CellCyte shares plummet; questions raised about CEO's bio
Seattle Times business reporter
Shares in fledgling biotechnology company CellCyte Genetics, whose market value soared to more than $400 million last fall after being hyped by offshore shareholders, plunged 55 percent Monday and Tuesday in heavy selling.
The sharp drop coincided with changes made on the company's Web site after The Seattle Times inquired late last week about the accuracy of statements in the biography of CellCyte chief executive and co-founder Gary Reys.
Claims removed from the Web site include statements that Reys had led his previous company "from conception to early human clinical trials in 18 months," and that he had helped an early generic pharmaceuticals company through an initial stock offering and a sale to a drug-industry giant.
Reys said any inaccuracies in his profile were unintentional.
"We at CellCyte strive to be ... truthful and endeavor to display integrity to the public and insist (on) that with our personnel," he wrote in an e-mail. "If an error is brought to our attention we correct it immediately ... "
But other misleading statements remain on the company's site and in the filing it made with the Securities and Exchange Commission to begin trading its shares.
• Both documents state that he "attended the University of Washington and majored in finance." According to university records, however, he enrolled in autumn 1965 and withdrew within weeks; he did not receive any credits toward a degree.
Asked about the discrepancy, Reys said in an e-mail that he attended some night-school business classes at the university and was forced to withdraw from the full-time program due to financial hardship. He said he later enrolled at Auerswald's Business University, a one-time Seattle business college.
• Both documents say Reys received a "CPA designate," and until late last week the Web site said he was a past member of the Washington Society of Certified Public Accountants. But the Washington state Board of Accountancy says he is not registered as a certified public accountant, nor does it have any record that Reys took the CPA test in the state.
Reys said that in 1967 he passed the test on his second try after enrolling in a CPA coaching course at Auerswald's, and became a member of the Washington Society of CPAs until 1969. He added that he never claimed to be "a practicing CPA."
Reys' membership in the association couldn't be verified because the association's records, unlike the Board of Accountancy's, do not extend back to the 1960s.
The SEC filing says that in addition to being chairman, president and CEO at CellCyte, Reys is its chief financial officer and principal accounting officer.
The background of executives plays an outsized role in biotech companies's bid to attract investors, said Paul Latta, a Seattle-based analyst with McAdams Wright Ragen.
"If you can bring management to the table who has a track record of getting drugs through the process, it automatically brings credibility," he said.
Conversely, inaccurate biographical information in SEC filings could open the door to legal action from shareholders, said University of Washington law professor Sean O'Connor.
"Whatever you disclose to the SEC has to be correct, and can't be misleading," said O'Connor, a specialist on securities law. "Often the company was sold to investors based on the strength of the founders."
Reys owns about a third of CellCyte's shares after a transaction last February when the then-private company combined with a shell company with shares trading in the loosely regulated OTC Bulletin Board and in Frankfurt.
Some 2 million shares of CellCyte are controlled by G. Brent Pierce, a stock promoter banned by the British Columbia Securities Commission, who paid hundreds of thousands of dollars for a campaign of spam faxes and glossy mailers touting the company's stem-cell technology in the U.S. and Germany.
A regulator in B.C. said last month that such tactics are commonly used in "pump-and-dump" schemes to inflate a small company's shares before selling out.
Reys said CellCyte is not responsible for the promotional activity, and that its foray into alternative markets is a legitimate step on its way to a major trading floor like Nasdaq.
The company employs 16 people and recently moved from its startup offices in Kirkland to a larger facility in Bothell.
In a November interview, Reys said investors' faith in the company's patented technology was the reason for its large market capitalization, which at the time made it the area's fourth-most-valuable biotech.
But as of Tuesday, stockholders seemed to have had a change of mind. The company's value was more than halved in two days, to $188 million. Selling volume Tuesday was the highest in the company's eight-month history of trading.
Reys' CellCyte profile refers to executive stints with Pfizer and Rhone Poulenc Rorer. But it also describes him as part of a "five member founding executive team forming Schein Pharmaceutical, taking the company through an IPO and the acquisition by Bayer AG."
Reys said he was the Western sales manager when Schein Pharmaceutical was formed in 1985. But he acknowledged that he'd left before Bayer bought a 28 percent stake in 1994 and the 1998 IPO.
"In my profile the wording was meant to state events about Schein and has been reworded since," he said by e-mail. "This was not meant to deceive anyone, just a mistake in sequences and, indeed, I was not with Schein at the time of those events."
That claim was absent from the company's Web site Monday, but was back on there as of Tuesday.
CellCyte also eliminated some references to Reys' role in bringing his previous company, Cennapharm, to early clinical trials in humans. Reys' tenure at the company ended in 2003, and was followed by a bitter legal dispute with the company's founders; court documents in that dispute say the company never tested its product on people.
Ángel González: 206-515-5644 or email@example.com
Seattle Times researcher Miyoko Wolf contributed to the story
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