According to Hani, a South Korean newspaper, RNL Bio’s CEO, Dr. Jeong Chan Ra (also known as Ra Jeong-Chan), was last month arrested on charges of insider trading. (Thanks to Dersu na Amure for bringing this article to my attention.) Seoul’s Southern District Prosecutors’ Office filed the charges against Dr. Ra. Ra was arrested for allegedly using “non-public information to buy and sell stocks for capital appreciation.” Ra reportedly profited by using undisclosed corporate information to make a five billion won profit ($4,450,298 U.S. dollars) from the sale of 4,730,000 shares. A shell corporation located in Hong Kong was allegedly used to conduct insider trading and conceal the transactions from securities regulators.
Prosecutors are also reportedly investigating possible improprieties in the transfer of funds related to RNL Bio’s business operations in the United States. RNL Bio licensed its stem cell technology to Texas-based Celltex Therapeutics in 2011. RNL Bio reportedly received an initial $30 million payment as a result of that licensing agreement. Investigators are examining how RNL Bio reported these earnings in financial statements.
Hani also reports that Dr. Ra is accused of sexual harassment. Ra is alleged to have molested a family member employed at RNL Bio.
Whether RNL Bio will survive Dr. Ra’s arrest is unclear. RNL Bio was delisted from Korea’s main stock exchange earlier this year. The company was delisted in part due to problems with its audit statement. RNL Bio is being investigated for alleged unlawful export (or “smuggling”) of adipose-derived stem cells to China and Japan. In addition, a RNL Bio-affiliated clinic based in Japan is being investigated by Korean authorities for unlawfully marketing and administering autologous stem cells. In the United States, RNL Bio, its subsidiary RNL Life Science (also known as Human Biostar), and Jeong Chan Ra are embroiled in a lawsuit with six former patients who claim that they are victims of fraudulent stem cell interventions. RNL Bio has filed a countersuit against these patients. In Texas, RNL Bio is both suing and being sued by Celltex Therapeutics, its former business partner. Celltex received a warning letter from the FDA September 24, 2012. RNL Bio’s employees staffed Celltex’s manufacturing laboratory and RNL Bio provided its stem cell technology and cell processing methods.
RNL Bio has also suffered from the collapse of at least one of its subsidiaries. Earlier this year, RNL Europe, headed by Glenn McGee, previously a Vice President at Celltex and former editor of the American Journal of Bioethics, became insolvent. The subsidiary’s financial collapse appears to be connected to the travails of its parent company, RNL Bio.
RNL Bio has a lengthy history of engaging in controversial (and possibly illegal) activity. The company was caught administering unlicensed stem cell based medical products to patients at several hospitals in South Korea. RNL Bio has also had to address questions about two patients who died after receiving autologous stem cells processed by the company. If claims by RNL Bio employees are accurate, the company has administered autologous stem cells to over 10,000 individuals without ever obtaining a biologics license or conducting the Phase I-III safety and efficacy trials that in most countries must occur before seeking premarketing approval.
Perhaps what is most surprising about Dr. Ra’s arrest is not that he was charged with an offense but that he was arrested for insider trading rather than unlawful export of unlicensed biologics and marketing, manufacturing, and facilitating the administration of unlicensed biological drugs. It will be interesting to see whether RNL Bio’s history of exploiting gaps in regulatory oversight rather than operating within the many regulations with which most other companies attempting to develop cell-based therapies comply played a role in prompting an investigation of Dr. Ra or whether alleged stock manipulation and insider trading were the main reasons for his arrest. In the end, perhaps authorities in South Korea and elsewhere treat allegations of securities violations with greater urgency than threats to the safety, health, and personal savings of patients.