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Biotech Securities Fraud

Frank Reynolds, the chief executive officer of PixarBio Corp., a Boston-based biotech company, and two associates (Jay Herod and Kenneth Stromsland) were charged in Federal court with securities fraud. The charges involve a scheme to manipulate trading in the company’s shares.

Dating back to August 2013, PixarBio Corporation executives engage in a fraudulent scheme to defraud investors. To start, their unscrupulous methods include an extensive list of false and misleading statements about the financial viability of the company. Further, they list made-up proclamations including the company’s sham financing, along with the biography and track record of the CEO, Frank Reynolds. A glaring and damning example of their misdeed includes a December 2015 email and memorandum from Reynolds to potential investors. In the correspondence, Reynolds promises investors “a HUGE return on investment (ROI) for any investors in PixarBio’s NeuroRelease.” Reynolds states emphatically, that:

“The value of our portfolio on Wall Street is soaring with excitement around our sales partnership. At only $1,000,000,000 right now, as we prepare to replace morphine in the clinic in late 2017 or early 2018, and we expect our valuation to long-term trend UP.”

Without question, Reynolds has a bullish outlook on the company’s growth trajectory despite the deeply unrealistic valuation. In truth, PixarBio’s valuation fell grossly short of the one billion dollars. Moreover, PixarBio’s product is actually a "pipe dream" in that it falls short of its promise to end widespread morphine and opiate addiction. The fact of the matter is that PixarBio’s prospective drug, carbamazepine, is not even a treatment for opiate addiction in the first place. In contrast, carbamazepine is merely an injectable, time-release drug.

Fraudulent Trading Practices

In November 2016, Stromsland and Herod engage in manipulative trades in PixarBio stock rousing market interest and artificially inflating the trading price. Most notably, trades include overlapping orders to buy and sell PixarBio stock at the same price per share. The technique, known as “matched trading” is a manipulative and fraudulent technique to boost the trading price. Another technique, “marking the close” is also used wherein trades take place immediately before market close. In this situation, the orders to buy occur at a significantly higher level than the preceding market transaction. Herod acts as the facilitator of the trades and also shares the trading proceeds with the CEO, Frank Reynolds.