U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 23220 / March 25, 2015
Securities and Exchange Commission v. BioChemics, Inc., et al., Civil Action No. 12-12324-MLW (United States District Court for the District of Massachusetts, Complaint filed December 14, 2012)
Federal Court Orders Massachusetts Company to Pay Over $17 Million in SEC Fraud Case
The Securities and Exchange Commission ("Commission") announced today that on March 25, 2015, the Honorable Mark L. Wolf, United States District Court for the District of Massachusetts, entered a judgment against BioChemics, Inc. ("BioChemics"), a biopharmaceutical company based in Danvers, Massachusetts, in a Commission enforcement action filed in December 2012. Among other things, the judgment orders BioChemics to pay a total of over $17 million. This judgment supplements a prior judgment entered against BioChemics on March 18, 2015, that enjoined the company from violating the antifraud provisions of the federal securities laws.
The Commission originally filed its enforcement action on December 14, 2012, against BioChemics and three individuals affiliated with the company: (i) John J. Masiz ("Masiz"), the company's founder and, until January 2014, its President, CEO, and Chairman of its Board of Directors; (ii) Gregory S. Kroning ("Kroning"), a promoter (someone paid by BioChemics to solicit investors); and a (iii) Craig Medoff, another promoter and, at one point, BioChemics' interim director of Finance ("Medoff," and, collectively, the "Individual Defendants").
The Commission's Complaint alleged that from 2009 until mid-2012, BioChemics and the Individual Defendants raised at least $9,000,000 from approximately 70 investors by misrepresenting, among other things: (a) that BioChemics had ongoing research and development collaborations with certain pharmaceutical companies when in fact the collaborations with those companies had either never begun or had ended; (b) that BioChemics had two drugs currently under FDA review, when in fact it had no products under any type of FDA review; (c) the status and results of clinical trials for BioChemics' drugs; and (d) that certain purported valuations of BioChemics at between $500 million and $2 billion were independent and reliable when they were not. The Complaint also alleged that BioChemics and the Individual Defendants misrepresented Masiz's background and use of investor proceeds--for example, they failed to disclose to investors that Masiz was the subject of a prior Commission securities fraud action that resulted in a final judgment against him in 2004, and that BioChemics' investor funds were used to pay for Kroning and Masiz's personal expenses.
In February 2014, BioChemics agreed to a partial settlement with the Commission, consenting to the entry of a judgment permanently enjoining it, without admitting or denying the substantive allegations in the Complaint, from violating Section 17(a) of the Securities Act ("Securities Act") of 1933 and Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder (the antifraud provisions), and leaving disgorgement, prejudgment interest, and civil penalties to be decided by the Court. On March 18, 2015, the Court entered this consented-to judgment permanently enjoining BioChemics from violating the antifraud provisions of the securities laws.
The judgment entered on March 25, 2015, supplements the March 18, 2015 judgment, and requires BioChemics to disgorge $15,105,325 in ill-gotten gains plus prejudgment interest of $2,042,559, and pay a civil penalty of $750,000. The civil penalty is a "third tier" penalty. Under the Securities Act and the Exchange Act, a third tier penalty is one where the violation involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement, and such violation directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons.
The Commission's case remains pending against the Individual Defendants.
For further information, please see Litigation Release Number 22572 (December 14, 2012) [filing of complaint].