SEC accuses Indy cancer firm of being a sham

For the past 10 years, Indianapolis-based Xytos Inc. claimed it was developing breakthrough treatments for cancer patients.

But now the U.S. Securities & Exchange Commission says the company is a sham.

The SEC accused Xytos and its CEO, Timothy E. Cook, of securities fraud in a lawsuit filed Aug. 19 in federal court in Indianapolis. The suit claims that, since at least 2010, Xytos has had no revenue, employees or even an office, yet Cook, operating from his home, has repeatedly published false information about the company to lure investors.

Xytos’ website continued to claim that the company had an operational treatment center. It contained a press release about Xtyos' hiring a new medical director when, according to the SEC, it had not. The website also still cited as a director a man who has been dead for five years.

Those "false and misleading" statements have allowed Cook to sell Xytos’ shares, which trade over the counter, generating more than $500,000 in income for himself, the SEC said. Cook used that money for a Florida vacation, home improvements and video games.

“Xytos shareholders invested in what appeared to be an operational biomedical company,” the SEC lawsuit claims. “In reality, they invested in an illusion that Cook created and then exploited for personal gain.”

But Cook, 54, denies the SEC’s charges, claiming Xytos is merely in a transition mode as it tries to move operations to Germany, to be close to the doctors that invented its technology work.

“I read the thing,” Cook said of the SEC’s lawsuit. “I just didn’t recognize any of it.”

According to Cook, Xytos was formed in 2003 after Cook acquired technology from doctors in Germany and Italy. That technology, Cook claims, would improve photodynamic therapy for cancer patients by reducing the side effect of light sensitivity after treatment.

Cook said Xytos built a treatment center in Australia and treated “quite a few” patients there. He declined to be more specific when asked multiple times to estimate the number of patients treated in Australia.

Later, Cook said, Xytos found a way it could start treating patients in Indiana even before getting clearance from the U.S. Food and Drug Administration. So Xytos brought its lead physician, Dr. Tom Cleary, from Australia to the United States and set up a facility at 8330 Naab Road, Suite 235, which is across the street from St. Vincent Indianapolis Hospital.

But no patients were ever treated there, Cook said, because Cleary grew sick and later died. Cook said the facility closed in 2009. The SEC claims Xytos has not had any office space since 2008.

Since then, Cook said, Xytos has been working to move the company to Germany. He gave no timetable for when that move is supposed to occur, but said he needs to clear up the SEC’s claims before that move can happen.

“We’re trying to settle with them now,” Cook said an interview Monday morning. “I just hope we get it all squared away in the next 30 days.”

Cook claims that Xytos did, in fact, hire Dr. John Trotter as its chief medical officer in May 2010. But the SEC says Trotter never worked for nor received any compensation from Xytos.

Xytos’ website, which was last operational in July, claimed up to that time that it had a second director, in addition to Cook. That director, Edward Palmer, was touted as a veteran of debt and equity financing for public companies.

Trouble is, he has been dead more than five years. On Monday, Cook said Palmer’s listing on the Xytos website was an “oversight.”

“I didn’t even know he was on our website,” Cook said.

Also on Xtyos’ website until at least July were photos of its medical facility, which closed at least four years ago. The website invited readers to “look inside” at “typical treatment rooms.”

Even though Xytos had no operations the past three years, the SEC claims Cook kept posting Xytos financial statements to the website OTC Link in 2011 and 2012.

For example, those statements claimed Xytos had a cash balance as of Sept. 30 of $113,421. But the SEC claims Xytos’ bank accounts at that date held only $171.

Also, Xytos’ financial statements claimed property in Australia as an asset up until 2012. But that property had been sold in 2007, according to the SEC lawsuit.

Cook capitalized on these false statements, the SEC claims, by selling nearly 3 million shares in Xytos from January 2010 through March 2013. Cook made these sales through brokerage accounts set up under a company called Asia Equities Inc.

The SEC has also sued Asia Equities, which the SEC claims is an alter ego of Cook.

At the same time Cook was selling shares via his accounts at ETrade and Merrill Lynch, he was also pitching Xytos as an investment to private investors. But the shares he was selling were actually his own, not those held by the company, according to the SEC.

Cook also withdrew at least $30,000 from Xytos’ bank accounts to use for personal expenses in 2011 and 2012, according to the SEC lawsuit. The SEC claims he spent the money at restaurants, at Cirque de Soleil, at a Reebok store, on home improvements, for gas and car repairs, and for groceries. He also spent $2,000 on a Florida vacation, according to the SEC lawsuit.

Cook claims that food and gas are common expenses for a company. He noted that the SEC claims he spent $14.19 of Xytos’ money at GameStop, a video game store.

“Even if I did go to GameStop, so what?” Cook said. “I just think it’s kind of trivial.”