SEC Files Suit Against Imaging3 for Allegedly Misleading Investors

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In a lawsuit filed on June 25, 2013, the Securities and Exchange Commission (SEC) says that Dean Norman Janes, CEO of Imaging3, intentionally kept investors in the dark about the true reasons why the Food & Drug Administration (FDA) turned down Imaging3’s application to market its Dominion Volumetric Imaging Scanner.

According to the SEC's suit, Janes told investors that the reasons Imaging3’s 510(k) submission was rejected were primarily administrative when the letter the FDA had sent him actually spelled out specific scientific and technical concerns with the Dominion scanner, such as poor image quality and the possibility the device would overheat.

Burbank, Calif.-based Imaging3 was founded by Janes in 1993 and made at least three attempts to gain FDA approval to market the Dominion. Each was rejected.

After the third attempt failed, Janes held a conference call with investors on November 1, 2010, where he allowed investors to ask questions and, according to the transcript, expressed bafflement at why the FDA had once again turned down Imaging3’s application.

“Really and honestly, not really one question about the technology or its consistency. It just doesn't make any sense to me,” the transcript quotes Janes as saying.

According to the SEC suit, Janes had a motive to mislead his investors because at that time he personally 60 million shares in the company or approximately a 15.9% beneficial ownership. In addition, he had used the value of his stock as collateral in various stock loan transactions.

Imaging3 did end up filing for Chapter 11 bankruptcy last year.