SEC Charges Former CEO with Misappropriating Company Funds
The SEC sued a former executive at a biopharmaceutical company for misappropriating approximately $3.2 million in company funds and making materially false statements to auditors and investors.
In a Complaint filed in the U.S. District Court, Central District of California, the SEC stated the company raised almost $25 million through a public stock offering and an additional $16.4 million through warrant exercises. The SEC said that the former CEO signed the offering prospectus, which stated that proceeds would be used for clinical trials and pipeline development. The SEC alleged that this statement was false and that the former CEO was already diverting company funds to himself at the time the prospectus was filed.
The SEC alleged that the former CEO (i) drew unauthorized compensation converting approximately $644,500 from the company's bank account to his personal account, and (ii) transferred more than 6.5 percent of the company's total cash and cash equivalents at the time to fund the down payment on real estate for his personal use. The SEC said the CEO also took steps to conceal the misappropriation signing a management representation letter to the company's auditors falsely attesting that he had no knowledge of any management fraud and that no material subsequent events required disclosure. The SEC noted that the CEO deposited a personal check for nearly $2.6 million - the precise amount he had taken - into the company's bank account and returned 1,845,000 shares of company stock to resolve outstanding company claims.
The SEC alleged violations of Exchange Act Section 10(b) ("Use of manipulative and deceptive devices,") Exchange Act Rules 10b-5 ("Employment of manipulative and deceptive devices,") Exchange Act Rule 13b2-2 ("Representations in connection with the preparation of required reports and documents,") and Securities Act Section 17(a) ("Fraudulent Interstate Transactions").
The SEC seeks a permanent injunction, civil monetary penalties, and a bar prohibiting the former CEO from serving as an officer or director of any public company.