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Two Biotech CEOs Charged in Securities Fraud Schemes

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U.S. Department of Justice

Tuesday, December 20, 2022

A federal grand jury in the District of Maryland returned an indictment that was unsealed today charging two men for their roles in schemes to defraud investors in CytoDyn Inc., a publicly traded biotechnology company (OTCQB: CYDY) based in Vancouver, Washington.

According to court documents, Nader Pourhassan, 59, of Lake Oswego, Oregon, and Kazem Kazempour, 69, of Potomac, Maryland, allegedly engaged in a conspiracy to defraud investors through false and misleading representations and material omissions relating to CytoDyn’s development of leronlimab, a monoclonal antibody investigational drug also known as PRO 140, as a potential treatment for human immunodeficiency virus (HIV). Pourhassan and Kazempour allegedly deceived investors about the timeline and status of CytoDyn’s regulatory submissions to the U.S. Food and Drug Administration (FDA) to artificially inflate and maintain the price of CytoDyn’s stock and attract new investors, and for their personal benefit, including by selling their personal shares of CytoDyn stock.

Pourhassan was CytoDyn’s president and CEO at the time of the alleged fraud. Kazempour is the co-founder, president, and CEO of Amarex Clinical Research LLC (Amarex), a private company with offices in Germantown, Maryland, that managed CytoDyn’s clinical trials, and was CytoDyn’s regulatory agent in interactions with the FDA. Kazempour also served on CytoDyn’s Disclosure Committee, which was responsible for reviewing and approving CytoDyn’s periodic filings with the U.S. Securities and Exchange Commission.

“The Department of Justice is committed to protecting the investing public from criminals who would exploit public health crises for personal profit,” said Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division. “These charges also confirm the department’s commitment, together with our law enforcement partners, to hold corrupt C-Suite executives who abuse their positions and engage in securities fraud accountable for their actions.”

“The indictment alleges that these defendants conspired to defraud investors in order to line their own pockets,” said U.S. Attorney Erek L. Barron for the District of Maryland. “Investors must be able to rely on the statements of biotech companies about their products. Executives who knowingly mislead investors must be held accountable.”

The indictment alleges that Pourhassan and Kazempour made and caused CytoDyn to make materially false and misleading representations about the timelines by which CytoDyn and Amarex would complete and submit CytoDyn’s biologics license application (BLA) for leronlimab’s treatment of HIV to the FDA. In April 2020, after CytoDyn and Amarex repeatedly missed publicized timelines, Pourhassan allegedly directed Kazempour and Amarex to submit the BLA – even if it was incomplete – so that Pourhassan and CytoDyn could announce to investors that the BLA had been submitted. Pourhassan and Kazempour allegedly knew that the FDA would refuse to review an incomplete BLA.

After Kazempour and Amarex allegedly submitted the incomplete BLA at Pourhassan’s direction, Pourhassan and CytoDyn misrepresented in a press release that a “complete” BLA had been submitted to the FDA when, in truth and in fact, it had not. Pourhassan then allegedly sold millions of dollars’ worth of CytoDyn stock based on material non-public information, including information about the fact that the BLA was, in truth and in fact, incomplete when submitted.

“Financial crimes like securities fraud may not be violent, but they certainly are not victimless. The two individuals charged today capitalized on the hopes of investors and the public in supporting new treatments for ailments that affect people and their families,” said Special Agent in Charge Thomas J. Sobocinski of the FBI Baltimore Field Office. “This indictment sends a message to all sophisticated white-collar criminals that no one is beyond the reach of the FBI and our law enforcement partners and we do not tolerate the greedy intentions of those in such trusted positions.”

“The conduct alleged in these charges erodes public trust in the safety and effectiveness of medical products, including drugs,” said Assistant Commissioner Catherine A. Hermsen of the FDA’s Office of Criminal Investigations (OCI). “The FDA would like to extend our thanks to our federal law enforcement partners for sending a strong message to biotechnology executives and others that these types of actions will not be tolerated.”

The indictment also alleges that Pourhassan made, and caused CytoDyn to make, materially false and misleading representations about CytoDyn’s investigation and development of leronlimab as a potential treatment for COVID-19, including the results and significance of clinical trials and the status of CytoDyn’s regulatory submissions to the FDA. Pourhassan allegedly knew that, in truth and in fact, leronlimab’s clinical studies failed to achieve the results necessary to obtain any form of FDA approval for use as a treatment for COVID-19 and the results CytoDyn publicly touted were neither statistically significant nor scientifically sound. 

“Throughout history, Postal Inspectors have investigated many investment schemes and the one thing that always rings true, where there are large sums of money to be made, scammers are always lurking,” said Inspector in Charge Eric Shen of the U.S. Postal Inspection Service (USPIS) Criminal Investigations Group. “In this case, these individuals took advantage of the dream of a possible new treatment for HIV and exploited investors, while dashing the hopes of many waiting for a cure. Postal Inspectors and their law enforcement partners will work tirelessly to bring to justice those who break regulatory and investment standards, keeping the investing landscape safe and free of crime for the American public.”

Pourhassan and Kazempour are each charged with one count of conspiracy to commit securities fraud and wire fraud, three counts of securities fraud, and two counts of wire fraud related to the HIV BLA scheme. Pourhassan is separately charged with an additional count of securities fraud, an additional count of wire fraud related to the COVID-19 scheme, and three counts of insider trading. Kazempour is separately charged with one count of making false statements to federal law enforcement agents. Pourhassan will make his initial court appearance later today in the District of Oregon. Kazempour will make his initial court appearance later today in the District of Columbia. If convicted, Pourhassan and Kazempour each face a maximum penalty of 20 years in prison on each securities fraud and wire fraud count, and five years in prison on the conspiracy count. Kazempour also faces a maximum penalty of five years in prison on the false statements count. A federal district court judge will determine any sentence after considering the U.S. Sentencing Guidelines and other statutory factors.

The FBI Baltimore Field Office, FDA-OCI, and USPIS are investigating the case.

Trial Attorneys Christopher Fenton and Joshua DeBold and Assistant Chief Michael O’Neill of the Criminal Division’s Fraud Section and Assistant U.S. Attorneys Aaron S.J. Zelinsky and Leo Wise for the District of Maryland are prosecuting the case.

If you believe you are a victim in this case, please contact the Fraud Section’s Victim Witness Unit toll-free at (888) 549-3945 or by email at victimassistance.fraud@usdoj.gov. Victims can find case updates and additional information at: https://www.justice.gov/criminal-vns/case/CytoDyn-Inc.

An indictment is merely an allegation. All defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

Financial Fraud
Securities, Commodities, & Investment Fraud

Criminal Division
Criminal - Criminal Fraud Section
Federal Bureau of Investigation (FBI)
USAO - Maryland

Press Release Number: 

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