(CN) – The 7th Circuit upheld a ruling that Harvard Scientific Corp. and its founder violated securities laws by lying to investors about the success of a new product to treat male and female sexual dysfunction.
Dr. Jackie See founded Harvard Scientific in 1994 based on his patented lyophilized liposome prostaglandin E-1, which he claimed could treat sexual dysfunction.
During the approval process, the Food and Drug Administration learned that Harvard Scientific had falsified the findings of a clinical study. The FDA ordered the company to stop trials until an audit was completed, but Harvard Scientific continued to tout the treatment’s alleged success to potential investors.
The company attracted the investment of Robert Krilich, the father of Harvard Scientific’s former chief operating officer. Krilich, through RK Company, bought $500,000 worth of stock, or 166,667 shares. RK was unable to resell the stock, and Harvard Scientific soon went bankrupt.
A federal judge found that See and his company violated federal and state securities laws, and state deceptive practices law, and committed common law fraud.
See appealed, challenging RK’s standing and the admission of certain deposition testimony at trial.
See argued that RK is an unlawful common-law trust created to duck taxes, and thus lacked standing to sue, because it was not the “real party in interest.”
The 9th Circuit’s Judge Ann Claire Williams rejected the argument as untimely, because See failed to object “during the more than seven years between the complaint and the beginning of trial.”
Williams also held that the liability findings “were more than adequately supported, and there was no abuse of discretion in the awarding of prejudgment interest and attorneys’ fees.”