Updates to our Terms of Use

We are updating our Terms of Use. Please carefully review the updated Terms before proceeding to our website.

Thursday, July 18, 2024 | Back issues
Courthouse News Service Courthouse News Service

Biopharma Firm Took $9 Million, SEC Says

BOSTON (CN) - An attorney duped investors for $9 million through his purported biopharma company, Biochemics, the SEC claims in court.

The SEC sued Biochemics Inc., its founder and CEO John J. Masiz, and two men he hired to promote the company, Craig Medoff and Gregory Kroning, in Federal Court.

Masiz, of Topsfield, Mass., "is the founder of BioChemics, and from its inception through the present, has served as its President, CEO, and Chairman of its Board of Directors," the SEC says in its complaint.

It continues: "Masiz is also an attorney admitted to practice in Massachusetts. In a prior case brought by the Commission in 2004 against him and VASO Active Pharmaceuticals, Inc. ('VASO'), a BioChemics subsidiary, a final judgment was entered against Masiz that permanently enjoined him from violating the antifraud provisions of the federal securities laws, and barred him from serving as an officer or director of a public company for five years."

Defendant Medoff also has a bad history, the SEC says. It sued him in 1993 claiming he sold unregistered stock through false and misleading statements.

The SEC says: "a final judgment was entered against Medoff that permanently enjoined him from violating the antifraud provisions of the federal securities laws. In January 1995, the Commission issued an Order that permanently barred Medoff from association with any broker, dealer, investment adviser, investment company or municipal securities dealer. In 1995, Medoff also pled guilty to two counts of conspiracy to commit securities fraud in a criminal case."

Kroning's history is not quite so bad, the SEC says, but he's not squeaky clean either: "Though Kroning was, at one time, associated with a registered broker-dealer, he was barred by the New York Stock Exchange from the industry for one year and has not sought to resume his affiliation with a registered broker-dealer. Kroning previously held Series 7, 8 and 63 securities licenses."

The SEC claims that after Masiz's 5-year bar ended, he went back to his old tricks.

"From 2009 until mid-2012, BioChemics, a biopharmaceutical company based in Massachusetts, and the individual defendants engaged in a fraudulent scheme to sell BioChemics securities to approximately 70 investors, raising at least $9,000,000," the SEC says in its 38-page complaint.

"BioChemics specialized in a purported transdermal drug delivery, with side businesses in over-the-counter cosmetic products and veterinary products. BioChemics claimed that its transdermal drug delivery technology delivered a wide variety of existing drug molecules through the skin to a patient's bloodstream. Though BioChemics marketed and sold some over the counter products for humans, and some non-drug veterinary products, none of BioChemics' pharmaceutical products had been approved by the Food and Drug Administration ("FDA") or any other analogous governmental regulator in another country. ...

"BioChemics and each of the individual defendants (and their agents) made false and misleading statements to investors while selling BioChemics securities, including statements that misled investors about the value of BioChemics securities. Among other things: (a) BioChemics, Masiz, Kroning and their agents misrepresented to investors in 2011 that BioChemics had ongoing research and development collaborations with certain other pharmaceutical companies when in fact the collaborations with those companies had either never begun or had ended in 2009 or by mid-2010; (b) BioChemics and Masiz misrepresented to investors in early 2010 that the company had two drugs currently under FDA review, when in fact it had no products under any type of FDA review; (c) from 2009-2012, BioChemics and the individual defendants made misrepresentations to investors about the progress and results of clinical trials for BioChemics' products; (d) BioChemics and the individual defendants misled investors about valuations of BioChemics that were purportedly prepared by reputable independent investment banks. For example, BioChemics and Masiz misrepresented valuations, or circulated documents that were not actual valuations, of BioChemics of $500 million in 2007-2008 and up to $2 billion in 2009, and all of the defendants misrepresented these figures to investors as actual and independent valuations of the company; and (e) BioChemics and the individual defendants misrepresented Masiz's background and his compensation. For example, the defendants failed to disclose to investors that Masiz was the subject of a prior Commission securities fraud action that resulted in a final judgment against him in 2004.The defendants also told investors that their investments were going to fund BioChemics' operating expenses and clinical trials and that Masiz was not taking a salary at BioChemics, when in fact investor funds were used to pay for personal expenses of Masiz (such as meals, massages, clothing, and sporting goods) and Kroning (such as a leased BMW automobile). Investor funds were also used to pay Masiz a salary indirectly through BioChemics' subsidiary." (Parentheses in complaint.)

Masiz was not shy, either, the SEC says: "BioChemics purported to possess 'the world's best and most effective transdermal drug delivery technology, intellectual property and patents' which 'can be applied to the vast majority of drugs in the Pharmacopeia, over 1,000 drugs' and for which, 'BioChemics literally does not have any real competition with its transdermal drug delivery capabilities.'"

The complaint continues: "2003, BioChemics spun out its subsidiary, VASO, as a publicly traded company through an initial public offering of VASO's securities. Masiz served as the President, Chairman of the Board, and CEO of VASO in addition to maintaining his duties at BioChemics. In August 2004, the Commission sued Masiz and VASO for securities fraud arising from false and misleading statements in a number of VASO's securities filings and on its website about the need for, or status of, FDA approval of certain of its over-the-counter products. Without admitting or denying the allegations of the Complaint, Masiz settled the Commission's charges, agreed to permanent injunctions against further violations of the relevant antifraud provisions of the federal securities laws, was barred from serving as an officer or director of a public company for five years, and agreed to pay an $80,000 civil penalty.

"Though Masiz stepped down from his roles as an officer and director of VASO in 2004, he remained a strategic consultant to the company, and earned the same salary in his new position. In March 2010, VASO filed for Chapter 11 bankruptcy protection. After VASO's bankruptcy, Masiz continued to be involved in negotiating with potential merger candidates to finance VASO's potential plan of reorganization."

The SEC seeks injunctions, disgorgement and penalties, and wants the court to order them not to do it again.

Categories / Uncategorized

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.