Courts backs SEC freeze on biotech firm over investor deception claims

A federal appeals court kept an asset freeze in place against a biotech company whose principals allegedly hid millions in pay from their own investors. 

The US Court of Appeals for the Tenth Circuit on October 14 affirmed a preliminary injunction and asset freeze against Reven Holdings - a company developing a cardiovascular drug called RJX - and its three principals, in an SEC enforcement action alleging securities fraud. The company’s principals are Brian Denomme, Peter Lange, and Michael Volk. 

The SEC filed its complaint in December 2022, alleging the principals ran what the agency called an “ongoing offering fraud and misappropriation of investor assets.” The charges were brought under Section 17(a) of the Securities Act of 1933 and Section 10(b) and Rule 10b-5 of the Securities Exchange Act of 1934. 

The case centers on three categories of alleged misrepresentation, all delivered through private placement memoranda and investor emails. 

On executive pay, the principals told investors through PPMs that they received $1.62 million total in 2019, $1.98 million in 2020, and $2.16 million in 2021. The SEC’s accounting expert reviewed the company’s Wells Fargo banking records and found they actually received $5.35 million in 2019, $3.36 million in 2020, and $6.65 million in 2021. The district court found a likely discrepancy of between $4.89 million and $9.78 million over three years. 

On audited financials, the principals repeatedly told investors between 2019 and 2022 that the company either was “currently undergoing” its first audit or already “has the minimum required two years of audited financial statements.” The court noted the company never even hired an auditor. The principals also claimed they were preparing for an IPO - one email stated they had filed an S-1 registration. The evidence showed they had not. 

On pending litigation, the principals told investors the company was “not currently the subject of any litigation” while it was a defendant in a Florida lawsuit that ran from 2016 to 2021 and settled for $2.75 million. 

The defendants appealed, arguing the district court should have held an evidentiary hearing, the SEC had not met the preliminary injunction standard, and the freeze was destroying the assets it was meant to protect. The Tenth Circuit rejected all three arguments. On the hearing, the court noted the defendants themselves had asked the district court to cancel the only one scheduled - and never requested another. 

The court also clarified that the traditional four-factor test governs securities-law injunctions, following the Supreme Court’s 2024 ruling. 

The underlying SEC enforcement action remains pending. The Tenth Circuit stressed its findings were preliminary and should not be taken as “authoritative pronouncements” of liability. The merits have not been tried.