Legal, People

Jury finds former Aveo CFO David Johnston liable for scheme to mislead investors

SEC attorney Eric Forni likened ex-Aveo CFO David Johnston to a crooked used car salesman in making the case that he had schemed to defraud the biotech’s investors when he told them that the FDA had plenty of positive things to say about tivo.

David Johnston

Yes, Johnston — now the CFO at publicly traded ImmunoGen — noted that the FDA had some concerns. But that was like a salesman telling a car-buying customer that the engine was making a few noises, while leaving out the part about the brand new engine that was needed, according to a story in Law360.

“Good faith would just be disclosing it all,” Forni told the jury considering Johnston’s case.

The jury agreed. 

Johnston was found liable for securities fraud after the SEC made the case that the CFO had played an active role in a scheme to mislead investors, pushing the line that tivo was headed for the market — failing to tell them of the many big issues that Richard Pazdur’s group at the FDA had about their trial design and how it was described to investors.

I asked ImmunoGen if the company had any comment about the verdict and a company spokesperson replied:

This case is not related to ImmunoGen, so we are not in a position to comment. However, we are aware of yesterday’s outcome and await the final ruling from the court. As CFO of ImmunoGen, Dave continues to make significant contributions to the company’s progress towards becoming a fully integrated biotechnology company as we strive to develop targeted therapies that improve outcomes for cancer patients.

Whether he continues to or not, though, isn’t entirely in ImmunoGen’s hands. This was a civil proceeding, not a criminal prosecution, and a hearing will be scheduled to determine a financial penalty plus whether or not Johnston should be barred from serving as an officer or director of a public company.

The FDA has occasionally voiced its concerns that quite a few biotechs tend to play fast and loose with the facts in describing their dealings with the agency. A few years ago Andrew Ceresney — then the enforcement director at the SEC — raised the subject in a public warning to biopharma, citing several cases that had come up to illustrate the problem.

The FDA, though, is bound by law to stay mum, except in a few public arenas such as the FDA’s advisory panel reviews, where regulators famously lit into Aveo’s crew when they tried to push for an approval of tivo in 2013, despite a study illustrating a 25% increase in the risk of death.

Aveo’s share price was crushed, and the company spent much of the next 5 years dealing with the consequences.

This is the final chapter of Aveo’s cautionary tale. The company agreed to pay $4 million to settle the SEC’s charges — following an $18 million settlement of shareholder suits back in February. That suit centered on charges that the company failed to disclose the FDA had raised their concerns that the pivotal trial was so seriously flawed they found it hard to determine how toxic the drug was.

Former CEO Tuan Ha-Ngoc and R&D chief William Slichenmyer had also agreed earlier to pay $80,000 and $50,000 in civil penalties. 

The SEC had this to say in a followup:

The jury’s verdict makes clear that a company and its officers are required to be honest in their public communications, including about matters as critical as communications with regulators about approval of a key product.


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Biotech Investment Analyst
SV Health Investors Boston, MA
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Recursion Pharmaceuticals Salt Lake City, UT
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Recursion Pharmaceuticals Salt Lake City, UT
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Cadent Therapeutics Cambridge, MA
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