U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 21200 / September 8, 2009
Securities and Exchange Commission v. Gary A. Reys, Case No. CV-09-1262 (RSM) (W.D. Wash. filed Sept. 8, 2009); Securities and Exchange Commission v. CellCyte Genetics Corporation and Ronald W. Berninger, Case No. CV-09-1263 BAT (W.D. Wash. filed Sept. 8, 2009)
SEC CHARGES SEATTLE-AREA BIOTECH WITH FRAUDULENTLY HYPING STEM CELL BREAKTHROUGH
The Securities and Exchange Commission today charged CellCyte Genetics Corporation, a biotechnology company based in Bothell, Wash., and its former CEO and Chief Scientific Officer, for falsely telling investors that the company's cutting-edge stem cell technology had been proven successful and was headed for human trials. In reality, the SEC alleges, the company merely had a license for a very early stage technology and no reasonable basis for its claims. According to the SEC, stock promoters hired by the company then spread the false information to investors, briefly driving the stock price to $7.50 before it plummeted back down to under a dime.
The SEC's complaints, filed in federal district court in Seattle, allege that in multiple public filings with the SEC and in other investor materials, CellCyte falsely claimed it had received U.S. Food and Drug Administration ("FDA") approval to begin human clinical trials with a special stem cell compound to repair the heart. In fact, the SEC alleges, CellCyte did not know how to properly formulate the stem cell compound, had never attempted experiments with the compound to repair organs, and had not satisfied any of the FDA requirements to begin human clinical trials. According to the SEC, CellCyte's Chief Scientific Officer, Ronald Berninger of Mukilteo, Wash., originally approved or participated in the drafting of many of the false and misleading statements, while CEO Gary Reys of Freeland, Wash., approved the company's fraudulent SEC filings.
The SEC's action further alleges that CellCyte engaged in an illegal stock distribution by partnering with a Canadian stock promoter, who sent millions of spam emails, faxes and newsletters containing false information about CellCyte. During the August-December 2007 promotional campaign, CellCyte's stock price rose from $4.00 to $7.50, briefly giving the fledgling company a market capitalization of nearly half a billion dollars. The price later crashed to under ten cents per share.
The SEC's action against CellCyte and Berninger alleges that CellCyte violated Sections 5(a) and 5(c) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 12b-20, 13a-11 and 13a-13. The SEC alleges that Berninger violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and that Berninger aided and abetted CellCyte's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder. CellCyte and Berninger agreed to a settlement, without admitting or denying the SEC's allegations, in which they each consented to a permanent injunction; Berninger also agreed to pay a $50,000 civil penalty and be barred from serving as an officer or director of a public company for five years.
In a separate litigated action, the SEC charges Reys with violating Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and with aiding and abetting CellCyte's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder. The SEC's action against Reys further alleges that he made false statements about his past employment and that he concealed CellCyte's role in the spam campaign. The SEC seeks injunctive relief, a monetary penalty, and an order barring Reys from serving as an officer or director of a public company.
SEC Complaint v. ReysSEC Complaint v. CellCyte Genetics and Berninger