Biotech CEO, two associates accused by U.S. of securities fraud

Pixarbio

24/04/2018 23:52

By Nate Raymond
    BOSTON, April 24 (Reuters) - The chief executive of a
biotech company that said it was developing a non-opiate pain
treatment was arrested along with two associates on Tuesday on
U.S. charges that he misled investors and participated in a
stock manipulation scheme.
    Federal prosecutors in Boston said PixarBio Corp  PXRB.PK 
CEO Frank Reynolds solicited investors with false and misleading
claims that he was a successful inventor with a product that
would end "thousands of years of morphine and opioid addiction."
    They said Reynolds, 55, promoted investing in PixarBio with
misleading claims about its financial status and progress in
seeking U.S. Food and Drug Administration approval for a
non-opiate pain treatment called NeuroRelease.
    Prosecutors said two of his associates, M. Jay Herod and
Kenneth Stromsland, beginning in November 2016 while in close
communication with Reynolds made manipulative trades in PixarBio
stock to artificially push up its trading price.
    Reynolds and Herod, who authorities said was Reynolds'
friend, were arrested in Massachusetts. Stromsland, PixarBio's
vice president of investor relations, was arrested in New York.
    Joshua Hanye, Reynolds' lawyer, at a hearing in Boston
federal court said he denies the allegations. Leonard Milligan,
Herod's lawyer, said he has no current involvement with
PixarBio. Stromsland's attorney could not be identified.
    The U.S. Securities and Exchange Commission filed a related
lawsuit that said PixarBio raised $12.7 million from 211
investors during the scheme.
    All three men were charged with securities fraud. A federal
judge meanwhile at the SEC's request issued an order freezing
the assets of PixarBio and Reynolds.
    Reynolds founded PixarBio after resigning as chief executive
of Cambridge, Massachusetts-based biotechnology company InVivo
Therapeutics Holdings Corp  NVIV.O  in 2013.
    According to the criminal complaint, Reynolds in a 2015
email to potential investors claimed PixarBio had a $1 billion
valuation that was expected to increase as "we prepare to
replace morphine in the clinic in late 2017 or early 2018."
    In reality, PixarBio was never worth $1 billion and had not
even finished the work required to seek permission to conduct
human drug trials, the complaint said.
    In January 2017, at Reynolds' direction, PixarBio issued a
press release entitled "It's Time to Make US Pharma GREAT
Again," announcing a $77 million takeover bid for Invivo, the
complaint said.
    PixarBio in fact lacked the ability to make the bid, the
complaint said, yet a day later announced it had upped its offer
to $100 million. The SEC subsequently suspended trading in
PixarBio.

 (Reporting by Nate Raymond in Boston
Editing by Matthew Lewis)
 ((Nate.Raymond@thomsonreuters.com; +1-617-856-1312
Reuters Messaging: nate.raymond.thomsonreuters.com@reuters.net))