Shares of West L.A. biotechnology firm CytRx Corp. rebounded after falling as much as 10 percent Friday due to reports that the company has worked closely with a stock promoter to boost interest in its shares without disclosing its involvement.
The stock took a dive after a writer for investor website Seeking Alpha reported on Thursday that he was contacted by a firm to write paid articles about CytRx. The writer, Richard Pearson, said he subsequently wrote articles and sent them to the investor relations firm, Dream Team, which was hired by CytRx. The articles were edited by CytRx management, then posted without disclosures under aliases on investor sites such as TheStreet.com, Motley Fool, Seeking Alpha, he said. He said he never took payment. But when he realized what was happening, he shorted the stock.
The articles were timed to coincide with CytRx news announcements, such as drug trial results. CytRx is developing a cancer drug called aldoxorubicin. The articles have since been deleted by the websites.
Pearson said he believed the promotion scheme could be in violation of a number of Securities Exchange Commission rules.
CytRx shares, which were down 10 percent to $3.77 midday on the Nasdaq, were back up over $4 near the end of the trading day. Volume of 4 million shares was above the average volume of 3.4 million.
A spokeswoman for CytRx said the company is looking into the matter.