Feds charge Osiris execs with cooking the books as stock price soared

by john carroll — on November 3, 2017 06:51 AM EST

Updated: 07:14 AM

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Investors might remember how interest in the stock of the little regenerative med biotech Osiris
Therapeutics $OSIR hit a fever pitch in the summer of 2015, with shares topping $21 as CEO Lode
Debrabandere touted a 78% spike in revenue, compared to the same period in 2014. The company was
staffing up, introducing a new product and was on a roll, by his account.

But the SEC said late Thursday that a significant part of their success was an illusion.

Lode Debrabandere

Debrabandere, former chief financial officers Philip R. Jacoby Jr. and Gregory I. Law, and chief business
officer Bobby Dwayne Montgomery have all been charged by the SEC with cooking the books.

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As that case was rolled out, Jacoby was pleading guilty to making false statements to auditors, according
to a report from Reuters. In doing so, he agreed to a prison sentence of 4 to 10 months and a fine of up
to $5 million. Law’s attorney, meanwhile, said his client was not guilty and prepared to fight it out.
According to a statement from the SEC, just after CEO C. Randal Mills left to run the California Institute
for Regenerative Medicine in 2013, the executive crew engaged in some creative accounting practices in
2014 and 2015 to burnish the numbers. The company is small, but has a high profile in its field.

The feds say the numbers game at Osiris included: “(A)rtificially inflated prices, backdated documents to
recognize revenue in earlier periods, and prematurely recognized revenue upon delivery of products to
be held on consignment,” according to the SEC. And they were also using “pricing data that they knew
was false and attempted to book revenue on a fictitious transaction, among other accounting
improprieties.”

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The company — which appointed new CEO and AstraZeneca vet Linda Palczuk to run the company
recently after retaining Ernst & Young to restate its numbers for 2015 and 2016 — agreed to pay a $1.5
million penalty.

The federal litigation against the four execs remains underway, with the stock trading for a fraction of its
2015 high.

“As alleged in our complaint, Osiris Therapeutics falsely portrayed to investors that its revenue was
growing so rapidly that its performance was consistently exceeding expectations,” said Julie Lutz,
director of the SEC’s Denver Regional Office. “Corporate cultures cannot be so fixated on higher
revenues that they use illegal accounting gimmicks to meet the financial numbers they desire.”

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