By Brendan Pierson
NEW YORK (Reuters) - A former chief financial officer of biotechnology company Osiris Therapeutics (PK:OSIR) on Thursday pleaded guilty to making false statements to auditors to inflate the company's reported revenue.
Philip Jacoby, 65, entered his plea before U.S. District Judge Denise Cote in in Manhattan, while Osiris separately agreed to pay $1.5 million to settle a related civil lawsuit by the U.S. Securities and Exchange Commission, court records showed.
As part of the plea, Jacoby and prosecutors agreed that an appropriate sentence under federal guidelines would be four to 10 months in prison and a fine of up to $5 million. Jacoby is scheduled to be sentenced on Feb. 2.
The SEC's lawsuit, filed Thursday in Maryland federal court, also targets Jacoby and three other former Osiris executives. The other defendants are former Osiris chief executive officer Lode Debrabandere, former vice president of finance Gregory Law and former chief business officer Bobby Montgomery.
Jacob Frenkel, a lawyer for Law, denied the claims against his client and said the SEC had "turned a blind eye to mounds of exculpatory evidence."
"We look forward to fighting for Greg vigorously and expect to prevail at trial," he said.
Douglas Fellman, a lawyer for Osiris, declined to comment. Lawyers for the other defendants could not immediately be reached for comment.
In a criminal information filed in Manhattan federal court on Thursday, prosecutors said that Jacoby recorded $1.1 million in revenue in the last quarter of 2014 from the sale of the company's Ovation bone matrix product, even though the product had actually been given to a distributor on consignment rather than sold at the time.
Jacoby later made false statements to the company's auditors to cover up the improper accounting, prosecutors said.
The SEC said in its lawsuit that Osiris and the former executives engaged in a "wide-ranging fraud" to inflate the company's reported revenue by about 17 percent in 2014 and about 9 percent the first three quarters of 2015.
The agency said that in addition to Jacoby's misstatements, the fraud included reporting false, higher sale prices for products, and reporting revenue from sales before necessary agreements were signed.
Osiris, based in Columbia, Maryland, specializes in regenerative medicine, which makes use of treatments involving human cells or tissues that are engineered or taken from donors. Regenerative medicine may also involve stem cells.