SEC Charges Microcap Company and Its Executives with Fraud

The Securities and Exchange Commission (SEC) has made an announcement regarding the settlement of fraud charges against Quanta, Inc., a biopharmaceutical company based in Burbank, California, along with its CEO, Arthur Mikaelian, and his son Grant Mikaelian, who serves as Quanta’s executive vice president in charge of operations. The settlement does not require the defendants to admit or deny the allegations mentioned in the SEC’s complaint. As part of the settlement, the Mikaelians have agreed to officer and director bars and to pay civil penalties.

According to the SEC’s complaint, in a press release issued on July 23, 2021, Quanta and Arthur Mikaelian allegedly provided misleading information about the response from the FDA staff regarding the company’s proposed clinical trial of Escozine as a Covid-19 treatment. The press release is said to have misrepresented that the FDA staff’s response validated the clinical study conducted in the Dominican Republic and that the FDA staff had recognized the potential therapeutic benefits of Escozine. The complaint further alleges that these false and misleading statements created the impression among investors that the FDA staff was supportive of the proposed clinical trial and the results of the Dominican Republic clinical trials. However, the complaint reveals that the FDA staff’s response stated that the Dominican Republic clinical trial could not be directly used to support Quanta’s proposed clinical trial and that the antiviral activity had not been demonstrated with Escozine.

Additionally, the SEC’s complaint states that Quanta improperly recognized $198,000 of revenue in its Form 10-Q for the first quarter of 2021, resulting in a 61% overstatement of total revenue for that quarter. The complaint alleges that Quanta based its improper revenue recognition on a backdated purchase order created by Grant Mikaelian for Escozine immunapens, which was provided to Quanta’s auditors as support for its revenues. Furthermore, Arthur Mikaelian is accused of falsely representing in a management representation letter to Quanta’s auditor that the quarterly financials were prepared in accordance with generally accepted accounting principles (GAAP). He also certified Quanta’s first quarter Form 10-Q, which included the $198,000 in revenue.

Quanta has agreed to a final judgment, without admitting or denying the allegations, which permanently enjoins the company from violating various provisions of the securities laws. Arthur and Grant Mikaelian have also agreed, without admitting or denying the allegations, to final judgments that permanently enjoin them from violating certain sections of the securities laws and impose officer and director bars, penny stock bars, and civil penalties.

The SEC’s investigation was conducted by Junling Ma and Lorraine Pearson under the supervision of Victoria Levin and Rhoda Chang, with assistance from trial counsel Donald Searles under the supervision of Gary Leung. The SEC acknowledges the assistance provided by the U.S. Food and Drug Administration (FDA) and the Financial Industry Regulatory Authority.