Three repeat securities law violators teamed up to defraud 70 investors of over $9 million over three years. The complaint claims the defendants sold interests in a privately held biochemical company based on a series of misrepresentations. SEC v. Biochemics, Inc., Civil Action No. 1:12-cv-12324 (D. Mass. Filed Dec. 14, 2012).
BioChemics is a privately held company formed in 1991 by defendant John Masiz who serves as its Chairman, CEO and President. Defendant Craig Medoff provided services to the company through another entity and solicited potential investors. Defendant Gregory Kroning is a consultant to the company who also solicited potential investors.
Over a three year period the defendants are alleged to have made a series of misrepresentations to potential investors in connection with the sale of BioChemics securities which included:
- Claims that in 2011 the company had ongoing research and development collaborations with certain other pharmaceutical companies which either did not exist or had terminated two years earlier;
- Representing that in 2010 the company had two drugs then under FDA review when in fact it did not;
- Giving investors reports on the progress and results of clinical trials for BioChemics’ products which were false;
- Providing investors with incorrect valuations for the company which supposedly were prepared by reputable independent investment banks, one of which included a claim that it was worth up to $2 billion in 2009; and
- Telling investors that Mr. Masiz was going to fund BioChemics’ operating expenses and clinical trials and that he was not taking a salary when in fact he was paying for his living expenses from investor funds.
Previously, each of the individual defendants had violated the federal securities laws.
Mr. Masiz: In 2004 he was enjoined from violating the antifraud provisions of the federal securities laws and barred from serving as an officer or director of a public company for five years in connection in an action involving a pharmaceutical company.
Mr. Medoff: In 1993 he was a defendant in a case involving the sale of unregistered securities and consented to the entry of a permanent injunction prohibiting future violations of the antifraud provisions of the federal securities laws. Two years later the Commission entered an order barring him from the securities business and he pleaded guilty to two counts of conspiracy to commit securities fraud in a criminal case.
Mr. Kroning: He was a registered representative and has been barred for one year from the industry by the New York Stock Exchange but has not sought re-entry.
The Commission’s complaint alleges violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 15(a). The case is pending.