Klein, StemCells, Inc., and $31,000 in Consulting Fees for Torres

By Dr. Matthew Watson

The Robert Klein-StemCells, Inc.,
affair has taken another turn with the disclosure that a vice
chairman of the California stem cell agency was paid at least $31,000
over a two-year period by Klein and also voted on behalf of Klein's
effort to win approval of a $20 million award for StemCells, Inc.

Art Torres received what he reported were
consulting fees during 2011 and 2012 from firms controlled by Klein, former chairman of
the agency. In 2012, Torres backed Klein's
efforts to override grant reviewers' rejection of the $20 million
application from the Newark, Ca., publicly traded firm.

Art Torres, center, with Bob Klein, left, at Klein's last meeting in
2011 as chairman of the California stem cell agency.
Incoming chairman Jonathan Thomas is at right.

The 29-member board of the California
Institute for Regenerative Medicine (CIRM), as the agency is formally
known, narrowly voted 7-5 last September for the award. It was the
first time that the board has approved an application rejected twice
by its scientific reviewers. It was also the first time that Klein
has lobbied the board on behalf of a specific application since
stepping down in June 2011. He was elected chairman in 2005 as the
agency was just beginning its work and is an iconic figure to many in
the California stem cell community.

Asked for comment last week by the
California Stem Cell Report, Torres said,

"My decision to support an award
to StemCells, Inc. to explore the use of neural stem cell
transplantation to treat Alzheimer's disease was based on the merits
of the application and the hope it offers to patients who suffer from
Alzheimer's, a disease that affects millions, including Bob Klein's
late mother. I have no financial interest in StemCells, Inc. nor does
Bob Klein, and my decision to support the award has no connection
whatsoever to the work I do with Bob Klein."

Kevin McCormack, senior director for
public communications at CIRM, said that Torres' statement would be
the only comment on the matter from the agency.

Klein did not respond to questions,
declaring that personal issues were occupying his time.

The California Stem Cell Report's
questions to all three dealt with the propriety of Torres' employment
by both CIRM and Klein while Klein was asking the board to award a
business $20 million. The governing board has a code of conduct that
declares members should “maintain the highest standards of
integrity and professionalism.” However, it does not speak to
questions of appropriate employment by CIRM directors outside of the
agency.

In January 2012, Torres authored a document discussing CIRM's conflict of interest rules. He said they
are intended “to eliminate even the appearance of impropriety.”
He also referred to CIRM's policy on “incompatible activities”
for employees. It deals with activities that could “discredit”
the agency or that are “inimical” to it. However, it does not
specifically deal with the type of situation involving Torres and
Klein, who is a real estate investment banker and attorney. The policy additionally does not address cases where a
governing board member is also an employee of the agency.

Torres' economic disclosure statements,
which are required by state law, contain only broad ranges for compensation, and the amount could be significantly higher than
$31,000. Torres reported that in 2011 he was paid between $10,001 and
$100,000 by both Klein Financial Corp. and K CP Cal, which share the
same address as Klein's offices in Palo Alto. In 2012, Torres reported receiving between $10,001 and $100,000 from K CP Cal and
between $1,001 and $10,000 from Klein Ventures LLC, which also has
the same address.

Torres reported that the payments were
consulting fees and that the firms dealt with real estate. He did not
respond to requests for more details.

Torres earns $225,000 a year in his part-time role as one of two vice chairmen for the agency. Under the
arrangement, he works four days a week.

Torres was chairman of the state
Democratic Party and a longtime state legislator. He was nominated
for vice chairman in 2009 by state Treasurer Bill Lockyer, among
others.

Last week, another financial
arrangement involving Klein surfaced in connection with the
StemCells, Inc., application. Klein gave the agency $21,000 last May,two months before he pitched the board on the StemCells, Inc.,application. The donation was not reported to the board prior to
Klein's appearances before the panel. The agency's regulations
require such gifts to be reported to the board but do not specify a
time frame. Following inquiries from the California Stem Cell Report,
the agency said it would report the donation at the agency board
meeting next week.

Klein's donation financed a trip by six
CIRM science officers to Japan for an international stem cell
conference. The agency directed the officers to give special access
to Klein. Two of the officers were heavily involved in the grant
round that included the StemCells, Inc., application, which scientific reviewers scored at 61 on a scale of 100.

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