LAS VEGAS (CN) — Founders of a Nevada stem cell research firm skimmed money from the $110 million they raised to develop treatments for Alzheimer’s disease, a member of the company’s own board claims in court.
Tiara Holdings II LLC sued Stemedica Cell Technologies Inc. and its top three officers on April 6 in Clark County Court. The officers are CEO and Chairman of the Board Roger Howe, Vice Chairman and CEO Maynard Howe and President and Chief Medical Officer Nikolai Tankovich.
Dr. Anthony M. Marlon, a medical doctor and businessman, holds 430,000 shares of Stemedica through Tiara Holdings, where he is a member. He also is a member of the board of Stemedica, he says in the complaint.
He says Stemedica’s founders have kept Tiara and independent auditors “in the dark” about its financial records and transactions.
“Stemedica’s founders have operated a nearly 10-year investment scheme, wherein they have raised over $110 million dollars from various individual investors for the purported purpose of funding and establishing a stem cell company,” Tiara says in the lawsuit.
Tiara claims the Howes and Tankovich “have used these investor funds, in whole or in part, to benefit themselves and their associates through excessive compensation and lavish personal expenses and related party transactions.”
“Stemedica’s founds have concealed and perpetuated this fraud through purported operating subsidiaries, which permitted them to divert millions to benefit them without raising questions or concerns from Stemedica’s investors and shareholders,” Tiara says.
These subsidiaries apparently are the defendant Doe Individuals I-X and Roe Business Entities I-X.
Maynard Howe said in a telephone interview Monday that “the allegations are completely false,” and the matter is in an attorney’s hands.
The most recent news statement on Stemedica’s website, dated July 27, 2016, says the firm began its first U.S. clinical trials using adult allogeneic stem cells to treat Alzheimer’s disease, at nonparties Emory University and the University of California at Irvine.
Allogeneic cells are genetically different, though from individuals of the same species. Stemedica’s statement says the clinical trials involve 40 subjects who were diagnosed with mild to moderate dementia caused by Alzheimer’s disease.
The National Institutes of Health says on its website: “Stem cells have the remarkable potential to develop into many different cell types in the body during early life and growth. In addition, in many tissues they serve as a sort of internal repair system, dividing essentially without limit to replenish other cells as long as the person or animal is still alive.
“When a stem cell divides, each new cell has the potential either to remain a stem cell or become another type of cell with a more specialized function, such as a muscle cell, a red blood cell, or a brain cell.”
In the lawsuit, Tiara says Stemedica sold securities that are not registered with any state or the federal government and raised about $15 million from July 2005 to June 2008. It says that money “ultimately ended up in the bank account of entities and individuals controlled by Stemedica’s founders.”
Stemedica then raised more capital via securities sales, Tiara says. Marlon joined its board of directors in 2009. Tiara says Stemedica has not conducted a third-party audit of its finances and thwarted an audit attempt by refusing to pay invoices by the auditing firm, which stopped the process.
It claims that Stemedica officials stopped the audit to ensure it would not uncover any wrongdoing.
“Disclosure would jeopardize their continued ability to defraud past and future investors out of millions,” Tiara says.
Tiara asks the court to order an accounting of Stemedica’s financial records, rescind securities subscription agreements and return Tiara’s investment.
It also seeks damages and punitive damages for fraud, breach of fiduciary duty, unjust enrichment and bad faith.
Tiara is represented by James Pisanelli with Pisanelli Bice, who did not return a phone call seeking comment Monday.