Former Immunosyn CEO Liable for Securities Violations

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May 2 — Immunosyn Corp.'s former chief executive officer misled investors that human trials were starting in Europe and didn't mention the FDA had put a hold on a goat-blood derived product, a jury found April 29.

A jury of the U.S. District Court for the Northern District of Illinois found Stephen D. Ferrone liable for violations of Section 10(b) of the Securities Exchange Act for making false statements and omissions and of Securities Exchange Act Rule 13(a) for making false certifications. The jury didn't find Ferrone liable for aiding and abetting the making of false certifications.

The Securities and Exchange Commission said it was pleased with the jury's finding that Ferrone had, as the SEC alleged, defrauded Immunosyn’s investors with misleading statements in the company’s filings and press releases and in his own speeches and interviews.

“We will continue to hold executives accountable when their companies provide misleading information and fail to give investors a full and honest picture of what’s happening with their products,” Andrew Ceresney, director of the SEC’s Division of Enforcement, said in a statement.

Claims of Fraud, Insider Trading

The SEC alleged in August 2011 that Immunosyn had issued misleading filings from 2006 to 2010 by saying that its controlling shareholder, Argyll Biotechnologies LLC, had initiated, or intended to initiate, proceedings to obtain U.S. regulatory approval for human clinical trials for its only product, SF-1019 (5 LSLR 808, 8/12/11). In fact, the SEC asserted, the filings didn't inform investors that the FDA had twice issued clinical holds to bar clinical trials from occurring for SF-1019, intended for treatment of diabetes-related inflammatory and degenerative conditions.

In addition, the SEC alleged that the company falsely stated that the regulatory approval process for human clinical trials in Europe was underway or imminent, when in fact Argyll didn't submit applications for such trials. The agency also alleged that Immunosyn Chief Financial Officer Douglas McClain Jr., Argyll Chief Scientific Officer Douglas McClain Sr. and Argyll Chief Executive Officer James Miceli had engaged in insider trading by raising about $20 million through sales of Immunosyn shares while knowing that the misrepresentations were being made.

Miceli committed suicide before the trial began.

Mixed Results for Two Others

The SEC experienced mixed results six months ago in its claims against two other Immunosyn executives.

In October 2014, the court found McClain Sr. and McClain Jr. liable for making fraudulent misstatements and for insider trading (8 LSLR 1071, 10/31/14). A year later, it granted the SEC's bid for permanent injunctive relief and civil money penalties but declined to order disgorgement and lifetime officer/director bars.

In the Ferrone litigation, the SEC was represented by attorneys out of its Chicago office and Ferrone by Stetler, Duffy & Rotert, Ltd., Chicago.

To contact the reporter on this story: John T. Aquino in Washington at jaquino@bna.com

To contact the editor responsible for this story: Randy Kubetin at rkubetin@bna.com