Stanford genetics professor fined $29M after misleading investors in biotech company
SAN JOSE -- A Stanford University genetics professor has paid nearly $30 million in restitution after a judge determined that he misled investors in a now-dissolved biotechnology company he founded.
In a judgement issued in June in Santa Clara County Superior Court, Dr. Stanley Cohen was ordered to pay $29.2 million to the Emeryville-based venture capital firm Alafi Capital and the Christopher Alafi Family Trust, the only two investors in Cohen's company Nuredis Inc.
Cohen, according to court documents, claimed to have discovered the biological process that causes the neurodegenerative condition Huntington's disease.
According to a lawsuit filed in 2018 by Alafi Capital and the Alafi Family Trust, Cohen contacted former Alafi Capital partner Moshe Alafi and his son Christopher Alafi, also an executive with the firm and a longtime friend of Cohen, to seek their investment in Nuredis.
The Alafis ultimately invested $20 million into the company in 2016. Christopher Alafi was also named president of the company and held a position on the company's board of directors through 2018, when Nuredis was dissolved.
According to court documents, Cohen also claimed to the Alafis that he was developing a drug to combat the supposed cause of Huntington's disease and that the drug had previously been approved by federal regulators to treat an unrelated skin condition and, as a result, would have a cheaper and more efficient path to the start of clinical testing.
Cohen did not disclose, however, that even though the U.S. Food and Drug Administration approved the drug in 1975, it was permanently removed from the market less than a year later due to multiple cases of severe blood clotting that led to death and loss of limbs.
Cohen still retained some $13 million of the Alafis' investment when Nuredis closed in 2018, according to court documents, but declined to return the remaining funds and instead used it for legal fees.
The court described Cohen's conduct as "negligent misrepresentation" to secure the Alafis' investment, which is seen as "a species of actual fraud and a form of deceit" under California law.
Cohen was ordered to repay the $20 million investment as well as $9.2 million in interest.
"The payment by Cohen of over $29 million to my clients demonstrates that in California the law applies equally to elite professors as it does to ordinary defendants," said Michael Gardener, the lead attorney for the Alafis and their investment firm in their lawsuit.
Cohen remains employed as a genetics professor at the Stanford School of Medicine. Cohen and his attorney in the lawsuit did not respond to requests for comment.
A spokesperson for Stanford University said the university was unaware of the lawsuit and Cohen's work with Nuredis was outside his scope of responsibilities to the university.
"We understand from the court's decision in this case that Nuredis tried to sell its (intellectual property) and, when unsuccessful, donated it to Stanford," university spokeswoman Luisa Rapport said in a statement. "Stanford has not further developed nor licensed or commercialized the donated IP."