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A Stanford University genetics professor has been ordered to pay nearly $30 million in restitution after a judge determined that he misled investors in a now-dissolved biotechnology company he founded, but he is appealing the judgment and the payment that he made could be returned based on the outcome.
In a judgment issued in June in Santa Clara County Superior Court, Dr. Stanley Cohen was ordered to pay $29.2 million to the Emeryville-based venture capital firm Alafi Capital and the Christopher Alafi Family Trust, the only two investors in Cohen’s company Nuredis Inc.
Cohen, according to court documents, claimed to have discovered the biological process that causes the neurodegenerative condition Huntington’s disease.
According to a lawsuit filed in 2018 by Alafi Capital and the Alafi Family Trust, Cohen contacted former Alafi Capital partner Moshe Alafi and his son Christopher Alafi, also an executive with the firm and a longtime friend of Cohen, to seek their investment in Nuredis.
The Alafis ultimately invested $20 million into the company in 2016. Christopher Alafi was also named president of the company and held a position on the company’s board of directors through 2018, when Nuredis was dissolved.
According to court documents, Cohen also claimed to the Alafis that he was developing a drug to combat the supposed cause of Huntington’s disease and that the drug had previously been approved by federal regulators to treat an unrelated skin condition and, as a result, would have a cheaper and more efficient path to the start of clinical testing.
Cohen did not disclose, however, that even though the U.S. Food and Drug Administration approved the drug in 1975, it was permanently removed from the market less than a year later due to multiple cases of severe blood clotting that led to death and loss of limbs.
Cohen still retained some $13 million of the Alafis’ investment when Nuredis closed in 2018, according to court documents, but declined to return the remaining funds and instead used it for legal fees.
The court described Cohen’s conduct as “negligent misrepresentation” to secure the Alafis’ investment, which is seen as “a species of actual fraud and a form of deceit” under California law.
Cohen was ordered to repay the $20 million investment as well as $9.2 million in interest.
“The payment by Cohen of over $29 million to my clients demonstrates that in California the law applies equally to elite professors as it does to ordinary defendants,” said Michael Gardener, the lead attorney for the Alafis and their investment firm in their lawsuit.
Cohen remains employed as a genetics professor at the Stanford School of Medicine. Cohen and his attorney in the lawsuit did not respond to requests for comment.
A spokesperson for Stanford University said the university was unaware of the lawsuit and Cohen’s work with Nuredis was outside his scope of responsibilities to the university.
“We understand from the court’s decision in this case that Nuredis tried to sell its (intellectual property) and, when unsuccessful, donated it to Stanford,” university spokesperson Luisa Rapport said in a statement. “Stanford has not further developed nor licensed or commercialized the donated IP.”
Editor’s note: This story has been updated to reflect that Stanford University professor Dr. Stanley Cohen is actively appealing the case of Alafi et al. v. Cohen in the Sixth District Court of Appeal.
It seems strange that Stanford pretends that it has no interest in the facts that Professor Cohen both donated to them fraudulent IP and used that IP to defraud investors of $20M.
Now that Cohen has been convicted of “a species of actual fraud and a form of deceit” in a civil proceeding, it seems reasonable that Stanford should decide if it is in the best interests of the Stanford community that he continues to work and teach there.
If this story interests you, there’s a more complete story about it from Dec. 21 in The Stanford Daily, written by Theo Baker, the same undergrad (freshman I’ve been told) who broke the story only some problems with some of President Tessier-Lavigne’s articles from 15-25 yrs ago. Seems like someone with an aptitude for journalism!
https://stanforddaily.com/2022/12/21/stanford-professor-pays-29m-in-fraud-case/
Stanford is “unaware of the lawsuit” — should somebody call them to let them know that someone who has never taught there nor studied there is using a parcel of land as collateral while awaiting trial for billion$ of fraud?
Not a good year at all for Stanford reputationally. In fact, not a good decade.
Elizabeth Holmes, Brock Turner, Katie Meyer, John Vandemoer, Yusi Chao, Marc Tessier-Lavigne, SBF, the covid vaccine for administrators uproar, the banned words list.
And now this. Granted, some of these scandals were perpetrated by individual actors barely associated with the University. But the average Joe-on-the-street who just reads headlines doesn’t get that.
Over the past decade, Stanford had proven itself to truly be the collegiate powerhouse of [ahem] cardinal white collar sin.
“A spokesperson for Stanford University said the university was unaware of the lawsuit and Cohen’s work with Nuredis was outside his scope of responsibilities to the university.
“We understand from the court’s decision in this case that Nuredis tried to sell its (intellectual property) and, when unsuccessful, donated it to Stanford,” university spokesperson Luisa Rapport said in a statement. “Stanford has not further developed nor licensed or commercialized the donated IP.”
A donation to US?? What a surprise. Do you think we should check our charitable contributions and endowments? Good thing the courts told us! Hah.
As credible as their claim that for the last 20 years they’ve had “no net new car trips” while they continue their huge expansions, hire lots more people and buy up PA housing for them. SO many Stanford miracles these days.
@Hank Thanks for the pointer to the Stanford Daily. The online version reminded me an omission from my list– Caroline Ellison, CEO of Alameda. First story in the Dec 28th issue.
Stanford’s new official motto: “Der Wind der Wirtschaftskriminalität weht”
They need to crack down on white collar fraud. Sending these criminals to country club prisons is hardly a deterrent. Let them serve time with hardened criminals, and maybe the fear of wall-to-wall gang members and “don’t drop the soap” might deter a few.
Cohen’s fraud may have been perpetrated outside the boundaries of his Stanford duties, but it is still fraud and he still is employed by the university. That demonstrates a focus on situational ethics that speaks poorly of the school’s administration.