New York Business CNN—
A few weeks after Russian tanks entered Ukraine in early 2022, a North Carolina-based biotech company that worked for the Pentagon launched efforts to help civilians and soldiers wounded in the war.
Nasdaq-listed Humacyte, which is developing a platform to tap into the body's healing powers, believes its technology has the potential to play a role in an impending humanitarian catastrophe. The company was quickly chaired by former Obama cabinet secretary Kathleen SebeliusLocation of frontline hospitalswith its technology, the human cell-free vessel, an implant designed to accelerate the healing of vascular tissue repair.
Humacyte, which was awarded in 2017$3.4 million contractfrom the U.S. Department of Defense proudly showcases these efforts in Ukraine on its website and in its annual report as proof that its technology works.
The company files hide another key relationship for Humacyte: Russian billionaire Gavril Yushvaev is the company's second largest single shareholder.
However, the dark history of Yushchvayev - described byOrganized crime and corruption reporting projectbecause the "head of a Russian criminal gang" is not disclosed in these documents, although some experts told CNN that the company may have been required to disclose this information to investors.
Yuskayev, born in 1957, spent nine years in a Soviet prisoner of war camp after being convicted of a violent crime in 1980, according to the stock market watchdogsubmitted work.
"A unique and novel situation"
Yuswaev issanctioned by Ukraine, which describes it as "a typical example of the cooperation of the criminal world with law enforcement and the government in Russia."
Forbes estimates that Yushchvayev and his family are valuableapproximately $1.9 billion, a fortune earned in part from the sale of shares in dairy and juice company Wimm-Bill-Dann to Pepsico in 2010.
"It creates a strange situation when you have a suspected Russian mob boss profiting economically from a company that is able to showcase its products in a war started by Russia," said Charles Whitehead, a Cornell professor of business law.
According to data provider Refinitiv, Yushvaev owns an 8.7% stake in Humacyte worth nearly $28 million. That's right ahead of institutional investors like BlackRock, Vanguard and State Street.
“This is a unique and new situation. “This is the only example I know of where a U.S.-listed company has a Ukraine-sanctioned Russian oligarch as one of its largest shareholders,” said Steven Tian, director of research at the Yale School of Management CEO's Institute of Leadership.
Yushchev did not respond to repeated requests for comment.
Humacyte: The Russian billionaire has no 'control' over the company
Yuzvayev was not punished by the US government. This means that companies like Humacyte were not compelled to take action against it.
Nevertheless, in 2018 Yusvayev was included in the “Putin list” – a Treasury Ministry list of 210 prominent Russians, many of whom had close ties to the Kremlin and all rose to prominence under Russian President Vladimir Putin. Under a law designed to punish Russia for meddling in the 2016 election, the Trump administration was required to release the list and consider whether to impose sanctions.
Sebelius, chairman of Humacyte and previously Secretary of Health and Human Services in the Obama administration, did not respond to requests for comment.
In a statement to CNN, Humacyte emphasized that as a result of the humanitarian assistance to Ukraine, 19 patients who were victims of gunshots, gunshot injuries and explosions were treated with HAV.
"There are patients today who walk on their own limbs and would not do so without access to HAV to repair damaged arteries," a Humacyte spokesperson said.
The company also tried to downplay Yuzvayev's role.
"This is a minority shareholder who was one of more than 150 shareholders who invested in Humacyte when it was still a private company," a Humacyte spokesperson said. "As a minority shareholder, this person has no interest in or control over Humacyte."
Yushvaev invested together with the founder's husband
However, Yushvaev did not just buy Humacyte shares on the Nasdaq exchange.
Instead, it participated in the 2015 Series B funding round$150 million was raisedin exchange for preferred shares of Humacyte, then a private company.
"This happened at a time when most companies were running away from Russian money," said Tian of Yale. He stressed that the investment came just over a year after Russia invaded Crimea, sparking a wave of Western sanctions.
“If you run a private business, it's more of a partnership because the investor has little or no liquidity. The Series B round is a bit more personal and direct,” said Whitehead.
"It doesn't mean there's a problem, but you're wondering what the company did to take money from someone with such a record," Whitehead said. “They probably would have examined him sooner. You should be very careful about where you get your money from.”
It is also worth noting that Yushchvayev was one of only two people, along with several institutions, to announce that they have joined the $150 million Series B funding round.
The other is former Credit Suisse CEO Brady Dougan, who is now the leading single shareholder with 9.7% of Humacyte through his control of a company called Ayabudge LLC.
Dougan is the husband of Humacyte's founder, president, and current CEO, Dr. Laura Niklason. The former Credit Suisse banker also sits on the board of Humacyte.
In the 2015 Series B, Dougan did just thatresigned from the leadership of Credit Suisse.
Humacyte announced that Credit Suisse acted as the sole underwriter and brokerage agent for the series B investment in which Yushvaev was a consultant.
