Reg­u­la­tor puts con­tro­ver­sial biotech to rest

SEC re­vokes reg­is­tra­tion of Cel­lCyte Ge­net­ics

Stockwatch Daily - - FRONT PAGE - By Mike Caswell

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.


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