Two former executives were recently indicted for schemes to defraud investors in CytoDyn, Inc. The executives, Nader Pourhassan, former president and CEO of CytoDyn, and Kazem Kazempour, co-founder, president, and CEO of Amarex Clinical Research, LLC, allegedly engaged in a conspiracy to defraud investors by false and misleading representations and material omissions related to the development of leronlimab as a potential treatment for HIV.
Amarex managed clinical trials for CytoDyn and was the company’s regulatory agent in interactions with the FDA. Kazempour also served on the CytoDyn disclosure committee, having responsibility for reviewing and approving the company’s filings with the United States Securities and Exchange Commission.
The two executives allegedly mislead investors about the timeline and status of CytoDyn’s regulatory submissions to the United States Food and Drug Administration (FDA) to artificially inflate and maintain the price of CytoDyn’s stock, as well as continue to attract new investors. Additionally, the two executives sold their own personal shares of CytoDyn stock, and therefore, the artificial price helped line their own pockets.
Misrepresentations in the Biologics License Application
According to the Department of Justice (DOJ), Pourhassan and Kazempour caused CytoDyn to make materially false and misleading representations about the timelines both companies would complete and submit the biologics license application for leronlimab to the FDA.
Around 2018, CytoDyn and Amarex started a biologics license application for leronlimab as a potential treatment for HIV. From 2018 to 2020, Pourhassan, Kazempour, and other representatives from each company met with the FDA to discuss the biologics license application review process, including the timeline and requirements (including the requirement that a complete biologics license application be submitted for the FDA to review it). In April 2020 – after multiple missed deadlines – Pourhassan allegedly told Kazempour and Amarex to submit the incomplete biologics license application so that he could announce it was submitted.
After the incomplete biologics license application was submitted to the FDA, Pourhassan and CytoDyn issued a press release that said a complete biologics license application was submitted to the FDA. Pourhassan then sold millions of dollars’ worth of his own CytoDyn stock based on material non-public information he held – including that the biologics license application was incomplete when submitted and that the FDA would not review such an incomplete application.
Leronlimab as a COVID-19 Treatment?
Pourhassan also allegedly made, and caused CytoDyn to make, materially false and misleading representations about the company’s development of the drug as a possible treatment for COVID-19. While doing this, Pourhassan allegedly knew that the clinical trials for leronlimab did not achieve the results necessary to obtain FDA approval for use as a treatment for COVID-19. The results that Pourhassan and CytoDyn touted were neither statistically significant nor scientifically sound.
Charges
Both Pourhassan and Kazempour are charged with one count of conspiracy to commit securities fraud and wire fraud, three counts of securities fraud, and two counts of wire fraud. Pourhassan is also charged with an additional count of securities fraud, wire fraud (related to the COVID-19 scheme), and three counts of insider trading. Kazempour is also charged with one count of making false statements to federal law enforcement agents.
If convicted, they 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 faces an additional maximum penalty of five years in prison for the false statements.
DOJ Statement
“The Department of Justice is committed to protecting the investing public from criminals who would exploit public health crises for personal profit,” said Assistant Attorney General Kenneth A. Polite, Jr., of the DOJ Criminal Division. “These charges also 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.”