The bizarre saga of biotech executive Frank Reynolds took another turn today when federal authorities arrested the PixarBio (OTC:PXRB) CEO and two associates on securities fraud charges, claiming they misled investors about its opioid substitute and falsely claimed a $1 billion valuation.
PixarBio is purportedly developing a drug to replace morphine and other opiates, but prosecutors alleged that the product is actually an older anti-convulsant called carbamazepine, sold under the trade name Tegretol, that’s used to treat epilepsy and neuralgia; PixarBio plans to re-formulate the drug as a time-release injection called NeuroRelease.
That didn’t stop Reynolds from touting NeuroRelease to investors as the end to “thousands of years of morphine and opiate addiction,” the feds alleged, citing a December 2015 Reynolds email to investors. In that email the former InVivo Therapeutics (NSDQ:NVIV) chief executive pledged “a HUGE return on investment (ROI) for any investors in PixarBio’s NeuroRelease.”
“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,” Reynolds wrote, according to prosecutors with the U.S. district attorney’s office for Massachusetts.
The feds also alleged that PixarBio CIO Kenneth Stromsland and associate Jay Herod ran a trading scheme to inflate PXRB share prices beginning in November 2016, with tactics including matched trading in which the duo put in overlapping buy and sell orders at the same price; marking the close with small buys shortly before the market’s close; and buys at much higher prices than preceding buys. Herod shared the proceeds from these trades with Reynolds and PixarBio, they alleged.
Herod’s LinkedIn page lists him as the principal of Jware and “a consultant/independent contractor for the past 12 years designing, building and implementing client/server and/or internet applications for a variety of industry groups.”
The three men face 20 years in prison, three years of supervised release and fines of $5 million, according to the U.S. Justice Dept.
The fraught saga of Frank Reynolds
The fraught saga of Frank Reynolds as a biotech executive began in 2005, when he co-founded InVivo based on technology out of MIT professor Robert Langer’s lab. The company was developing what it hoped would be a regenerative scaffold for treating traumatic spinal cord injuries.
In promoting InVivo, Reynolds often claimed that he was paralyzed by a spinal cord injury in a 1992 car accident. For three years, he said, he languished in bed until an aggressive physical therapy treatment regime of his own devising got him back on his feet again.
But in December 2010 Reynolds admitted that the story wasn’t true, saying instead that he injured his back loading a snack truck for a job and suffered spinal problems after a 1992 surgery to treat that injury.
By August 2013 InVivo had soured on Reynolds and parted ways with him before suing in November of that year, alleging that Reynolds ran up $500,000 worth of non-business expenses; Reynolds counter-sued in December 2013, alleging breach of contract, breach of the covenant of good faith and fair-dealing, and tortious interference with a contract; that case is still pending in a Massachusetts state court. (Reynolds filed a different lawsuit against InVivo in July 2016 in a New Hampshire state court, alleging defamation, conspiracy and tortious interference, which was later dismissed.)
In the meantime, having started PixarBio, around the time that prosecutors alleged that Herod and Stromsland launched their trading scheme in November 2016 the company reported raising $7 million. The next January Reynolds launched a $100 million takeover attempt of InVivo in a rambling, 2,700-word press release titled “It’s Time to Make US Pharma GREAT Again.”
In it and a subsequent release that cut his offer for InVivo to $77 million, Reynolds laid claim to InVivo’s core technology. But by the end of the month the U.S. Securities & Exchange Commission had called a halt to trading in PXRB shares due to possible “manipulative or deceptive activities” and questions about the accuracy of claims made in press releases and SEC filings, putting an end to the takeover attempt.
That prompted a securities class action suit the next day, which alleged that the company lost investors millions of dollars by issuing false statements about the prospects of the merger with InVivo.
Never gun-shy and ever-defiant, Reynolds in February uncorked plans to sue InVivo for libel and for the patent rights to that company’s spinal scaffold – despite facing a possible SEC charges, an action by a disgruntled employee demanding unpaid wages and former landlords looking for $1.8 million in unpaid rent.
“Nothing from the Boston U.S. SEC can stop our success in 2018 and 2019,” Reynolds told the Boston Business Journal at the time. “PixarBio will charge forward regardless of any SEC ruling.”