PolarityTE's Stock Falls 30% After Citron Calls It A Fraud

PolarityTE Inc (NASDAQ: COOL) stock crashed more than 30 percent Monday after short seller and Citron Research founder Andrew Left accused the biotech company of fraud.

PolarityTE’s business was acquired by Majesco Entertainment in December 2016 strictly based on perceived value in patent application #14/954,335, Left said in his new short report. In a the company’s 10-Q in January 2017, the PolarityTE said, “There was never any intent to acquire an ongoing business and no ongoing business was acquired.” PolarityTE also had zero employees at the time of the buyout.

As part of the deal, PolarityTE CEO Denver Lough received $104 million in stock in exchange for his patent on April 7, 2017. However, Citron claims Lough received an undisclosed notice of non-final rejection of the patent on March 31, 2017.

Left: This Is A 'Blatant Fraud'

Even after receiving the patent rejection notice, Left claims the company continued to promote the stock and raise money.

“There was no 8-k, risk disclosure, or press release as the coveted patent entered the stock world dead on arrival,” Left wrote.

On May 29, 2018, PolarityTE filed an S-8 registration to potentially sell additional shares of stock. Four days later, the patent office officially gave a final rejection of the patent in question. Left alleges Lough rushed to file the S-8 prior to receiving the final rejection because he was aware it was likely coming soon.

On June 5, the day after the rejection, PolarityTE issued 2.1 million shares of stock at $25.50 per share.

“In 2018, it is rare that Citron is able to identify such a blatant fraud by simple use of government databases,” Left wrote.

What's Next

Left is calling for the SEC to halt trading of PolarityTE before management can do any more harm to investors by dumping additional shares of stock.

A representative from PolarityTE was not immediately available for comment.

The stock traded around $25.84 at time of publication, down 33.2 percent on the day.

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