Former chief executive for local biotechnology company CytoDyn Inc. Nader Pourhassan has been indicted, along with the head of the company’s regulatory agent to the U.S. Food and Drug Administration, for allegedly defrauding investors.
A federal grand jury in the District of Maryland returned the indictment, which was unsealed Tuesday, charging the two men for their alleged roles in schemes to defraud investors of the Vancouver-based company.
Pourhassan and Kazem Kazempour, co-founder, president and chief executive of Amarex Clinical Research LLC, engaged in a conspiracy to defraud investors through false and misleading representations and material omissions about the development of CytoDyn’s leronlimab drug, according to a news release from the Department of Justice.
The indictment alleges they lied to investors about the timeline and status of CytoDyn’s regulatory submissions to the FDA to artificially inflate and maintain the price of the company’s stock and attract new investors; they also sold their personal shares of CytoDyn’s stock.
“We are aware of the charges brought against Nader Pourhassan, the former president and CEO of the company, who was terminated on Jan. 24, 2022, and was also removed from the board of directors at that time,” CytoDyn spokesman Greg Salsburg said in a statement to The Columbian. “Since then, Mr. Pourhassan has had no role at the company. We have — and will continue to — cooperate fully with the (U.S. Securities and Exchange Commission) and DOJ. The company has no further comments at this time.”
Pourhassan, 59, of Lake Oswego, Ore., was CytoDyn’s president and chief executive at the time of the alleged fraud. He came under fire in his final months in the position after the FDA was compelled to issue a statement about the company’s testing of leronlimab to treat COVID-19. CytoDyn had used results from a small subgroup of test participants to suggest there was a “mortality benefit in certain patients” who took the drug, according to the FDA’s statement.
“None of these analyses met statistical significance when using established and reliable analytical methods that correct for multiple comparisons,” the statement read.
Kazempour’s Amarex managed CytoDyn’s clinical trials and served as its regulatory agent in interactions with the FDA. Kazempour, 69, of Potomac, Md., also served on the company’s Disclosure Committee, which was responsible for reviewing and approving CytoDyn’s periodic filings with the SEC, according to the Department of Justice.
Before Pourhassan’s ousting, CytoDyn faced lawsuits and an attempted board takeover by shareholder activists, which failed. It was subpoenaed by the Department of Justice and SEC regarding the company’s public statements around leronlimab as a treatment for COVID-19.
Leronlimab is a monoclonal antibody investigational drug being created as a potential treatment for HIV.
The indictment alleges Pourhassan made, and caused CytoDyn to make, materially false and misleading representations about the drug’s effectiveness as a treatment for COVID-19.
Pourhassan allegedly knew leronlimab’s clinical studies failed to achieve the results necessary to obtain any form of FDA approval for use as a treatment for COVID-19, and the results CytoDyn publicly touted were neither statistically significant nor scientifically sound, according to the Department of Justice.
The indictment also alleges the men made and caused CytoDyn to make materially false and misleading representations about the timelines their companies would complete and submit CytoDyn’s biologics license application for leronlimab’s treatment of HIV to the FDA.
It’s alleged that in April 2020, Pourhassan directed Kazempour and Amarex to submit the company’s application, even if incomplete, after the companies repeatedly missed publicized timelines. That way, Pourhassan and CytoDyn could announce to investors the application had been submitted, though they knew the FDA would refuse to review the incomplete application, the news release states.
After the incomplete application was submitted, Pourhassan and CytoDyn allegedly misrepresented in a press release that a complete application was submitted to the FDA. Pourhassan then allegedly sold millions of dollars in CytoDyn stock based on material non-public information, including that the application was incomplete when submitted, according to the Department of Justice.
By January 2022, CytoDyn disclosed the company’s cash reserves were “extremely low, requiring that we raise substantial additional financing to satisfy our current payment obligations and to fund our operations,” according to that month’s SEC filing.
The company failed to pay Samsung, one of its contract manufacturing organizations, $13.5 million that was due Dec. 31, 2021, that filing showed.
That January filing also disclosed that if additional funds weren’t raised, cash reserves would be depleted leading to the discontinuation of operation and liquidation of assets.
Pourhassan was removed as chief executive later that month.
Pourhassan and Kazempour are each charged with one count of conspiracy to commit securities fraud and wire fraud, three counts of securities fraud and two counts of wire fraud related to the HIV biologics license application scheme. Pourhassan is also charged with an additional count of securities fraud and an additional count of wire fraud related to the COVID-19 scheme and three counts of insider trading. Meanwhile, Kazempour is also charged with one count of making false statements to federal law enforcement agents.
Pourhassan and Kazempour were scheduled to make initial appearances Tuesday in Oregon and the District of Columbia, respectively.
If convicted, each face a maximum penalty of 20 years in prison on each securities fraud and wire fraud count and five years in prison on the conspiracy count. Kazempour also faces a maximum penalty of five years in prison on the false statements count.
CytoDyn trades on the over-the-counter market under the ticker CYDY. Its stock closed Tuesday at 27 cents after news broke of the indictments. It was continuing to fall Wednesday.