Two Biotech CEOs Convicted in Securities Fraud Scheme
A federal jury in Maryland convicted two men yesterday for their roles in a scheme to lie to investors in CytoDyn Inc., a publicly traded biotechnology company based in Vancouver, Washington.
According to court documents and evidence presented at trial, Nader Pourhassan, 61, of Lake Oswego, Oregon, and Kazem Kazempour, 71, of Potomac, Maryland, engaged in a scheme to deceive investors about CytoDyn’s development of an investigational drug to artificially inflate and maintain the price of CytoDyn’s stock and to attract new investors. Between 2018 and 2021, CytoDyn sought approval for the drug from the Food and Drug Administration (FDA) to treat HIV and COVID-19. Pourhassan was the chief executive officer of CytoDyn, and Kazempour was the chief executive officer of Amarex Clinical Research LLC, a Germantown, Maryland-based contract research organization that had been hired to conduct Cytodyn’s clinical trials and was serving as the company’s representative with the FDA. Pourhassan and Kazempour diverted proceeds of the scheme for their own benefit, including by selling personal shares of CytoDyn stock at artificially inflated prices.
“The defendants lied to investors and the public — including during the height of the COVID-19 pandemic — about a drug that purportedly treated HIV and COVID-19 in order to artificially inflate CytoDyn’s stock price,” said Principal Deputy Assistant Attorney General Nicole M. Argentieri, head of the Justice Department’s Criminal Division. “The Justice Department is committed to protecting the investing public from criminals who would exploit public health crises for personal profit. These convictions confirm the department’s commitment, together with our law enforcement partners, to hold corrupt C-suite executives who abuse their positions and engage in securities fraud accountable for their actions.”
“With false promises of FDA approval, the defendants enriched themselves by the millions while investors lost,” said U.S. Attorney Erek L. Barron for the District of Maryland. “White collar criminals cause irreparable harm to the public, and we will continue to bring them to justice without fear or favor.”
Pourhassan and Kazempour made false and misleading statements about the timeline and status of CytoDyn’s regulatory submissions to the FDA. In spring 2020, the pair falsely stated that the drug had been submitted for approval to treat HIV, when they knew that the submitted application was incomplete and that the FDA would therefore refuse to review it. Immediately after the announcement, Pourhassan sold more than 4.8 million shares of Cytodyn. Around the same time, Pourhassan engaged in a scheme to misrepresent the status of CytoDyn’s investigation and development of leronlimab as a potential treatment for COVID-19, including the results of clinical trials and the likelihood of approval from the FDA. Pourhassan knew that leronlimab’s clinical studies had failed and that the FDA had not approved the drug for use as a treatment for COVID-19 and had expressed concerns that the submitted data was misleading. During the scheme, CytoDyn raised approximately $300 million from investors, of which more than $22 million was paid to Kazempour’s company. In addition, Pourhassan received $4.4 million and Kazempour received more than $340,000 from their sales of CytoDyn stock.
“These convictions highlight the serious consequences of defrauding investors and manipulating stock prices,” said Assistant Director Chad Yarbrough of the FBI’s Criminal Investigative Division. “This case reinforces the FBI’s commitment to proving that no scheme, no matter how elaborate, is beyond the reach of the law. We will continue to pursue those who put personal profit above public trust.”
“These convictions demonstrate that those who make misleading statements about clinical trial results to the public — including to healthcare providers and patients — will be held accountable for their actions,” said Special Agent in Charge Robert Iwanicki of the FDA Office of Criminal Investigations (FDA-OCI) Los Angeles Field Office. “The agency will continue to work with other agencies to bring to justice those who place profits above public health.”
“These defendants took advantage of two public health crises when they devised a scheme to swindle investors out of millions of dollars to pad their pockets by lying about the results of clinical trials and approvals from the FDA on an HIV and COVID-19 drug,” said Inspector in Charge Eric Shen of the U.S. Postal Inspection Service (USPIS) Criminal Investigations Group. “Together, with our law enforcement partners, Postal Inspectors will continue the work of keeping financial systems and the investing public safe from fraudsters.”
Pourhassan was convicted of four counts of securities fraud, two counts of wire fraud, and three counts of insider trading. Kazempour was convicted of one count of securities fraud and one count of wire fraud related to his submission of the application for approval from the FDA and attempt to trade Cytodyn shares the following day. They are scheduled to be sentenced at a later date, and they face a maximum penalty of 20 years in prison for each count of securities fraud, wire fraud, and insider trading. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.
The FBI, FDA-OCI, and USPIS investigated the case.
Trial Attorneys Lauren Archer and Matthew Reilly and Senior Litigation Counsel Vasanth Sridharan of the Criminal Division’s Fraud Section and Assistant U.S. Attorney Adeyemi Adenrele for the District of Maryland are prosecuting the case. Law Clerk Kerstin Abolnik and Paralegal Specialists Selam Wehabe and John Lee of the Fraud Section provided assistance.
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Source: Justice.gov
