SEC Prevails In Jury Trial Against Former CEO of Drug Firm
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).