SEC Charges Kentucky Pharma Company Raised $4.1 Million on Drug the FDA Had Already Rejected
Federal regulators allege CBA Pharma executives continued raising millions from investors for nearly a year after the FDA withdrew approval for their only drug, exposing a pattern of pharmaceutical fraud that has now drawn FBI involvement. The Securities and Exchange Commission filed charges on February 5, 2026 against the Kentucky-based biopharmaceutical company and two executives, claiming they defrauded approximately 160 investors out of $4.1 million by falsely claiming their cancer drug was nearing FDA approval, according to SEC Litigation Release No. 26479. The case, filed in the District Court for the Eastern District of Kentucky, reveals a ten-month window during which executives allegedly raised funds on a drug application that regulators had already deemed scientifically inadequate.
The Timeline of Deception
The fraud hinged on a critical date that investors never learned about. By April 2023, the FDA had withdrawn CBA Pharma's drug application for CBT-1, the company's sole pharmaceutical product, according to the SEC filing. The agency informed CBA Pharma that its application "lacked evidence of efficacy," per SEC documents. Yet from April 2023 to February 2024, CBA Pharma "falsely claimed CBT-1 was in the final stages of obtaining FDA approval," the SEC alleged. The company misrepresented that CBT-1 was effective in treating cancer by preventing multidrug resistance to cancer treatments, according to the SEC complaint. In reality, "CBT-1 was never close to FDA approval," the agency stated.
The fraudulent securities offering raised approximately $4.1 million from roughly 160 investors, according to SEC filings. That averages to approximately $25,600 per investor, suggesting the victims were likely individual investors and small funds rather than sophisticated institutional players. The scheme continued until February 2024, when the FBI executed a search warrant on CBA Pharma's offices, according to news reports. Yet SEC charges did not arrive until nearly two years later, in February 2026, raising questions about the pace of enforcement in securities fraud cases involving pharmaceutical companies.
The Executives Named
The SEC named two CBA Pharma executives alongside the company itself. Wayne Michael Putnam, president of CBA Pharma, and Louis "Buzz" Carmichael, vice president of capital markets, face charges of violating Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5, according to the SEC. These are the core anti-fraud provisions that prohibit material misstatements and omissions in connection with securities transactions. The SEC seeks permanent injunctions, disgorgement of ill-gotten gains, pre-judgment interest, and civil penalties against all defendants, per the litigation release. Critically, the agency also seeks bars against Putnam and Carmichael "from participating in any issuance, purchase, offer or sale of any security," according to SEC filings, which would effectively end their careers in capital markets.
The investigation involved multiple federal agencies. Tracy W. Lo and Nicholas Magena conducted the SEC investigation, with Steven L. Klawans of the SEC's Chicago Regional Office supervising, according to agency documents. Eric Phillips and Timothy Stockwell of the Chicago Regional Office are leading the SEC's litigation, per the release. The Federal Bureau of Investigation's Louisville Field Office assisted the SEC, as did the U.S. Attorney's Office for the Eastern District of Kentucky and the FDA itself, according to SEC filings. The involvement of the U.S. Attorney's Office suggests potential criminal charges may follow the civil enforcement action.
A Pattern Emerges: The Allarity Precedent
The CBA Pharma case follows a strikingly similar scheme that the SEC prosecuted against another pharmaceutical company. On March 12, 2025, the SEC filed suit against three former Allarity Therapeutics, Inc. executives for allegedly "scheming to conceal harsh feedback from the FDA," according to SEC records. The agency alleged executives "schemed to conceal from investors harsh critique levied by the [FDA] about the approval prospects for Allarity's flagship cancer drug candidate, dovitinib," per SEC documents. From February 2020 to February 2022, Allarity executives allegedly ran the same playbook: concealing FDA rejection while continuing to raise capital.
The Allarity case reveals how the fraud mechanism operates. FDA statements in February 2020 communicated that dovitinib would not be approved absent a new drug trial, according to SEC filings. FDA staff minutes allegedly reflected "an admonition not to submit an application before conducting further testing," per SEC documents obtained during the investigation. Despite this clear guidance, Allarity submitted a drug application for dovitinib in December 2021 without conducting a new drug trial, according to SEC records. The company listed its stock and secured millions in investments "based on the professed viability of dovitinib," the SEC alleged.
When reality caught up, investors paid the price. The FDA refused to review Allarity's drug application, which the company announced approximately two months after listing its stock, according to SEC filings. Allarity's share price closed down approximately 31% the trading day after the FDA refusal announcement, per SEC records. The SEC brought claims against Allarity for violations of anti-fraud provisions of federal securities laws and simultaneously instituted administrative proceedings against the company based on similar allegations, according to agency documents. Allarity consented to a cease-and-desist order and payment of a $2.5 million penalty without admitting or denying SEC findings, per SEC records. The SEC seeks permanent injunctions, disgorgement, civil penalties, and officer and director bars in the Allarity case, according to agency filings.
The Regulatory Gap
Both cases expose a structural vulnerability in investor protection. When the FDA withdraws a drug application or communicates that approval is unlikely, no automatic disclosure requirement triggers immediate investor notification. Companies control the timing and framing of such announcements. In CBA Pharma's case, this gap allowed executives to allegedly raise $4.1 million over ten months on a drug the FDA had already rejected. In Allarity's case, executives allegedly concealed FDA warnings for two years while listing stock and raising capital. The SEC obtained minutes of a meeting between FDA staff and Allarity officials during its investigation, according to agency documents, suggesting that internal company records may be the only contemporaneous evidence of what executives knew and when.
The Acadia case, referenced in SEC records, provides another data point on pharmaceutical industry fraud patterns. An Acadia safety official exercised nearly all vested options and sold underlying shares in advance of a negative FDA developments announcement, according to SEC documents. That official consented to a permanent injunction, a five-year officer and director bar, and authorization for disgorgement determination, per SEC records. The case demonstrates how pharmaceutical insiders can exploit information asymmetry between what they know about FDA interactions and what investors are told.
What Happens Next
For the 160 CBA Pharma investors who lost an average of $25,600 each, recovery prospects remain uncertain. The SEC's disgorgement claims would theoretically return ill-gotten gains to victims, but pharmaceutical fraud cases often involve companies with depleted assets by the time enforcement arrives. CBA Pharma's sole product was CBT-1, a drug that was never close to approval, according to SEC filings. The company's value proposition has evaporated. The officer and director bars the SEC seeks against Putnam and Carmichael would prevent them from raising capital in the future, but would not restore investor losses.
The FBI's involvement, dating to the February 2024 search warrant, suggests the investigation extends beyond civil securities violations. The U.S. Attorney's Office for the Eastern District of Kentucky assisted the SEC, according to agency documents, indicating federal prosecutors are evaluating criminal charges. Securities fraud carries potential criminal penalties including imprisonment, though the SEC's civil case proceeds on a separate track. The case number 26-cv-00042 was filed in the Eastern District of Kentucky on February 5, 2026, according to court records, and will proceed through federal civil litigation procedures that typically take years to resolve.
The pattern across CBA Pharma, Allarity, and Acadia suggests pharmaceutical securities fraud follows a predictable script: executives learn of FDA problems, conceal the information, continue raising capital or selling shares, and face enforcement only after investors have already lost their money. Until disclosure requirements close the gap between what companies know and what investors are told, the ten-month window that allegedly allowed CBA Pharma to raise $4.1 million on a rejected drug remains available to the next company willing to exploit it.