PixarBio CEO Frank Reynolds, Securities Fraud, Massachusetts 2023

BOSTON – A high-ranking executive at a Boston-based biotech company has been charged with securities fraud, accused of manipulating trading in the company’s shares and making false statements to investors.

Frank Reynolds, 55, the CEO of PixarBio Corp., and two associates, M. Jay Herod, 51, and Kenneth Stromsland, 45, were charged with securities fraud by the government. They are scheduled to appear before U.S. District Court Magistrate Judge M. Page Kelley this afternoon.

According to the complaint, beginning in August 2013, Reynolds and his associates engaged in a scheme to defraud PixarBio investors by making false and misleading statements about the company’s prospects, financing, and the background and track record of Reynolds.

The complaint alleges that in a December 2015 email and memorandum to potential investors, Reynolds promised investors a ‘HUGE return on investment (ROI) for any investors in PixarBio’s NeuroRelease.’ However, the government alleges that PixarBio did not have a market value of one billion dollars, or a product to end ‘thousands of years of morphine and opiate addiction.’ In reality, 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.

The complaint further alleges that, beginning in November 2016, Stromsland and Herod engaged in manipulative trades in PixarBio stock that simulated market interest in the stock and artificially pushed up the trading price. These trades included overlapping orders to buy and sell PixarBio stock at the same price per share, small purchases to boost the trading price submitted shortly before trading closed at 4:00 p.m., and orders to buy at a price much higher than the price of the preceding market transaction. The complaint alleges that Herod shared the proceeds of his trading with Reynolds and PixarBio itself.

The charge of securities fraud provides for a sentence of no greater than 20 years in prison, three years of supervised release, and a fine of $5 million. Sentences are imposed by a federal district court judge based on the U.S. Sentencing Guidelines and other statutory factors.

Reynolds, Herod, and Stromsland are presumed innocent until proven guilty beyond a reasonable doubt in a court of law.

The details contained in the complaint are allegations, and the defendants are presumed innocent unless and until proven guilty beyond a reasonable doubt in a court of law. United States Attorney Andrew E. Lelling; Harold H. Shaw, Special Agent in Charge of the Federal Bureau of Investigation, Boston Field Division; and Carl W. Hoecker, Inspector General of the U.S. Securities and Exchange Commission Office of Inspector General, made the announcement today. Assistant U.S. Attorney Sara Miron Bloom of Lelling’s Economic Crimes Unit is prosecuting the case.