A former employee of a Boston-based biotech company and a friend of the company’s CEO — whom the Securities and Exchange Commission has charged with stock manipulation, making false statements and a scheme to defraud — pleaded guilty in a parallel criminal case to charges of securities fraud and obstructing the SEC’s investigation.
Kenneth Stromsland, the former vice president of investor relations for PixarBio Corp., pleaded guilty to one count of securities fraud, relating to his manipulative trading in the company’s stock, and one count of obstructing an agency proceeding, relating to his false testimony to the SEC during its 2017 investigation.
In testimony, Stromsland falsely denied that he had purchased shares of PixarBio to affect the company’s share price and that he had been instructed to do so by Frank Reynolds, PixarBio’s then CEO, according to the SEC.
Additionally, Jay Herod, a friend of Reynolds, pleaded guilty to the same charges relating to similar conduct, including lying to the SEC about Reynolds directing his participation in the fraud.
In its civil case filed against PixarBio, Reynolds, Herod and Stromsland, the SEC’s complaint alleges that 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 alleges that Reynolds, Stromsland and Herod 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 charges of securities fraud provide for a sentence of no greater than 20 years in prison, three years of supervised release, and a fine of $5 million or twice the gross gain/loss, whichever is greater. The charge of obstruction of an agency proceeding provides for a sentence of no greater than five years in prison, one year of supervised release, and a fine of $250,000.
The SEC’s litigation is pending and seeks permanent injunctions, disgorgement of ill-gotten gains with interest, penny stock bars, officer and director bars, and financial penalties.
Court Orders 2 Pump-and-Dump Schemers to Pay Over $4.6 Million Each
The SEC obtained final judgments against a microcap company and its two undisclosed promoters who were charged with running a $3.3 million microcap fraud.
In September 2017, the SEC charged Jason McDiarmid, Kenneth George Cedric Telford, and Stop Sleep Go Inc., formerly known as Interactive Multi-Media Auction Corp, with running a pump-and-dump scheme in Interactive Multi-Media’s stock.
The complaint alleged that McDiarmid and Telford took Interactive Multi-Media public and then orchestrated a promotional campaign touting its stock while they dumped their shares, selling them through nominees. McDiarmid and Telford made approximately $3.3 million in profits.
The judgments against McDiarmid and Telford bar each of them from serving as an officer or director of a public company and from participating in any offering of a penny stock. The judgment against McDiarmid orders him to pay $3.17 million in disgorgement, $291,035 in prejudgment interest and a civil penalty of $1.64 million. The judgment against Telford orders him to pay $3.3 million in disgorgement, $302,871 in prejudgment interest and a civil penalty of $1.6 million.
SEC Cancels Internet RIA Registration for Failure to Launch
The SEC canceled the advisor registration of a purported internet investment advisor because the registrant failed to launch its website in the three years since registering.