"It shows poor judgment"
Yushcheev was hired by Credit Suisse's capital markets group as an accredited private investor, a spokesman for Humacyte told CNN. A spokesman said the biotech company was not aware of any suspected criminal activity.
According to the Organized Crime and Corruption Reporting Project, Yushvaev was a client of Credit Suisse. In March, OCCRP reported that "Credit Suisse has provided debt collateral to a Cypriot trust - PTC, whose beneficial owner is" Yushvaev.
Dougan does not know Yushchev personally, a Humacyte spokesman told CNN.
Credit Suisse declined to comment on CNN's questions.
Yale professor of management practice Jeff Sonnenfeld told CNN that the close ties between the major Series B investment parties showed that Yushcheev's investment in Humacyte was not due to "carelessness."
"It's worse than being careless. It was done consciously. It's not the fault of management and supervision, it's bad judgment," Sonnenfeld saidsupported and documented the exodus of enterprisesfrom Russia.
"Walking on Thin Ice"
The SEC requires public companies to disclose to investors significant risks that may affect their business. The goal is to ensure that investors are not taken by surprise. So-called risk factors typically include susceptibility to cybersecurity failures, natural disasters, or sudden changes in demand for products or services.
In its filings with the SEC, Humacyte makes no mention of the tumultuous history of its second-largest single shareholder.
But in hisAnnual Report 2005Wimm-Bill-Dann drew the shareholders' attention to the criminal past of Yuzvayev, then the largest shareholder in the European dairy company.
"Our largest shareholder, who has been a member of our board of directors since June 14, 2005, was convicted in 1980 of a violent crime in the Soviet system and spent nine years in a labor camp," Wimm-Billa-Dann's filing reads. "Press speculation on these or other matters relating to our shareholders or directors may adversely affect our reputation and the value of our securities."
According to Sonnenfeld, Humacyte probably should have done the same, calling contact with Yushchev a major risk.
“You are treading on thin ice by not disclosing this risk factor,” Sonnenfeld said.
Disclosure issues were raised
A Yale professor argued that if Humacyte's second largest shareholder had been a notorious American criminal, the company should have disclosed that risk.
"It just so happens to be the Russian version of the character," Sonnenfeld said. “This person is a criminal convicted in at least one country and has been serving a sentence in another country for ten years. Isn't that a risk? If it is sanctioned by the US or UK this afternoon or tomorrow, what will that mean for the viability of this company and its public health viability?”
Yusvayev was not sanctioned by US Treasury Department sanctions. However, if that were the case, Humacyte would probably need to take action.
According to Lawrence Ward, a partner in Dorsey & Whitney's national security law group, companies generally have a duty to block or freeze the shares of individuals subject to U.S. government sanctions and disclose the matter publicly.
Ward said the effects would be largely "reputational" for the company, raising concerns among investors, financial institutions and customers.
The federal government, which is considering Humacyte as a potential future customer, is particularly sensitive to this issue.
Eleanor Bloxham, CEO of The Value Alliance, who advises boards on corporate governance practices, agrees that Humacyte should outline these risks to shareholders.
"Failure to disclose corporate risks would mean to shareholders that (1) management is ignorant of the company's major investors and/or (2) management disregards its duty to inform shareholders of risks," Bloxham wrote in an email to CNN.
Given Humacyte's work as a U.S. defense company, Bloxham said the disclosure requirements are even higher.
"Be assured that Humacyte, the US Department of Defense, as a major customer with vital security interests, is fully aware of the history of one of the largest single shareholders," she said.
The Department of Defense declined to comment on the matter.
In 2017, the Department of Defense awarded Humacyte a $3.4 million contract that helped fund the development of the company's leading product, HAV, developed to treat vascular injuries. Humacyte said those subsidies had expired.
In a phone call with analysts earlier this year, Humacyte said he expects to eventually include the Department of Defense, other government agencies, and international agencies among his clients. The company said the Department of Defense had already selected HAV as one of the top five products for FDA approval.
Whitehead, a Cornell professor, said that Humacyte's ties to Yushchev would not necessarily be large enough to warrant disclosure as a risk factor.
"You should hang up"
Nevertheless, Sonnenfeld, who testified before Congress on the withdrawal of companies from Russia, urged Humacyte to buy Yushchvayev's shares.
"You should cut ties," he said.
When asked whether Humacyte plans to sever relations with Yushchev, a spokesperson for the company said: "As a publicly traded company, Humacyte has no control over who continues to buy, hold or sell the company's shares."
Yushchev was previously the main shareholder of Lyft. However, it seems that the cooperation of the ride-sharing application with Juszczew ended many years ago.
"Based on the documents filed with the SEC, we don't know if this person is a current investor," a Lyft spokesperson told CNN.
A Lyft spokesperson did not respond to further questions about Yushchev's investment and the end of the relationship.
Lyft told Mom JonesIn 2020, almost a year before Russia invaded Ukraine, Yuvayev declared that he was no longer an investor.
“It was a good call from Lyft to clean up. There's no reason why it couldn't happen here," Sonnenfeld said.