February 28, 2020/US SEC
Frank Reynolds, the former CEO of PixarBio Corporation who was charged by the SEC in a 2018 enforcement action, was sentenced on February 18, 2020 in a parallel criminal action to seven years in prison and three years of supervised release. Reynolds was also ordered to pay $280,000 in forfeiture and approximately $7.5 million in restitution, with the exact amount of restitution to be determined at a later date. A federal jury convicted Reynolds on October 28 2019, of securities fraud and of obstructing the SEC’s investigation.
The two other defendants in the SEC and parallel criminal actions were also sentenced this month. Reynolds’s friend M. Jay Herod and PixarBio employee Kenneth Stromsland previously pled guilty in the criminal case to securities fraud and obstructing the SEC’s investigation. Herod was sentenced on February 20, 2020, to six months in prison and three years of supervised release with 400 hours of community service per year, and he was ordered to pay forfeiture/restitution of $120,000. Stromsland was sentenced on February 27, 2020 to six months home confinement and three years supervised release with 200 hours of community service per year, and ordered to pay a $60,000 fine and forfeiture of $27,500.
The criminal charges against Reynolds arose from the same conduct alleged in the SEC’s complaint against PixarBio, Reynolds, Stromsland, and Herod. The SEC’s complaint alleged that PixarBio, Reynolds, and Stromsland misled investors with false claims about PixarBio’s progress in developing a purported method of delivering non-opiate, post-operative pain medication. The complaint also alleged that Reynolds, Herod, and Stromsland engaged in a fraudulent scheme to acquire and merge PixarBio with a publicly traded company and to secretly manipulate the sales of shares in the new entity. The SEC previously obtained a preliminary injunction to stop the ongoing fraud and freeze assets held by Reynolds and PixarBio.
The SEC’s civil action against PixarBio, Reynolds, Stromsland, and Herod was stayed pending the resolution of the criminal action and remains pending.