WASHINGTON (AP) - Federal regulators are charging four pharmaceutical executives with civil fraud after they told investors that a drug derived from goat's blood might be approved for human use.
The executives claimed that they were seeking permission to test the drug on humans in the U.S. and Europe, the Securities and Exchange Commission said Tuesday.
Yet U.S. health authorities had twice blocked the clinical trials, and the company never submitted an application in Europe, according to the SEC.
The drug, called SF-1019, was the only product being developed by Immunosyn Corp., based in La Jolla, Calif. Immunosyn said between 2006 and 2010 that the drug had the potential to treat ailments such as HIV, multiple sclerosis, and nerve damage caused by diabetes, the SEC said.
The executives routinely signed off on public filings "that told investors a story about the status of the company's prized drug that was far different from the behind-the-scenes reality," Merri Jo Gillette, Director of the SEC's Chicago Regional Office, said in a statement.
Three executives from Immunosyn and Argyll Biotechnologies LLC, its biggest shareholder, also face insider-trading charges for unloading about $20 million worth of stock based on the false statements.
One of the executives sold $300,000 worth of shares to patients at a holistic clinic in Texas, some of whom were terminally ill, the SEC said. The executive, Argyll Chief Scientific Officer Douglas McClain Sr., said the drug was being tested on six terminal cancer patients, and that the Defense Department had ordered 600,000 vials. Both claims were false, the SEC said.
McClain Sr. also never gave the investors the shares that they bought, it said.
In addition to McClain Sr., the SEC charged his son, Immunosyn Chief Financial Officer Douglas McClain Jr., Immunosyn CEO Stephen Ferrone and Argyll CEO James Miceli. Ferrone was not charged with insider trading.
An attorney for the executives did not respond to a request for comment.
The SEC wants the defendants to return any illegal profits and pay additional, unspecified financial penalties. It also wants them to be barred from serving as officers or directors of public companies.
Argyll, a private company, formed Immunosyn in 2006 to market, distribute and sell SF-1019. It received about 54 percent of Immunosyn's shares in exchange for exclusive rights to sell the drug.
Argyll continued to own SF-1019, and was responsible for seeking approval from regulators such as the U.S. Food and Drug Administration.
An Argyll scientist first applied to test SF-1019 on humans in December 2006. The FDA rejected the drug, listing 17 conditions that would have to be met before trials could proceed. The application lacked key details about the drug's chemistry and did not say whether it had proved toxic to animals, the FDA said at the time.
In 2008, a doctor working with Argyll applied for permission to test the drug on multiple sclerosis patients. The FDA blocked the trials again, saying the application lacked information about the drug's purity and strength and the risk it posed to patients.
The lawsuit also names two companies that the executives used to sell their stock: Argyll Equities and Padmore Holdings Ltd.
Shares of Immunosyn traded as high as $6.55 in November 2007. They went for 3 cents in over-the-counter trading on Tuesday.