SEC sues CellCyte and its executives

The Securities and Exchange Commission today filed suit against CellCyte Genetics of Bothell and its two top executives, accusing them of "repeatedly misled the investing public" with promotional materials that lifted the company to a $450 million market valuation before its collapse.

CellCyte made statements that it was "on the verge of beginning human clinical trials with a special stem cell compound to repair the heart. Contrary to these claims, CellCyte did not even know how to produce the stem cell compound and had not satisfied any of the FDA requirements to begin human clinical trials," according to the lawsuit, filed Tuesday in federal district court in Seattle.

The Seattle Times reported in late 2007 that CellCyte was the subject of a wide-ranging promotional campaign by penny-stock promoters using mailings and spam faxes. The company also exagerrated the credentials of CEO Gary Reys in regulatory filings, the Times reported.

According to the SEC, "the misleading stock promotion campaign caused CellCyte's stock price to soar to a high of $7.50 per share, with a 50-fold increase in trading volume. At its peak, CellCyte had a market capitalization of nearly $450 million. The stock now trades at less than $0.08 per share, leaving investors who were deceived by the fraudulent materials with massive losses."

The SEC suit says a stock promoter who received 15 million CellCyte shares as part of an "illegal unregistered stock distribution" ran a promotional campaign on behalf of CellCyte with "millions of spam emails, blast faxes, and newsletters containing false and misleading statements, some of which originated from CellCyte's own investor materials."

The suit doesn't name that promoter, but other documents show it was G. Brent Pierce of Vancouver, Canada. Pierce's U.S. lawyer has said in court documents that he is the target of a federal criminal investigation.

The agency filed one suit against Reys and a separate one against CellCyte and its top scientific officer, Ronald Berninger.

CellCyte and Berninger have settled the suit against them without admitting or denying the SEC's allegations. Berninger agreed to pay a $50,000 penalty and be barred from serving as an officer or director of a public company for five years.

The suit against Reys, which is not settled, charges him with violating antifraud laws and aiding and abetting CellCyte's reporting violations. The SEC alleges that he made false statements about his past employment and that he concealed CellCyte's role in the spam campaign.

The suit seeks an injunction against further violations, an unspecified monetary penalty, and an order barring Reys from serving as an officer or director of a public company.