Regulator puts controversial biotech to rest
SEC revokes registration of CellCyte Genetics
THE U.S. Securities and Exchange Commission has revoked the registration of CellCyte Genetics Corp., a purported biotech listing linked to Vancouver’s Brent Pierce that was once worth nearly $450-million. (All figures are in U.S. dollars.) The SEC says that the company is delinquent in its filings. CellCyte has also failed to respond to a letter from the SEC about its status.
The order, handed down on Tuesday, Oct. 10, comes over eight years after the SEC filed civil charges against CellCyte’s former chief executive officer, Gary Reys. The regulator said that Mr. Reys repeatedly misled the public about the company’s product, a stem cell compound that
purportedly had the potential to heal organs. The stock went to $7.50 before it collapsed, causing massive investor losses, the SEC said.
While CellCyte had its office in the Seattle area, the company had a connection to Vancouver through Mr. Pierce. In January, 2008, a group of shareholders unsuccessfully sued Mr. Pierce in Washington State, claiming that he paid $445,000 for a misleading 12-page mailer touting the stock. The mailer was prepared by Florida newsletter writer James Rapholz. Mr. Pierce denied the allegations, and said that there was no evidence he made any misleading statements. A judge agreed, and dismissed that case on Sept. 23, 2009.
(Mr. Pierce also mentioned CellCyte when he was to attend a hearing in February, 2009, related to another company, Lexington Resources Inc. He had been scheduled to appear before an administrative law judge in Seattle. Mr. Pierce did not attend the hearing, citing concerns that he could be arrested in the United States for his role with CellCyte. The judge found his failure to appear was unexpected and she drew an “adverse inference” from it.)
The SEC did not mention Mr. Pierce at all when it filed the CellCyte charges, only referring repeatedly to a “Canadian promoter.” The case, contained in a civil complaint filed on May 6, 2010, in the Western District of Washington, stemmed from a scheme that began in 2005. The SEC said that Mr. Reys founded CellCyte that year using technology that supposedly had the potential to heal organs.
When it acquired the technology, CellCyte agreed to spend $5.5-million on research. According to the suit, Mr. Reys was not successful in raising this money until he met with the Canadian promoter. The men agreed to take CellCyte public through a reverse merger with a public shell. CellCyte received $6-million in the transaction, and the Canadian promoter controlled 90 per cent of the company’s float, or 15 million shares, the SEC said.
CellCyte then began publishing misleading information about the compound, the complaint stated. The company claimed in several filings in 2007 that it had received approval from the U.S. Food and Drug Administration to begin clinical trials. The company also claimed that it was months away from starting clinical trials in which it would use its compound to repair the heart. The SEC said that the information was misleading, because the company had not filed a development application with the FDA. CellCyte also failed to disclose that several mice had died during testing.
On Aug. 9, 2007, Mr. Reys told others at CellCyte that the Canadian promoter was ready to spend $2-million promoting
the company in exchange for additional shares in a future offering. Less than a week later, Mr. Reys approved the text of a newsletter that repeated the same misleading statements from the company’s filings, the SEC said. The newsletter stated that CellCyte’s discoveries “were far down the research and development pathway” and that the company’s approach “mitigates many of the risks associated with start-up and early stage companies and allows CellCyte to take these products to market at a much more rapid pace.”
Between August and December, 2007, the Canadian promoter distributed millions of copies of the newsletter, as well as spam e-mails and blast faxes that repeated the same information, the SEC claimed. During the campaign, the stock rose to $7.50 from $4, and its daily volume rose to over 100,000 shares from 2,000. At one point the company’s market capitalization was nearly $450-million.
Mr. Reys initially fought the case, complaining that the SEC had not gone after Mr. Pierce, among other things. He later settled the matter out of court. Without admitting any wrongdoing, he agreed to serve a five-year officer and director ban and to pay a $50,000 fine.
Mr. Pierce was never a defendant in the CellCyte case. The SEC did separately pursue him for Lexington Resources, and eventually imposed administrative penalties totalling $9.3-million, plus interest. Back home, Mr. Pierce also received a permanent ban from the B.C. Securities Commission, with that ban mostly stemming from Lexington as well. The local regulator said that he represented a grave risk to the markets, and on Aug. 16, 2016, barred him from acting as an officer or director of any company and from serving as a promoter or engaging in investor relations activities. Mr. Pierce appealed that sanction, and lost.