A report that Brentwood biotechnology firm CytRx Corp. was involved in a questionable stock promotion case made investors skittish last week.

The company’s stock took a dive after Richard Pearson, a writer for investor website Seeking Alpha, reported he was concerned that the company was involved in unethical touting of its stock.

The Seeking Alpha report sent shares down 15 percent to close at $4.05 for the week ended March 19, making CytRx the biggest loser on the LABJ Stock Index. (See page 38.)

Pearson, an L.A. investor who recently shorted CytRx stock, said his suspicions began when he was asked to write paid promotional articles for an Indianapolis investor relations firm hired by CytRx, DreamTeam Group. To investigate the matter, he sent dummy articles he never really intended to publish to DreamTeam. He said they were edited by CytRx employees.

He said he never posted those articles, although he did post about CytRx on TheStreet.com in January. But he claims he found more than a dozen DreamTeam promotional articles that he didn’t write on such sites such as Wall Street Cheat Sheet and Seeking Alpha, without disclosures of CytRx involvement. The articles have since been removed.

The articles were timed to coincide with CytRx news announcements, he said, such as drug trial results. The company is developing a cancer drug called aldoxorubicin and has been reporting favorable results.

“The promotions made (the stock) go up and the lack of promotions will make it go back down,” Pearson told the Business Journal last week.

Pearson said his comments aren’t influenced by his short position, since he didn’t set out to short the stock and he has previously written similar stories shining light on stock promoters.

CytRx is facing a number of investor lawsuits that were filed after the story came out. Some of the complaints focus on its $86 million stock offering in February that was priced at $6.50 a share – 40 percent higher than last week’s close.

Similar accusations have been leveled by TheStreet.com involving breast cancer drug developer Galena Biopharma of Lake Oswego, Ore., which was spun off from CytRx in 2008. CytRx Chief Executive Steven A. Kriegsman is a director at Galena and sold about $3 million of Galena’s shares in January before reports of that company’s involvement with DreamTeam came out in February.

Galena last week disclosed that it is the subject of a Securities and Exchange Commission investigation.

CytRx executives declined to comment for this article. A spokeswoman said the company is looking into Pearson’s claims.

Pearson said he notified the Securities and Exchange Commission about his findings.

For reprint and licensing requests for this article, CLICK HERE.