SEC: Med device company CEO misled shareholders

The U.S. Securities and Exchange Commission has filed fraud charges against Burbank, Calif.-based medical imaging device company Imaging3, Inc., and its founder and CEO Dean Janes for misleading shareholders about the U.S. Food and Drug Administration's view of a 3-D scanner the company was attempting to develop.

The SEC alleged that Janes misled shareholders during a conference call in November 2010 after the FDA had issued a letter in October denying his company the right to market the scanner; it was the third time the FDA had denied clearance. Despite the fact that in the letter the FDA brought up concerns about the device's safety and image quality, Janes said on the call that issues with the scanner were "administrative" and "not substantive."

According to the SEC, when asked whether the FDA's concerns were related to safety or image quality issues, Janes said, "Nope," and that there was "really and honestly not one question about the technology or its consistency. It just doesn't make sense to me." During the call he also described the FDA's denial as "ridiculous" and "nonsensical."

Last September, according to an article in Mass Device, the California-based company filed for Chapter 11 bankruptcy "amid plunging sales and widening losses."

The SEC charged that Janes had a personal financial motive to minimize the impact of the FDA's denial letter: he had 60 million shares in the company as of October 28, 2010.

"Shareholders have a right to trust corporate officers to tell them the truth about the business," Michele Wein Layne, Regional Director of the SEC's Los Angeles Regional Office, said in an announcement. "When CEOs abuse that trust and make misstatements, innocent shareholders are victimized. The SEC will hold corporate officers accountable for misleading shareholders."

To learn more:
- read the complaint (.pdf)
- see article in Mass Device
- read the SEC announcement