KPMG terminates its five-year audit relationship with Hemispherx.

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(Denali, Alaska) On May 11, 2000, Hemispherx Biopharma, Inc. (AMEX Symbol: HEB) (Price: $5.8125) filed a Form 8K with the Securities and Exchange Commission. The filing disclosed that as of May 3, 2000 KPMG informed Hemispherx that the client-auditor relationship between Hemispherx and KPMG had ceased. KPMG had been the independent auditor of Hemispherx’s financial statements since 1994.

Hemispherx is a 34-year-old alleged drug company that has never filed a New Drug Application (“NDA”) with the FDA or completed a Phase III trial, despite claiming potential efficacy based on pre-clinical and Phase II testing in many different diseases including CFS, hepatitis, cancer and HIV. Simultaneously with failing to file an NDA, Hemispherx has used irregular and non-reproducible medical studies, authored by individuals with ties to Hemispherx, to perpetuate the fraudulent promotion of a 30-year-old drug it calls Ampligen. Ampligen is a 1970s substance once studied, along with many other failed dRNAs, as a potential interferon inducer before interferon itself became available as a prescription drug.

Hemispherx was brought public in 1995 by Stratton Oakmont, Inc. shortly before Stratton was shut down for fraudulent sales and trading practices. In fact, Stratton’s principals pled guilty in September 1999 to a number of charges, including using HEB’s initial public offering (“IPO”) to defraud the public. Since its fraudulent IPO, Hemispherx paid U.S. and international stock promoters to create investor demand for its AMEX-listed shares. As of March 30, 1999, Hemispherx’s insiders and stock promoters had bought at least 15,446,895 shares directly from Hemispherx at below market prices, which were then sold to the public at inflated prices. After concluding a preliminary investigation, the U.S. Securities and Exchange Commission commenced a formal securities fraud investigation of Hemispherx’s Ampligen-based stock promotion. The investigation is on going.

A recurring part of Hemispherx’s fraud is the unauthorized use of the names and, by extension, the images of various not-for-profit health advocacy organizations in its press releases. In fact, these groups have specifically objected to being mentioned by HEB as part of its stock promotion. On September 21, 1998, Hemispherx issued a release stating that the CFIDS Network, Inc., a CFIDS patients’ organization, supported Ampligen and considered it a safe drug. However, CFIDS Network President Ronald G. Smith wrote a letter to Dr. William A. Carter, Chairman and Chief Executive Officer of Hemispherx denying any CFIDS Network involvement in the release and accusing Hemispherx of slander. The CFIDS Network then issued a press release stating, “…In our experience, no PWC [person with CFIDS] has received lasting benefits from this medication [Ampligen]. Many suffer from a myriad of side effects.” Nevertheless, Hemispherx issued a second press release restating their initial press release and knowingly reiterating their false information.

Hemispherx also announced in press releases that it presented HIV test findings at a conference sponsored by Search For A Cure, (“SFAC”) an AIDS not-for-profit organization. SFAC sent a letter to Dr. Carter stating that “Hemispherx did not make a presentation at the conference and its many requests to make a presentation were turned down by SFAC.” The SFAC letter further states that “your misstatements are a misuse of the SFAC name and appear to imply an endorsement or legitimacy by association with SFAC, which is untrue.” The letter served as a demand for a prominent correction and to cease and desist from further misuse of the SFAC name. Again, Hemispherx ignored the letter and issued another press release making the same false claims.

On May 17, 1999, a group calling itself the AIDS Treatment Technical Assistance Council (“ATTAC”) issued a press release over the PR Newswire stating that Ampligen was a clinically promising therapy for HIV. David Miller was named as the Executive Director of ATTAC. We found no record of a non-profit group registered or incorporated under the name ATTAC. The ATTAC press release was paid for by Mitchell Abrahams. Mitch Abrahams is disclosed in a 1999 Hemispherx SEC filing as a recipient of 20,000 privately issued shares of Hemispherx stock.

Ampligen has never received FDA marketing approval. In October 1998 the FDA issued an infraction notice charging Hemispherx with illegally promoting Ampligen as a safe and effective drug. William A. Carter, Hemispherx’s Chief Executive Officer and President has been accused of irregularities and fired from medical research positions at Roswell Park Memorial Institute and even from Hemispherx itself.

On September 21, 1998 Hemispherx announced that it had agreed to invest in California Institute of Molecular Medicine, Inc. (“CIMM”). CIMM was one-year-old. In 1990, Zaki Salahuddin, one of CIMM’s two founders, was indicted by the United States Attorney’s Baltimore office. He pled guilty to felony charges that included funneling contracts to a company partly owned by his wife while he was on staff at the National Cancer Institute. In announcing the partnership Hemispherx stated that it admired Salahuddin’s outstanding achievements but made no mention of his indictment or guilty plea. On February 17, 2000, Hemispherx refers to positive medical findings at CIMM, now an affiliated company, as an alleged reason to claim Ampligen has potential as a treatment for HIV.

A U.S. House of Representatives Subcommittee investigated Carter and his associates for scientific fraud. Carter also has been charged with personally defrauding $1 million from an AIDS patient who sought admission to an Ampligen AIDS trial, which resoundingly failed and was halted. E.I. Du Pont de Nemours and Company (NYSE: DD), which sponsored the failed AIDS trial charged Carter and his colleagues in a lawsuit with scientific fraud.

Another part of Hemispherx’s fraud is the use of legal proceedings to fight opponents. Hemispherx and Dr. Carter have a history of making irregular medical claims and taking legal action against parties that question their claims. Hemispherx repeatedly have filed lawsuits claiming themselves as victims of a series of conspiracies.

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