The SEC filed an action against a biotech company, three shareholder companies, and four senior executives of the company for making false statements regarding the FDA status of its sole product. The executives were also charged with insider trading. SEC v. Ferrone, Civil Case No. 1:11-cv-05223 (N.D. Ill. Filed Aug. 1, 2011).

The case centers on Immunosyn Corporation and its only drug, SF-1019. The California based company, whose shares are registered with the Commission and quoted on the over-the-counter bulletin board, was formed to market, distribute and sell the drug. SF-1019 is derived from goat blood. It has potential to treat a variety of ailments including HIV and diabetic neuropathy. The company was named as a defendant along with 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 Defendants McClain Sr. and Miceli. For example, during a presentation at a clinic he 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. Nevertheless, he sold shares of Immunosyn stock to listeners based on these representations, taking the purchaser’s money but never delivering the shares.

Mr. Miceli caused Immunosyn to issue a false press release in 2009. At the time there were rumors that the company was considering a change in control transaction. In fact Mr. Miceli was actively pursuing a possible transaction to take the company private. Despite those facts, he had the company issue a press release denying the rumors.

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 alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b), 13(a), 16(a) and 20(a). The case is in litigation.

Two upcoming programs on the FCPA:

Program: Is FCPA Enforcement To Aggressive? August 5, 2011, ABA Annual Meeting Toronto.
Is FCPA Enforcement Overly Aggressive? The program links are here and here.

Program: Current Trends in FCPA Enforcement, August 17, 2011, Live in Menlo Park, CA, and webcast nationally. The program link is here.