The former president of the $3 billion California stem cell agency
received $443,500 in total compensation from the Bay Area stem cell
company that appointed him to its board of directors only seven days
after he left his state post.
The stock and cash were provided
over a two-year period to
Alan Trounson by Newark-based , a
firm that was awarded more than $40 million in funding while Trounson
headed the
California Institute for Regenerative Medicine(CIRM), as the state
stem cell agency is formally known.
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Alan Trounson -- LATimes photo |
StemCells Inc.
In 2014, when Trounson served
less than six months on the StemCells, Inc.. board, his total compensation
was more than double that of any other board member.
The
surprise appointment of Trounson almost immediately after he left CIRM
in 2014 generated allegations of conflict of interest. The size of
Trounson’s total compensation, however, was not available at that time.
Conflict-of-interest
allegations have dogged the agency since it was created in 2004 by
California voters to use state bond proceeds to finance stem cell
research.
In 2008, the respected scientific journal
Nature warned
about “cronyism” at the agency. In 2012, the
Institute of Medicine, a
division of the
National Academies of Sciences, recommended in a
$700,000 study commissioned by CIRM that the stem cell agency
make sweeping changes to reduce the possibility of such conflicts.
Speaking
about the agency’s board,
Harold Shapiro, chairman of the Institute of
Medicine team,
told the Los Angeles Times,
“They make proposals to
themselves, essentially, regarding what should be funded.”
The agency made some changes to deal with conflict questions but resisted the institute’s far-reaching proposals.
The
latest news prompted
John Simpson, who has followed the stem cell
agency for
Consumer Watchdog of Santa Monica, Ca., to say in an email,
“Trounson’s joining the StemCells Inc. board a mere seven days after
quitting as CIRM’s president at the time smacked of being a payback for a
job well done on behalf of the company when he should have been looking
out for the taxpayers’ money and interests. It was a blatant conflict
that undermined the agency’s credibility. Now we know his price tag.”
In 2014, the stem cell agency said
its “limited” investigation showed that
no violation of law occurred. At the time, CIRM Chairman
Jonathan Thomas described the issue as a “perception” problem.
The state’s
Fair Political Practices Commission (FPPC) later investigated to
determine whether Trounson “had made, participated in or influenced a
governmental decision involving StemCells, Inc., after he began employment
negotiations.”
A Feb. 6, 2015, letter to Trounson from the FPPC said there was “insufficient evidence to demonstrate” a legal violation.
Asked
for comment,
Robert Stern, the key author of the
California Fair
Political Practices Act and former president of the
Center for
Governmental Studies in Los Angeles, said in an email,
“It is an
appearance problem when someone goes to work for a company that has
benefited from huge contracts from the agency that he heads even if he
had nothing to do with the decision to award the contract.”
The
payments to Trounson were made in 2014 and 2015, according to
Securities
and Exchange Commission filings by StemCells, Inc. (See
here and
here.) The cash totaled
$59,500 and the stock options totaled $384,000 for the two-year period.
Trounson was appointed president of California’s stem cell agency in
2008. He was named to the StemCells, Inc., board July 7, 2014. The stock
price has dropped precipitously since the award of Trounson’s stock
options.
Last month, Trounson resigned from the StemCells, Inc., board as part of a deal in which the financially troubled firm
was acquired by
Microbot Medical Ltd. of Israel. StemCells Inc. said in an
Aug. 15 SEC filing that the resignations of Trounson and
Stanford
University researcher
Irv Weissman were not “the result any disagreement
with the company on any matter.”
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Irv Weissman, Stanford photo |
Weissman was a co-founder of
the company and also served on its scientific advisory board. Trounson
served on the company’s strategic transactions committee.
Connections
between Trounson and Weissman surfaced well before Trounson’s
appointment to the StemCells, Inc., board. In 2013, a $40 million CIRM
funding application round involving Weissman was postponed after it was
disclosed that one of the application reviewers had a legal conflict of
interest. The case involved
Lee Hood of Washington state, who owns
property in Montana with Weissman. Hood
acknowledged the conflict of interest and resigned as a reviewer. Trounson helped to recruit Hood as a
CIRM reviewer, the agency said.
In 2012, StemCells, Inc., was
awarded $40 million in a single funding round, the only applicant ever
to reach that level of success. One of the two $20 million awards was
approved by the stem cell agency’s board despite being rejected twice by
its grant reviewers. It is the only time that an application has been
rejected twice by reviewers and then approved by the governing board. (See
here.)
In
2013,
the company declined one of the awards, which required a matching
amount. In December 2014, the second $20 million award was
terminated early because of poor results. That left StemCells, Inc., receiving a net
of $9 million from the agency.
Trounson, a pioneering researcher
in the field of in vitro fertilization, returned to his home in
Australia after leaving the agency. Contacted by email, he said,
“I was
cleared by independent legal advice by CIRM and no conflict was found by
a Californian government investigation. ... The share values are
unknown – perhaps worth nothing. I actually pay monthly fees to hold
them.”
Weissman,
who has received $30.5 million from the agency, did not respond to a request for comment. (Following the publication of this piece, Weissman said in an email that some time after Trounson "got settled into his position" at the agency, "he recused himself on all grants and CIRM-related activities that involved either my lab or StemCells, Inc.")
The
Trounson controversy surfaced shortly after
C. Randall Mills was named
to replace Trounson as president of CIRM. Mills then signed a pledge
that he would not accept employment with any award recipient for at
least a year after he leaves the agency. However, the agency did not set
restrictions on future employment by other agency employees.
Asked
for comment, Thomas, chairman of the agency since 2011, said in an
email,
“Dr. Trounson’s financial involvement with StemCells Inc.
occurred after his separation from CIRM in June of 2014, and we have not
been in contact with him since. Two years later, CIRM is a very
different and vastly improved organization – we’ve reduced the time it
takes to review applications by 80 percent, recaptured $75 million from
programs not meeting performance standards, and reinvested that money,
doubling the number of clinical trials in our portfolio.
“In
addition we are doing all this with the good governance, transparency
and accountability the citizens of California deserve.”
The agency
has about $800 million in uncommitted funds. It expects to run out of
cash for new awards in 2020 unless it finds fresh sources of funding.