Sequenom’s Former R&D Chief Pleads Guilty to Securities Fraud Charge

A former senior vice president for research and development at Sequenom (NASDAQ: [[ticker:SQNM]]) admitted today that she knew “blinded” studies the company was conducting of a genetic test for Down syndrome were falsified.

Elizabeth A. Dragon, a former Sequenom senior vice president for research and development, admitted in an appearance before a federal judge this morning that scientists involved in the clinical studies either knew the outcomes before testing the samples, or had been directed to change their initial results. As part of an agreement with prosecutors, Dragon pled guilty to a single count of conspiracy to commit securities fraud.

In her guilty plea, according to a statement released in San Diego by U.S. Attorney Laura Duffy, Dragon admitted that she participated in a conspiracy to defraud Sequenom shareholders in 2008 and 2009 by disseminating false and misleading information about the screening test for Down syndrome that Sequenom had under development at that time.

Sequenom said last month it was restarting development of its prenatal test for Down syndrome after abruptly postponing the long-planned commercial introduction of the test on April 29, 2009. The diagnostics company said at that time only that the delay was due to “employee mishandling of R&D test data and results.”

Less than five months later, an internal investigation prompted a special committee formed by Sequenom’s board to fire CEO Harry Stylli, Dragon, and three other employees. Sequenom’s CFO and another executive resigned also resigned in September.

In her appearance today before U.S. Magistrate Barbara L. Major, Dragon acknowledged that she and others “caused Sequenom to falsely claim that the test’s reliability and accuracy were nearly perfect” and that she personally made such assurances to analysts and investors at meetings in San Diego, New York, and Vancouver, BC.

Sequenom agreed earlier this year to pay $14 million to settle a consolidated shareholder suit over the matter. In restarting development of the test, which screens a sample of the mother’s blood for fetal markers of Down syndrome, Sequenom raised $51.6 million in a private stock placement. At the end of March, the company’s accumulated deficit stood at $614.2 million.

Assistant U.S. Attorney Eric Beste, who has been involved in the Sequenom investigation for months, tells me that no other public charges related to the fraud at Sequenom have been brought at this time. Beste also adds, though, that Dragon “has agreed to make herself available to cooperate with our ongoing investigation.”

Author: Bruce V. Bigelow

In Memoriam: Our dear friend Bruce V. Bigelow passed away on June 29, 2018. He was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Bruce Bigelow joined Xconomy from the business desk of the San Diego Union-Tribune. He was a member of the team of reporters who were awarded the 2006 Pulitzer Prize in National Reporting for uncovering bribes paid to San Diego Republican Rep. Randy “Duke” Cunningham in exchange for special legislation earmarks. He also shared a 2006 award for enterprise reporting from the Society of Business Editors and Writers for “In Harm’s Way,” an article about the extraordinary casualty rate among employees working in Iraq for San Diego’s Titan Corp. He has written extensively about the 2002 corporate accounting scandal at software goliath Peregrine Systems. He also was a Gerald Loeb Award finalist and National Headline Award winner for “The Toymaker,” a 14-part chronicle of a San Diego start-up company. He takes special satisfaction, though, that the series was included in the library for nonfiction narrative journalism at the Nieman Foundation for Journalism at Harvard University. Bigelow graduated from U.C. Berkeley in 1977 with a degree in English Literature and from the Columbia University Graduate School of Journalism in 1979. Before joining the Union-Tribune in 1990, he worked for the Associated Press in Los Angeles and The Kansas City Times.