The U.S. Securities & Exchange Commission today charged Imaging3 (OTC:IMGG) and founder Dean Janes with defrauding investors by lying to downplay the nature of the FDA’s repeated rejections of the company’s application for a 3-dimensional medical scanner.
Janes allegedly told investors that the FDA’s concerns were "not substantive" and largely "administrative," even though "the FDA cited concerns about the safety of the device and the quality of the images," according to the SEC report.
Imaging3, which in September 2012 filed for Chapter 11 bankruptcy amid plunging sales and widening losses, held a conference call in November 2010, shortly after the FDA has logged its 3rd rejection against Imaging3’s scanner. During the call Janes explicitly denied that the FDA’s concerns were related to safety or image quality, the SEC charged.
"Even when asked on the call whether any of the FDA’s concerns were "safety-related" or involved image quality, Janes said, ‘Nope,’" according to an agency statement issued today. Janes allegedly told callers that there was "really and honestly not 1 question about the technology or its consistency. It just doesn’t make sense to me."
Janes allegedly concealed the agency’s additional concerns that the scanner may be prone to overheating and that some of the sample images the company submitted along with the application were "scientifically invalid and useless."
Janes did not immediately return requests for comment.
The scandal took to Facebook in 2011 after an Imaging3 investor obtained the FDA’s rejection letter and posted it online. The SEC claims that Janes "used his personal Facebook page in another effort to mischaracterize the denial," and that the company withheld the full text of the FDA rejection until earlier this year.
The SEC is seeking monetary penalties as well as a court order barring Jones from serving as an officer or director in a public company, according to the agency.
The 3D medical diagnostic imaging devices maker announced in September 2012 that it filed for bankruptcy in the U.S. Bankruptcy Court for the Central District of California, a move that was approved by the court earlier this month.
The company, founded in 1993, had been unable to raise enough revenue to cover research & development, marketing, operating and other costs, Imaging3 disclosed in its 1st quarter financial report, when it also noted that it may be forced to file for bankruptcy in order to stay in business.