Investors might remember how interest in the stock of the little regenerative med biotech Osiris Therapeutics $OSIR hit a fever pitch in the summer of 2015, with shares topping $21 as CEO Lode Debrabandere touted a 78% spike in revenue, compared to the same period in 2014. The company was staffing up, introducing a new product and was on a roll, by his account.
But the SEC said late Thursday that a significant part of their success was an illusion.
Debrabandere, former chief financial officers Philip R. Jacoby Jr. and Gregory I. Law, and chief business officer Bobby Dwayne Montgomery have all been charged by the SEC with cooking the books.
As that case was rolled out, Jacoby was pleading guilty to making false statements to auditors, according to a report from Reuters. In doing so, he agreed to a prison sentence of 4 to 10 months and a fine of up to $5 million. Law’s attorney, meanwhile, said his client was not guilty and prepared to fight it out.
According to a statement from the SEC, just after CEO C. Randal Mills left to run the California Institute for Regenerative Medicine in 2013, the executive crew engaged in some creative accounting practices in 2014 and 2015 to burnish the numbers. The company is small, but has a high profile in its field.
The feds say the numbers game at Osiris included: “(A)rtificially inflated prices, backdated documents to recognize revenue in earlier periods, and prematurely recognized revenue upon delivery of products to be held on consignment,” according to the SEC. And they were also using “pricing data that they knew was false and attempted to book revenue on a fictitious transaction, among other accounting improprieties.”
The company — which appointed new CEO and AstraZeneca vet Linda Palczuk to run the company recently after retaining Ernst & Young to restate its numbers for 2015 and 2016 — agreed to pay a $1.5 million penalty.
The federal litigation against the four execs remains underway, with the stock trading for a fraction of its 2015 high.
“As alleged in our complaint, Osiris Therapeutics falsely portrayed to investors that its revenue was growing so rapidly that its performance was consistently exceeding expectations,” said Julie Lutz, director of the SEC’s Denver Regional Office. “Corporate cultures cannot be so fixated on higher revenues that they use illegal accounting gimmicks to meet the financial numbers they desire.”
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