Investors deserve answers from galena and cytrx about involvement in stock promo

Richard Pearson's expose, published yesterday on Seeking Alpha, pulls back the curtain on the shady world of paid stock touts. It's an excellent, well-researched story, mostly because of the documentation (emails and electronic signatures) Pearson obtained linking executives at Cytrx (CYTR) and Galena Biopharma (GALE) to the publication of promotional articles under assumed names and without proper financial disclosure.

You really need to read Pearson's story now, if you haven't already. The most damning part, for me, is the evidence showing Cytrx Vice President David Haen and Lauren Terrado, executive assistant to CEO Steven Kriegsman, approving and editing these promotional articles.

Pearson has emails between himself and Tom Meyer, the lead writer and recruiter for The DreamTeam Group, the marketing firm hired by Cytrx and Galena to tout their stocks all over the Internet. These emails also demonstrate quite convincingly that Cytrx and Galena executives knew about the publication of articles under fake names and weren't bothered at all by the lack of financial disclosure -- until they realized the truth was about to come to light.

Pearson submitted a dummy promotional article about Galena in early February. On Feb. 10, Meyer emails Pearson and is told that Galena is "putting a hold on all the GALE articles right now."

In his article, Pearson speculates Galena backed out because the company knew about my story on the stock-touting articles crafted by The DreamTeam Group.

Pearson is correct. I contacted Galena and The DreamTeam Group by email and phone on Feb. 10, seeking comment for the story I published on Feb. 12. Galena executives knew about my story on Feb. 10 and quickly told Meyer to put the kibosh on any new promotional articles.

Based on the evidence gathered and published by Pearson yesterday, Galena CEO Mark Ahn wasn't exactly telling shareholders the full truth when he defended the company's actions in a letter dated Feb. 14.

On the same day, Ahn was quoted in a story Oregonian reporter Nick Budnick

Ahn, Galena's CEO, said the company did not intend to mislead investors. He did not know the DreamTeam Group was not disclosing that its promotional materials were funded by Galena. In fact, he said he'd been told DreamTeam didn't write the Seeking Alpha articles. It was "an independent writer," he said.

Galena has denied all the allegations but Ahn needs to reconcile this statement with the evidence presented in Pearson's article. Galena is scheduled to announce fourth-quarter 2013 financial results next week.

A Cytrx spokesperson told me the company is "looking into [Pearson's] story and we don't have any comment at this time."

Maybe an SEC investigation will compel Galena and Cytrx to be more forthcoming? The allegations are certainly serious enough for regulators to get involved. Amidst the stock promotion, Galena insiders sold company stock worth millions of dollars and Cytrx raised $86 million in a secondary offering. Meantime, the respective value of Galena and Cytrx's stock has fallen, leaving any investor who bought into the phony promotional campaigns with significant losses.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

More from Investing

In Pugnacious Twitter Rant, Musk Proposes Website for Users to Rate the Media

In Pugnacious Twitter Rant, Musk Proposes Website for Users to Rate the Media

One-on-One With Carnival Corporation CEO Arnold Donald (Watch)

One-on-One With Carnival Corporation CEO Arnold Donald (Watch)

Marc Chaikin's Technical Tools: Cramer's Off the Charts

Marc Chaikin's Technical Tools: Cramer's Off the Charts

Carnival CEO Arnold Donald: China Will Become the Largest Cruise Market

Carnival CEO Arnold Donald: China Will Become the Largest Cruise Market

Bitcoin Today: Prices Plummet Below $8,000 in Market Downturn

Bitcoin Today: Prices Plummet Below $8,000 in Market Downturn