Boston jury finds biotech CEO guilty of fleecing investors, obstruction of justice
The biotech CEO who promised to end “thousands of years of morphine and opiate addiction” and allegedly told investors they could realize huge gains by investing in his company — which he said was worth $1 billion dollars before it rapidly ran out of cash — has been convicted of fraud by a Boston jury.
Frank Reynolds, CEO of PixarBio and former head of InVivo Therapeutics, was found guilty of lying to investors to drive up the stock price, Law360 reported. He was convicted on all counts, including securities fraud, manipulative trading and obstruction of justice.
Prosecutors accused Reynolds of falsely telling investors that PixarBio had raised $30 million and was within two years of bringing a replacement for opioid painkillers to market. Kenneth Stromsland, the former VP of investor relations at PixarBio, testified that Reynolds led investors to believe that the company was in talks to be bought by Purdue Pharma, the makers of OxyContin.
Stromsland, along with M Jay Herod, a friend of Reynolds, pled guilty to fraud charges earlier this year.
Reynolds’ defense attorney, David Axelrod, argued Reynolds had an “honestly held, sincere belief” that the company would succeed.
Founded in 2013, PixarBio reverse merged its way onto the public market in 2016, while Reynolds touted his connections to the famous MIT professor Robert Langer. Barely a year after they announced their stock was oversubscribed with an expected $30 million raised, the company appeared to be in shambles. Amid an SEC investigation, they reduced staff from 27 to 10 and were forced to leave their $23,341 per-month Medford office for a $3,003 office in Salem, New Hampshire. The indictments came in April 2018.
The three began trading deceptively to raise the stock price in 2016, prosecutors alleged, and continued into 2017. They coordinated moves and at times paid artificially high stock prices in order to raise the company’s value, the government said.
An SEC complaint said the company raised $12.7 million from 211 investors. Some of those investors launched a class action suit against the company.
In addition to investors, Stromsland and the prosecutor described Reynolds misleading employees in sometimes fanciful ways. Stromsland said Reynolds told people he was paralyzed from a back injury and gave employees a signed picture of the ceiling he stared up at for 7 years, according to Law360. US attorney Leslie Wright said Reynolds lied about curing his own paralysis.