by T. GormanPosted on Posted in SECActions

The SEC prevailed at trial against the former CEO of a biopharmaceutical company on claims that he made false and misleading statements regarding the regulatory approval status of the firm’s only drug. Following a two week trial the jury returned a verdict finding the former executive liable for violating Exchange Act Section 10(b). The jury also concluded that the executive was not liable for aiding and abetting the firm’s failure to file annual, quarterly and current reports that were accurate and not materially misleading under Exchange Act Section 20. SEC v. Ferrone, Civil Case No. 1:11-cv-05223 (N.D. Ill. Filed Aug. 1, 2011).

The case centers on the regulatory status of drug SF-1019, the only drug of Immunosyn Corporation. The California based company, whose shares are registered with the Commission and quoted on the OTCBB, was formed to market, distribute and sell the drug. SF-1019 is derived from goat blood. It had the potential to treat a variety of ailments, including HIV and diabetic neuropathy. The company was named as defendants Argyll Biotechnologies, LLC, its major shareholder, two other shareholder entities, CEO Stephen Ferrone, CFO Douglas McClain Jr., Chief Scientific Officer Douglas McClain, Sr. and Argyll’s CEO James Miceli. Immunosyn stated in public filings over a four year period beginning in 2006 that Argyll, which controls SF-1019, planned to commence the regulatory approval process for human clinical trials in the U.S. Yet the FDA had twice halted any efforts to initiate those trials. The FDA actions, however, were not disclosed until April 2010. During this period Messrs. Ferrone and McClain, Jr. signed and certified public filings by the company which contained the false statements.

Additional misstatements were made by other executives., according to the SEC. For example, during a presentation at a clinic Mr. McClain Sr. represented that SF-1019 had been used to treat patients under a compassionate waiver granted by the FDA. This statement was false. He also claimed in the presentation that the Department of Defense had purchased 600,000 vials of the drug. This claim was false.

Finally, during the period Immunosyn was making misrepresentations about SF-1019, Messrs. Miceli, MClain Jr. and McClain, Sr. sold shares in the company, raising about $20 million. At the time the three men did not disclose the fact that the FDA had repeatedly refused to permit the trials to go forward. The complaint alleged violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 16(a) and 20(a). See Lit. Rel. No. 23528 (May 3, 2016); The court previously granted summary judgment in favor of the Commission and against defendants Douglas McClain Jr. and Sr. on insider trading charges and against Mr. McClain Sr. for making false statements and failing to deliver certain securities to purchasers. See Lit. Rel. No. 23116 (Oct. 15, 2014).

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by T. GormanPosted on Posted in SECActions

Insider trading has long been a staple of SEC enforcement. The agency has brought a number of actions against corporate executives who have abused their position by using inside information entrusted to them for personal gain rather than the corporate purpose for which they received it. The Commission’s action against Silicon Valley executive Peter Nunan is another example of such an action. SEC v. Nunan, Civil Action No. 5:16-cv-02373 (N.D. Cal. Filed May 2, 2016).

Mr. Nunan was a Senior Engineering Fellow at Screen SPE USA, a subsidiary of Screen Holdings Co., Ltd. Screen Holdings is a Japanese semiconductor equipment company. This action centers on the acquisition by Tokyo Electron of FSI International, Inc. , a Minnesota based supplier of semiconductor equipment services, announced on August 13, 2012.

By December 2011 Tokyo Electron, a Japanese semiconductor equipment company, was in negotiations to acquire FSI. By August 2012 substantial steps had been taken toward the commencement of a tender offer. A letter of intent with proposed pricing had been submitted; an exchange of confidential information had taken place; and due diligence work was done. The negotiations continued.

By February 2012 a member of FSI’s board of directors who had a professional relationship with Mr. Nunan informed him about the negotiations. The discussions between the two continued into August 2012. They were intended to be confidential. The information was disclosed to permit Mr. Nunan to try and obtain a competing bid. Mr. Nunan furnished the information to the executive at Screen Holdings responsible for evaluating a potential competing bid. Ultimately Screen Holdings chose not to submit a bid.

During the time he was receiving information on the proposed tender offer, Mr. Nunan purchased shares of FSI. Specifically, between February 14 and August 9, 2012 he acquired 105,000 shares of FSI. He also recommended that his brother purchase shares. On July 23, 2012 his brother bought 1,000 shares.

Following the announcement of the tender offer, the share price increased 50%. Mr. Nunan sold most of his FSI stock the next day. He had realized and unrealized profits of $254,858. The complaint alleges violations of Exchange Act Sections 10(b) and 14(e).

Mr. Nunan resolved the matter, consenting to the entry of a permanent injunction prohibiting future violations of the Sections cited in the complaint. He also agreed to the entry of an order requiring him to pay $254,858 in disgorgement, prejudgment interest and a penalty equal to the amount of the disgorgement.

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