Arrested and charged with fraud, PixarBio CEO Frank Reynolds could face up to 20 years in prison

A curious series of setbacks at PixarBio has culminated in the arrest of and charges against CEO Frank Reynolds and two of his associates, the SEC announced today.

Frank Reynolds

Reynolds, 51, was charged by criminal complaint with securities fraud alongside Jay Herod and Kenneth Stromsland. According to the complaint, the trio allegedly began defrauding investors as soon as Reynolds founded the company in August 2013, “by making false and misleading statements about the company — its prospects, its financing, and the background and track record of Reynolds — and by engaging in manipulative trading of its shares.”

An example of those statements came in the form of an email and memorandum to potential investors, in which Reynolds promised “a HUGE return on investment (ROI)” based on a market value of $1 billion dollars. In reality, the complaint states, PixarBio did not have such market value, or, as it claims, a product to end “thousands of years of morphine and opiate addiction.”

From the US Attorney’s Office in Massachusetts:

Rather, the complaint alleges, the prospective drug, carbamazepine, is not a treatment for opiate addiction at all, but an existing drug for which PixarBio purported to have developed an additional means of delivery, via injection, in a time-release form.

PixarBio $PXRB reverse-merged its way to the OTC market in August 2016. About three months later, Herod and Stromland allegedly began trading its stock in a way that “simulated market interest and artificially pushed up the trading price,” using techniques known as “matched trading” and “marking the close.”

Last year, when Endpoints News reported that the biotech was forced to give up its leased property in Massachusetts and lay off half of its staff as it bled cash and grappled with an SEC fraud investigation, Reynolds responded with a lengthy statement denying any wrongdoing.

“We’ve enjoyed the engagement with the SEC,” he wrote. “I have an excellent SEC compliance education and SEC compliance experience so we’ve all learned a lot about future SEC compliance to ensure we’ll avoid future reviews. We have never been accused of Fraud as [Boston Business Journal reporter Max Stendahl] stated, so we were shocked to read it but we’ll wrap up the SEC review and move forward toward FDA approval.”

Boasting its technology’s roots in the lab of MIT professor Bob Langer, the company previously predicted an approval and market launch for its pain treatment in 2018.

Now, as Reynolds, Herod and Stromsland face a judge in the District Court of Massachusetts, they are looking at a maximum fine of $5 million and a sentence of no greater than 20 years in prison if convicted.

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