimes paid by biotech CEOs and comms firms, dressing up unbiased reporting while secretly being paid to tout a company stock.

According to both the SEC and several complaints in court, these companies and people used “deceptive measures” to “hide the true sources of the articles from investors.” In all, the SEC has filed fraud charges against three public companies, seven stock promotion or communications firms, and two company CEOs; also on this hit list are six individuals and nine writers. 

ImmunoCellular Therapeutics, CytRx Corporation, and Galena Biopharma are the biotechs cited, with CEOs Manish Singh of ImmunoCellular and Mark Ahn of Galena falling under the SEC’s crosshairs.

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Between the fall of 2011 and 2012, Singh was said to have “engaged in a scheme to mislead investors” by commissioning over 50 internet publications promoting his biotech on investment websites. They were purported to be independent from ImmunoCellular when, in fact, they were paid promotions, with the biotech spending nearly a quarter of million dollars on the pieces during this time frame.

CytRx, meanwhile, was said in a SEC filing to have been approached in 2013 by Michael McCarthy, owner of the DreamTeam Group, and then signed up for a series of marketing services, as it looked to turn its attentions toward an IPO. The SEC says that CytRx emailed DreamTeam ahead of its proposed offering, saying: “We need one to two articles that are bullish on [investment website] Seeking Alpha by 12/31. In addition we need a huge blitz in January 2014.” They paid around $65,000 for its services, with other articles also popping up across several other investment-type sites.

And Galena/Ahn, who have been hit before by TheStreet and others, were said from the SEC to have, over a two-year period from early 2012 to early 2014, “engaged in a scheme to mislead investors by commissioning over 100 internet publications promoting Galena that purported to be independent and objective when, in fact, they were paid promotions funded by Galena.”

Ahn was said to have used Lidingo Holdings, as well as DreamTeam, paying writers to talk about Galena on investment websites through articles and/or postings, but all without disclosing that Galena had in fact funded these pieces.

“On over 40 occasions, the writers affirmatively misrepresented that they were not receiving payment for their articles other than from the website on which their articles appeared,” the SEC says. “These omissions and misrepresentations about Galena’s funding of the articles and postings created the misleading impression that the opinions they contained were objective and independently formed.”

Some of the articles funded constituted “unlawful prospectuses,” the SEC adds, as they came while Galena was preparing to offer or offering securities.

Of those charged, 17 have agreed to settlements that include disgorgement or penalties ranging from as low as $2,200 to nearly $3 million based on “frequency and severity of their actions.”

Stephanie Avakian, acting director of the SEC’s division of enforcement, said in a release: “If a company pays someone to publish or publicize articles about its stock, it must be disclosed to the investing public. These companies, promoters, and writers allegedly misled investors by disguising paid promotions as objective and independent analyses.”

Melissa Hodgman, associate director of the SEC’s division of enforcement, added: “Deception takes many forms. Our markets cannot operate fairly when there are deliberate efforts to reach prospective investors with positive articles about a stock while hiding that the companies paid for those articles.”