Pharma

Audit report: Why CEO Chris Stern was ousted from Oxygen Biotherapeutics

An audit investigation into former Oxygen Biotherapeutics (NASDAQ:OXBT) CEO Chris Stern concluded that Stern lied about his academic background and engaged in undisclosed securities deals with a vendor that he later tried to cover up. The audit report outlining the findings was included in the company’s quarterly report. Stern’s position as chairman and CEO of […]

An audit investigation into former Oxygen Biotherapeutics (NASDAQ:OXBT) CEO Chris Stern concluded that Stern lied about his academic background and engaged in undisclosed securities deals with a vendor that he later tried to cover up.

The audit report outlining the findings was included in the company’s quarterly report. Stern’s position as chairman and CEO of Oxygen Biotherapeutics was terminated on August 24. At the time, the company did not explain the reasons for Stern’s firing other than to say it was “for cause” and that he would therefore not be paid any severance. Michael Jebsen, CFO since 2009, was named interim CEO.

Stern protested the decision in an email to the board after the announcement was made. “I am very surprised at this,” he wrote. “I don’t agree and do not accept my termination, and I request this filing be stopped until the attorneys have talked. And then it needs to be changed.”

Oxygen Biotherapeutics develops therapies that promote the delivery of oxygen to damaged tissue. It is in phase 2 clinical trials for OxyCyte, which is being studied as a treatment for traumatic brain injury. Stern joined Oxygen Biotherapeutics in 2007 as the company’s chairman of the board. He was named CEO in March 2008 following the death of former CEO Robert Larsen.

The board of director’s audit committee found that Stern misrepresented his academic background, claiming a doctorate from Trinity University. Stern’s degree comes from the unaccredited Trinity College & University. Stern also claimed he taught at the “St. Gallen Business School,” presumably the business school of the accredited University of St. Gallen in Switzerland. The committee found that Stern teaches at “St. Galler Business School.”

“In both instances, Mr. Stern’s biographical statements inaccurately conveyed an association with more well-known and more highly reputed institutions,” the committee report said.

Stern’s alleged misconduct also involves a March 2008 transaction. The committee report said Stern received an indirect gift of warrants to purchase shares of Oxygen Biotherapeutics from Fiona International, S.A., a company that was providing services to the company. The market value of the warrants was estimated to be $489,000 at the time of the gift. On May 5, 2008, Oxygen entered into a consulting agreement with Fiona, which the audit committee said was “for the purpose of disguising payments to Fiona for commissions on the sale of our securities to U.S. persons.” That agreement paid Fiona $87,500 in cash, 202,133 warrants and 27,416 shares of restricted stock. In total, that package was valued at about $2.2 million. But the company had previously determined that such commissions should not be paid because Fiona was not a registered U.S. broker-dealer. The audit committee said that Stern also possibly cost the company a business opportunity when he indirectly sold the warrants in August 2008.

The investigation was handled by the board’s audit committee, comprised of independent directors, and was conducted with the help of outside legal counsel. The investigation included a review of email, corporate records, public disclosures, company policies  and interviews of current and former directors, officers and employees and others. The audit committee said that Stern provided conflicting and inaccurate information during its investigation. The company said that Stern’s conduct was discovered through internal controls. In light of Stern’s actions, the company said it is strengthening its review of biographical disclosures, adopting a new review policy for transactions and revising its code of ethics and business conduct to more explicitly state that “false or misleading information in response to a corporate investigation is a violation of the Code subject to discipline.”