A biotech company that makes a product to repair skin loss said Monday it is under investigation by the Securities and Exchange Commission, which sent a subpoena earlier this month and opened an investigation into its public disclosures and ownership.
Shares of Salt Lake City-based PolarityTE closed down more than 15 percent on the disclosure.
The company makes products to regenerate human tissues, such as skin, using the patient's own healthy tissue. Its lead product, SkinTE can be used instead of or along with a skin graft.
Polarity said Monday in an annual regulatory filing that the SEC notified it on March 4 that it was under investigation for possible violations of securities laws, including the anti-price manipulation provisions of the Exchange Act, regarding its public disclosures and beneficial ownership reporting. "We intend to fully cooperate with the SEC regarding their March 2019 subpoena and this ongoing investigation," the company said.
The SEC declined to comment.
Though it made the disclosure in its 10K filing, PolarityTE didn't mention the SEC subpoena and investigation in a press release Monday with its earnings report. Polarity did not host an earnings call for this release, although it has done so for some previous earnings.
"We consider carefully our reporting and disclosure obligations," Betsey Hartman, Polarity's senior director of public relations said in part in a statement emailed to CNBC. "We believe this report is the appropriate place to make full disclosure on the matter."
The subpoena requested additional documents related to SkinTE and any promotion of the company or its securities, among other items, according to the filing.
The subpoena also asked for communications and agreements between Polarity and its former CFO John Stetson, former CEO and current investor Barry Honig and investor Michael Brauser.
PolarityTE was known as Majesco until January 2017 when it changed its name and business plan. The company previously made video games until it merged with Polarity, according to the filing.
Denver Lough, Polarity's CEO, replaced Barry Honig, who was the CEO of Majesco.
In September, the SEC charged Honig, Brauser, Stetson and others it called "microcap fraudsters" in connection with a $27 million "lucrative market manipulation," according to a press release. The charges were unrelated to Polarity. Honig, Brauser and Stetson have not yet responded to the complaint.
In the wake of the charges, Polarity immediately terminated Stetson, according to a press release.
Honig and Brauser both own nearly 7 percent of Polarity shares, according to their latest 13G filings.
In Monday's filing, Polarity said it believes its securities have been the target of "short and distort" trader attacks, including the publication of "coordinated, deliberately and purposefully false materials on or within internet-based platforms, including, but not limited to, blogs, chat rooms, forums and social media." It added it is closely monitoring this activity "which we do not tolerate."
Honig was once the largest investor in Riot Blockchain, a cryptocurrency company that soared in price after changing its name and business plan in October 2017. Riot Blockchain has had an ongoing SEC subpoena, the details of which they have not disclosed, since last year, according to SEC filings.
Riot Blockchain's former CEO, John O'Rourke, was charged along Honig by the SEC in the microcap securities case last fall. He has not yet responded to the complaint.
A CNBC investigation in February 2018 found a number of red flags at Riot Blockchain, including annual meetings that were postponed at the last minute, sales of stock by company insiders soon after the company's name change, dilutive share issuances on favorable terms to large investors, confusing SEC filings and evidence that a major shareholder was selling shares while everyone else was buying.