SEC charges co-founders of Biotech company with $60M fraud
According to the SEC, Richman, uBiome's CEO, and Apte, its chief scientific officer, raised millions of dollars from investors, much of which went to Richman and Apte, by falsely portraying uBiome as rapidly growing.
Richman told investors the company was "inventing the
microbiome industry" and making "products that improve people's
lives."
Richman and Apte also said the company had a strong track
record of receiving health insurance reimbursement for its clinical tests,
which they said could detect microorganisms and assist in diagnosing disease.
These claims were false and misleading, the SEC said,
because uBiome's revenue depended on duping doctors into ordering unnecessary
tests and other practices that, if discovered, would have led to insurers
refusing to reimburse the company.
The executives concealed the improper practices from
investors and insurers, in part by directing uBiome employees to provide
insurers with backdated and misleading medical records to substantiate the
company's prior claims for reimbursement.
But the efforts to conceal the practices unraveled, the SEC
said, which led uBiome to suspend its medical test business and enter
bankruptcy.
"Richman and Apte were each enriched by millions
through selling their own uBiome shares during the fraudulent fundraising
round," the complaint said.
The SEC charged the executives under antifraud provisions of
federal securities laws and is seeking court orders, including officer and
director bars, to prevent them from engaging in future fraud. The SEC is also
pursuing disgorgement of their ill-gotten gains and payment of civil penalties.
In a parallel action, the U.S. Attorney's Office for the
Northern District of California has opened a criminal investigation of Richman
and Apte.
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