Finding Fraud In Pharmaceutical Stock Promotion

On behalf of Wolf Popper LLP

Pharmaceutical companies can be lucrative investments when they are on the verge of developing a blockbuster drug. But in some cases, companies have been taking fraudulent steps to make it look like a blockbuster drug is imminent, when in fact it is not. They do this by hiring stock-promotion agencies to write favorable articles touting successful clinical trials in an effort to inflate stock prices. The stock-promoting agencies do not reveal that the pharmaceutical companies have paid them to write the articles. Then, once the stock has inflated, high-level executives sell off their stock and make a killing; that is, until the Securities and Exchange Commission (SEC) discovers what they're doing.

In the case of Immunocellular Technologies and Lion Biotechnology, both of which have been subject to cease-and-desist orders from the SEC, the CEO of both companies had also been running two separate stock-promoting agencies on the side.

A double betrayal

For people waiting for effective new, potentially lifesaving drugs, the practice of stock promotion is particularly cruel. That's because, in some cases, drugs that performed well in one phase of a trial do not perform as well in a subsequent trial, but are presented as effective nevertheless. When executives misrepresent the results of a clinical trial and fraudulently champion the drugs in articles they pay for (but do not disclose), they enrich only themselves -- until the SEC catches up with them.

Not an isolated incident

Unfortunately, this practice is not limited to a few rogue firms; the SEC recently issued 27 cease-and-desist orders against pharmaceutical companies and individuals who have engaged in this kind of misrepresentation; there may be more instances that have yet to come to light. Investors who have been misled by such fraudulent claims may be eligible to join a class action lawsuit.