The U.S. Securities & Exchange Commission today accused former Sientra (NSDQ:SIEN) CEO Hani Zeini of hiding a problem at the company to close a $61 million follow-on offering that led to the company losing more than half of its value.
The breast implant maker relied on a single supplier for its silicone implants. But regulators in the U.K. halted sales there and Brazil’s Anvisa suspended production at supplier Silimed after inspections revealed that the surfaces of some devices were contaminated with particles.
Shares in Sientra plunged -52.9% to a $9.70 close Sept. 24, 2015, and Zeini was soon replaced by Jeffrey Nugent, who has since engineered a turnaround. SIEN shares closed at $24.11 apiece yesterday, up 1.1% on the day and 17.1% ahead of its closing price the day before news of the market suspensions broke.
The S.E.C. today sued Zeini, who founded Sientra in 2006, alleging that he learned of the problem days before the offering closed and concealed it from both his subordinates and the underwriters of the offering. Sientra went public in November 2014.
The company’s CE Mark was suspended Sept. 17, 2015, but Zeini didn’t know until three days later, when Silimed’s CEO called to inform him of the suspension and Silimed’s plans to send a field safety notice the next day announcing it, the S.E.C. alleged. With the follow-on slated to close Sept. 23, Zeini embarked on a scheme to conceal the suspension until the closing, revising the field safety notice to downplay the situation and ordering his deputies not to say anything, according to the lawsuit.
“Rather than bring the information he obtained to the attention of others, Zeini hid this information from every other professional working on the offering – including Sientra’s general counsel, its outside counsel, its chief financial officer, its outside auditors, the offering’s underwriters and their counsel, and Sientra’s board of directors. Zeini also took steps to affirmatively conceal the information and prevent others from finding out about it,” the securities regulator alleged, accusing the CEO of further seeking to conceal his prior knowledge after the story broke.
The lawsuit seeks a permanent injunction, a civil monetary penalty, and an officer and director bar against Zeini.