Skin regeneration company PolarityTE reveals SEC investigation, probing into its lead product, former CFO and current investors
Days after publishing in a medical journal a positive case study showcasing its technology that employs a patient’s own healthy tissue to regenerate human skin for the treatment of burns and wounds, PolarityTE has come under fire after it divulged it had been subpoenaed by the SEC earlier this month.
PolarityTE executed a reverse merger with video game publisher Majesco known for the cult classic Psychonauts, to get onto the market in 2017. The biotech was founded by Denver Lough — a surgeon who specializes in regenerative medicine and reconstructive surgery, who took over as CEO from outgoing chief Barry Honig post-merger.
PolarityTE CEO Denver Lough and other executives gather to ring the closing bell on August 14, 2017 Nasdaq
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PolarityTE — which reported its financial results on Monday — said the company was asked by the SEC on March 1 for a plethora of documents related to: the Majesco-PolarityTE merger; the company’s current regenerative medicine business; performance of and communications with regulators regarding its experimental lead product SkinTE; and the promotion of the company or its securities, in a separate filing.
The regulator also requested documents signifying communications and agreements between the company and its former CFO John Stetson, and current investors Barry Honig and Michael Brauser. Last September, the trio were deemed ‘microcap fraudsters’ by the SEC, who charged them along with seven others for their role in “long-running fraudulent schemes that generated over $27 million from unlawful stock sales and caused significant harm to retail investors who were left holding virtually worthless stock.”
PolarityTE fired Stetson in response to the SEC charge, but Honig and Brauser remain stakeholders of the company. The two control about 7% of the company’s shares each, according to filings.
In the PolarityTE filing detailing the SEC probe, the company bemoaned it had been the target of short seller attacks “including, but not limited to, Citron Research, led by Andrew Left, Sharesleuth and Capital Forum, as well as anonymous persons and entities who post and/or publish what we believe to be coordinated, deliberately and purposefully false materials on or within internet-based platforms.”
The company emphasized that the “short and distort were purposefully manipulative” to the trading activities of PolarityTE’s stock. However, last October the Utah firm received a document request from the SEC related to the short seller reports, which it says it has cooperated with.
Meanwhile, this year’s formal SEC request was obtained in writing by PolarityTE on March 4. The probe is investigating a number of possible violations of federal securities laws, including the company’s handling of public disclosures, beneficial ownership reporting and anti-price manipulation.
Although PolarityTE has previously held conference calls to discuss its financial results — it did not do so on Monday.
In the filing, the company said it intended to cooperate with the SEC regarding their March 2019 subpoena and the ongoing investigation.
The Salt-Lake city company’s shares $PTE slipped about 2% in Tuesday morning trading, after tumbling 15% on Monday following the announcement.