BETHESDA, Md. (TheStreet) -- Northwest Biotherapeutics (NWBO) CEO Linda Powers is selling company stock at large discounts to repay loans made to an affiliated, privately held company she controls.

Some of the money private investors loaned to Powers' private company, Cognate BioServices, was used to pay for Northwest Bio programs. The loans were later repaid by Cognate with Northwest Bio stock priced significantly below market value, allowing the investors to double their money in one year, according to a new filing with the Securities and Exchange Commission.

Cognate is the cellular processing firm majority owned by Powers through a venture capital firm. She is also chairperson, CEO, principal financial officer and largest shareholder of Northwest Bio, which pays Cognate to manufacture its experimental cancer vaccines and perform other research and development duties.

The unusual structure of the loans negotiated by Powers does not violate securities laws. Lending money to Cognate, however, allowed the investors to receive more generous repayment terms with less disclosure than if they had dealt directly with Northwest Bio, where some of their money ended up anyway. And the discounted Northwest Bio stock used by Powers to repay the Cognate loans undermined the market value of the stock held by other investors.

Independent auditors have previously warned investors about problems with Northwest Bio's internal auditing and financial reporting procedures. Among many "material weaknesses" of the company, auditors cited related party transactions Powers negotiates with herself as both the company's CEO and as the majority owner of Cognate, according to Northwest Bio's most recent annual report filed in March.

Now comes new details about financial deals in which Powers' Cognate acts as a de facto cash-transfer agent between unidentified investors and Northwest Bio. The loans were disclosed in an SEC Form 4 filed July 2 by Powers in her role as a Cognate director.

In June and July 2014, an investor lent Cognate $5 million, structured as two convertible loans of $2.5 million apiece. The $5 million lent by the investor to Cognate was passed through to fund Northwest Bio programs. One year later, on June 30, 2015, Cognate repaid the loans. Instead of cash, the investor received 1,118,092 shares of Northwest Bio stock owned by Cognate, according to the SEC filing.

On the day of the loan conversion, Northwest Bio shares closed $9.93, which valued the shares received by the investor at more than $11.1 million. The shares are freely tradable.

The same SEC filing also documents a separate convertible debt deal in which an investor lent Cognate $3 million, later repaid with Northwest Bio stock owned by Cognate valued at $6.4 million.

In total, $8 million in loans to Cognate were repaid with Northwest Biotherapeutics stock valued at more than $17 million.

The investor(s) who received the generous repayment terms on their loans are not identified in the SEC filing and Northwest Bio did not respond to questions about the financings.

The identity of the investors is important because proceeds of two of the Cognate loans negotiated by Powers were funneled to Northwest Bio programs. The repayment terms of the loans also show Powers negotiating financing deals that undercut the value of Northwest Bio shares, while providing the investors with a 100%-plus return on their initial investment. This may have been Powers' only or best way to raise money for Northwest Bio programs at that time, but the company hasn't explained why.

The two convertible loans totaling $5 million that were repaid with 1.1 million shares of Northwest Bio stock sets the effective conversion rate -- when negotiated in June and July 2014 -- at $4.47 per share.

But during that two-month period, Northwest Bio stock traded at a low of $5.71 per share and a high of $7.66 per share.

In effect, Powers, using Cognate as a middleman, raised $5 million for Northwest Bio at a 20%-40% discount to its stock price at that time. Whether or not proceeds from the separate $3 million convertible loan were also passed through to Northwest Bio was not disclosed in the SEC filing.

Only by using Cognate as the financing vehicle -- and not dealing directly with Northwest Bio -- was the investor able to secure the generous repayment terms. Had the investor negotiated directly with Northwest Bio, the conversion price on any convertible loan would have been set at a premium to the current value of the stock -- standard practice for such financings dictated by the fiduciary responsibilities to current shareholders.

As of June 30, Cognate held 18.4 million shares of Northwest Bio plus another 10.4 million shares underlying warrants currently exercisable, according to SEC filings. When Cognate performs work for Northwest Bio, payment is made with a mix of cash and stock. 

In 2014, Northwest Bio paid Cognate $18.7 million in cash and another $21.3 million in stock-based compensation for work performed -- almost half the company's' total R&D expenses for the year, according to related-party transactions disclosed in Northwest Bio's annual report filed with the SEC.

The Northwest Bio shares used to compensate Cognate are set a fixed price of $4 -- a large discount to the prevailing market price.

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.