The U.S. Securities and Exchange Commission (SEC) has filed settled charges against Houston-based Kiromic BioPharma, Inc., and two former executives for failing to disclose critical information about the status of the company’s cancer drug candidates during a 2021 public offering that raised $40 million. The charges stem from the company’s failure to disclose that the U.S. Food and Drug Administration (FDA) had placed its two drug candidates, ALEXIS-PRO-1 and ALEXIS-ISO-1, on clinical hold in June 2021, just weeks before the offering.
In response to the SEC’s findings, Kiromic, former CEO Maurizio Chiriva-Internati, and former CFO Tony Tontat have agreed to settle the charges. Kiromic, due to its cooperation, self-reporting, and remedial actions, will not face a civil penalty. However, Chiriva and Tontat have agreed to pay individual penalties of $125,000 and $20,000, respectively.
The SEC’s investigation found that the FDA had placed a clinical hold on Kiromic’s cancer drugs in mid-June 2021, which delayed the planned clinical trials. Despite this, the company failed to disclose the clinical holds during the due diligence calls, SEC filings, or investor roadshow calls leading up to its July 2021 public offering. The SEC argued that Kiromic had acknowledged the risk of such clinical holds in earlier filings but failed to disclose the actual holds when they occurred.
The SEC also found that, while Kiromic had warned investors about the hypothetical risks of clinical holds and their potential to harm the business, it did not disclose that the FDA had in fact imposed the holds. Kiromic consented to a cease-and-desist order without admitting or denying the SEC’s findings, agreeing to stop violating securities laws related to fraud, reporting, and disclosure controls.
The SEC’s complaint against Chiriva, filed in the U.S. District Court for the Southern District of Texas, states that Chiriva became aware of the clinical holds in mid-June 2021. Despite knowing this critical information, the SEC alleges, Chiriva did not correct misstatements made by another Kiromic officer during roadshow calls with investors, nor did he ensure the proper disclosure of the holds in SEC filings. Chiriva has agreed to settle the charges by consenting to a permanent injunction and being barred from serving as an officer or director of a public company for three years. He will also pay a civil penalty of $125,000.
Tontat, the company’s former CFO, was also charged for failing to disclose the clinical holds despite receiving detailed letters from the FDA explaining the decision. Tontat signed and certified Kiromic’s Form 10-Q filing, which omitted the information. He agreed to settle the charges by consenting to a cease-and-desist order and paying a civil penalty of $20,000.
The SEC’s actions were credited for striking a balance between holding Kiromic’s top executives accountable for their failure to disclose material information and recognizing the company’s efforts to self-report, implement corrective measures, and cooperate with the investigation.
“These resolutions strike the right balance between holding Kiromic’s then-two most senior officers responsible for Kiromic’s disclosure failures while also crediting Kiromic for its voluntary self-report, remediation, proactively instituting remedial measures, and providing meaningful cooperation,” said Eric Werner, Director of the SEC’s Fort Worth Regional Office.
The case underscores the importance of timely and accurate disclosure by companies, especially when it comes to material information that can significantly impact investors’ decisions.
