A bad sign for shares of RenovaCare

It’s not good marketing to slap a skull and crossbones symbol next to the name of a life sciences company. Just ask RenovaCare, [ticker: RCAR], which is based in the Pittsburgh Life Sciences Greenhouse on the South Side. The company’s technology, which uses stem cells to heal burn wounds, was acquired from Jörg Gerlach, a medical doctor and University of Pittsburgh professor associated with the school’s surgery and bioengineering departments.

RenovaCare describes itself as a “pre-revenue” company, meaning its SkinGun and CellMist technology — which sprays a watery mist of healthy skin cells into a burn wound — isn’t being sold yet.

After trading for months in the $3 to $4 per share range, RenovaCare’s shares began climbing in late January, jumping as high as $12.82 on Feb. 22.

The next day, OTC Markets, where RenovaCare shares trade, slapped a “caveat emptor” — buyer beware — designation on the stock, indicated by a skull and crossbones symbol on the RenovaCare page on OTC’s website. The exchange cited promotion and public interest concerns.

That’s a polite way of saying the OTC is afraid the shares are being touted by pump and dumpers — people who drive the stock price higher, then cash in before the stock collapses.

RenovaCare shares have been sliding ever since. By Thursday, they had made their way back to about $5.

Amit Singh, a nonstaff spokesman for RenovaCare, responded to questions emailed to Andrew Danielson, the company’s director of operations and only full-time employee.

“The company has not issued a public statement with respect to your questions,” Mr. Singh said in an email.

According to a Jan. 8 company news release, OTC Markets notified RenovaCare on Jan. 3 that the exchange had become aware of “promotional activities,” including a newsletter published by StreetAuthority that promoted RenovaCare and 12 other stocks.

RenovaCare said it was not affiliated with the author or publisher of the report. The company also stated its officers, directors, thirdparty service providers and controlling shareholder had “not been involved in any way” with creating and distributing the newsletter or other promotional materials.

Skeptics, including shortsellers hoping to profit from falling share prices, say the controlling shareholder, Kalen Capital Holdings

of Vancouver, British Columbia, warrants a closer look. Kalen, which is owned by real estate entrepreneur Harmel Rayat, owns 66 percent of RenovaCare’s shares, according to an offering statement that the company filed Feb. 9 with the U.S. Securities and Exchange Commission. The filing indicated RenovaCare shareholders planned to sell 4.4 million shares, including 2.4 million to be offered by Kalen Capital.

Mr. Rayat was sanctioned by the SEC for stock promotions twice. In 2000, without admitting or denying the SEC’s allegations, Mr. Rayat and Equity Alert, a stock promotion firm he was affiliated with, agreed to pay $20,000 in fines and refrain from publishing information on stocks without disclosing that they had been paid for the service.

Three years later, the SEC accused Equity Alert, Mr. Rayat and others of distributing promotional materials touting two companies, then illegally selling shares they had received for the promotion. The sales were required to be registered with the SEC but weren’t. Fines for Equity Alert and its parent company were reduced to $31,555 because of the defunct companies’ inability to pay more, according to the SEC.

SolarWindow Technologies [WNDW], another prerevenue company where Kalen Capital is the majority shareholder, received a caveat emptor designation from OTC markets on Feb. 23, the same day RenovaCare got the distinction. The two companies rely on the same auditor and the same New York law firm.

Two calls to Kalen Capital seeking comment were not returned.

RenovaCare said last week it is expanding its product pipeline beyond second-degree burns. The company’s news release was short on specifics about the initiative.

Research and development doesn’t account for most of the company’s spending. RenovaCare’s Feb. 9 filing indicates that in addition to Mr. Danielson, the company employs three others on a parttime basis and that RenovaCare spent $453,488 compensating officers and directors in 2016 vs. $309,503 on research and development.

Caveat emptor indeed.