Shares in biotech company Galena Biopharma (GALE) plunged Wednesday after the revelation that the company may have been involved in a stock promotion scheme even as insiders sold off large quantities of shares. The stock opened up, but a sell-off quickly took hold that saw shares shed nearly 15 percent by midday on heavy volume.
GALE Promoted on Seeking Alpha by Fake Profiles
TheStreet’s Adam Feuerstein reports that Seeking Alpha took down two articles promoting Galena’s stock, one from Nov. 22 and another from Aug. 6, under the aliases “Kingmaker” and “Wonderful Wizard” after discovering that they were written by the same person. The author had failed to disclose that both aliases were the same person.
Potentially more damning is the revelation that Galena had paid some $50,000 to a marketing firm called The DreamTeam Group to pump its stock, prompting the firm to produce blog content promoting the stock.
"By December 20, 2013, DTG has published a total of 50 unique GALE-centered blogs that were distributed throughout the DTG network and a number of investor-oriented community site on the Internet such as StockHouse, StockTwits, Seeking Alpha and Wall Street Cheat Sheet," said a DreamTeam document obtained TheStreet.
Seeking Alpha did not yet establish a clear connection between DreamTeam and the author writing under the aliases Kingmaker and Wonderful Wizard, but the articles that were removed both appeared to strike a tone with regards to that was clearly promotional:
“... investors must look for biopharmaceutical companies that have a unique approach to science, a deep pipeline, drugs with huge market potential, and a healthy fundamental picture. Galena has all of these attributes and shareholders with patience will be handsomely rewarded in due time," said Wonderful Wizard in his/her Aug. 6 article.
This is actually the second time that Seeking Alpha had to remove articles from their site related to Galena. The site previously took down five articles in January of 2013 for the same reasons.
Insider Sales During Downswing: Reason to Sell or Just Bad Timing?
Compounding the bad news was the recent performance of Galena and a rash of recent insider sales.
Galena went on a solid run through the start of 2014, more than tripling in value from Oct. 1 of last year and Jan. 16 of this year, driven by strong results for several of its cancer treatments. However, after peaking at $7.48 on Jan. 16, shares have plummeted by more than 40 percent.
During this slump, insider sales are way up, indicating a 20-percent reduction in insider ownership over the last six months. Much of this came from President and CEO Mark Ahn, who filed three separate form 144 proposed sales totaling more than 900,000 shares on Jan. 27, but several other insiders have filed to sell more than 100,000 shares since mid-January, including 100,000 shares by COO Mark Schwartz, 450,000 shares by Chairman Sanford Hillsberg, and 300,000 shares by independent director Stephen Galliker.
It should be noted, though, that while the timing of the revelations about stock promotion and the insider sales are hard to ignore, it could still simply be an unfortunate coincidence. Mark Ahn commented in a Feb. 4 interview on Seeking Alpha that the sales was motivated by his own financial situation and didn’t represent a lack of faith in the company, saying:
“I've been a board member since 2007 and CEO since 2011, and invested my own money in the company at inception and have purchased shares along the way. We've grown the company from $20 to $500 million market cap. I sold less than 20% of my equity position to diversify for my family. I'm contracted as the CEO and fully committed to the company's success and building significant further value for all shareholders.”
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