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SEC Charges Seattle-Area Biotech Company With Fraudulently Hyping Stem Cell Breakthrough


Washington, D.C., Sept. 8, 2009 — The Securities and Exchange Commission today charged a Bothell, Wash.-based biotechnology company, its former CEO, and its former 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.

The SEC alleges that CellCyte Genetics Corporation merely had a license for a very early stage technology and had no reasonable basis for its claims. 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.

"CellCyte and its senior officers knew that it would take years of research to determine whether the stem cell discovery could be developed into a viable product," said Marc Fagel, Director of the SEC's San Francisco Regional Office. "In their rush to cash in on the promise of stem cell research, they concealed the true facts from investors."

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. The SEC alleges that 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.

The SEC alleges that CellCyte's then-Chief Scientific Officer Ronald Berninger of Mukilteo, Wash., originally approved or participated in the drafting of many of the false and misleading statements, while then-CEO Gary Reys of Freeland, Wash., approved the company's fraudulent SEC filings.

According to the SEC's complaints, 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 promotional campaign from August to December 2007, CellCyte's stock price rose from $4.00 to $7.50, briefly giving the fledgling company a market capitalization of nearly $450 million. The price later crashed to less than 10 cents per share.

The SEC's enforcement action against CellCyte and Berninger alleges that CellCyte violated the antifraud, reporting, and registration provisions of the federal securities laws, and that Berninger violated the antifraud provisions and aided and abetted CellCyte's reporting violations. 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 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 the antifraud provisions and aiding and abetting CellCyte's reporting violations. The SEC's enforcement 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.

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For more information about these enforcement actions, contact:

Marc J. Fagel
Regional Director, SEC San Francisco Regional Office
(415) 705-2449

Michael S. Dicke
Associate Regional Director, SEC San Francisco Regional Office
(415) 705-2458



Modified: 09/08/2009