Mary Schapiro has not got great press amongst financial bloggers – however this time she beat me to the punch.
Emergent Health Corp was a heavily promoted pink-sheets biotech which (fraudulently) claimed to have a pill (yes a simple oral pill) that would stimulate the production of stem cells in adults and hence cure everything from paraplegia to heart disease to leukaemia. Here is just one of their press releases:
Emergent Health Corp., a diversified holding corporation focused on the biotechnology sector, announces the Company has received approval from the U.S. Patent and Trademark office for their adult stem cell nutrition product Neuvitale(tm) Life Support.
An Emergent spokesperson commented, “The Company is pleased to announce a licence to market a formulation with ability to increase adult stem cells naturally from a person’s own bone marrow has been allowed by the U.S. Patent and Trademark office. Now that this patent has been allowed, Emergent will seek further corporate and joint venture opportunities with firms capable of assisting entry into this untapped estimated Multi-Billion dollar market currently dominated by drugs with high costs.”
By 2004 the world market for Colony Stimulating Factor products, Neulasta(r) and Neupogen(r) marketed by Amgen was valued at $3.6 billion, a growth of 11% over 2003. That market has grown at an average annual growth rate of 16% over the previous 5 years. This is cited only as a market size barometer.
In addition to this product, the Company is actively exploring additional investment projects involved in the adult, umbilical cord, and embryonic stem cell sector to add to its growing portfolio of biotechnology ventures.
On these press releases the stock popped rising from about $1 to about $4.
The claims were outrageous of course – but you can still buy their products online. Some of their online adverts make equally outrageous scientific claims. Others – like this YouTube video – have a disclaimer at the end.
I tried for the last few days trying to find a borrow – any borrow in the stock. [You need to borrow the stock so you can short sell it.] Apparently there was a borrow on Monday but I was on holiday – and so I never managed to short the stock. [I was planning to donate the profits to charity.]
After that I was going to write a letter to both the Food and Drug Administration and the Securities and Exchange Commission and see which organisation shut this fraud down first. It was going to be an uncontrolled experiment to see if the SEC could live up to Mary Schapiro’s promise to be more responsive.
Alas – and this is good news for America and bad news for my favourite charity – the SEC acted fast on this one. They just suspended the shares in EMGE.
Whilst Mary Cox Schapiro is dragging her feet on a much bigger fraud I have shown her I got to give credit on this one. The SEC did this quicker than they ever would under Mr Cox’s stewardship failed regime.
The SEC has only civil powers. EMGE rises to the level of criminal fraud. This improvement means nothing if the prosecutor can’t back up. And therein lies the next set of problems.
(This post originally appeared at the author’s blog)