December 21, 2022

SEC charges two CEOs with securities fraud and insider trading

On December 20, 2022, the Securities and Exchange Commission announced that Nader Pourhassan, the former CEO of CytoDyn Inc., had been charged with fraud and insider trading for repeatedly providing misleading information to the public about the progress of CytoDyn’s clinical research treatments for HIV and COVID-19.  Kazem Kazempour, the president and CEO of Amarex Clinical Research LLC who assisted CytoDyn with drug applications submitted to the US Food and Drug Administration (“FDA”), was also charged for his role in the trading scheme.

According to the SEC’s complaint, in April 2020, Pourhassan caused CytoDyn, a clinical-stage biotechnology company, to falsely announce that it had submitted a completed Biologics License Application to the FDA when he knew the application was missing key clinical data that the FDA had been requesting from CytoDyn for nearly two years.  The SEC alleges that, within two days of publication, the FDA alerted CytoDyn of the false information contained in the press release. In response, Pourhassan did not inform the public of the misinformation but allegedly chose to exercise stock options and liquidate his CytoDyn stock while the price was artificially inflated due to the misleading press release –- a press release that Pourhassan had edited, reviewed and approved before it was published.  As a result of the trades, Pourhassan allegedly generated profits of more than $4.7 million.

The SEC further alleges that Kazem Kazempour, who was hired to manage CytoDyn’s clinical trials and interface with the FDA regarding CytoDyn’s drug applications, participated in the trading scheme when he signed off on an application at Pourhassan’s direction solely to increase CytoDyn’s stock price, even though he knew the application was incomplete and would ultimately be rejected by the FDA.  The SEC also alleges that Kazempour exercised his CytoDyn stock options while the price was artificially inflated, generating more than $340,000 in profits.

The SEC filed its complaint in the US District Court for the District of Maryland charging Pourhassan and Kazempour with violating of Section 17(a) of the Securities Act and Section 10(b) of Exchange Act and Rule 10b-5 thereunder.  The SEC seeks to permanently enjoin the defendants from engaging in further securities violations as well as disgorgement, prejudgment interest and civil monetary penalties.  The SEC also seeks to permanently enjoin both defendants from serving as an officer or director of any registered company.

The Department of Justice also announced that parallel criminal charges had been filed against Pourhassan and Kazempour for their roles in the trading scheme.  Both defendants have been charged with securities fraud, wire fraud and conspiracy.  Pourhassan has also been charged with insider trading, and Kazempour was charged separately for making false statements to federal law enforcement agents.

SEC Press Release | SEC Complaint | DOJ Press Release