Today, I’ve got a story that will probably grind your gears and it’s one of the main reasons why I stick to my dark pool trading strategy and only trade stocks and options.
They’re regulated and I can easily find information about any of my plays.
When I heard about the dirty players in a biotech startup, I just had to expose the trio that raised more than $12.7M in an unregistered and fraudulent offering.
Of course, I’m not saying all startup companies are filled with bag eggs because there are some opportunities out there… you just have to know what to look for.
Today, I want to expose this startup company and prove to you why it’s important to conduct due diligence before you make any investments, whether it be in the stock market or the startup space.
[Exposed] How PixarBio Duped Investors
PixarBio CEO and employees told investors that the company was developing a non-opiate pain medication. Of course, this would’ve been a revolutionary medication and one that sticks it to the opioid crisis…. That is if it ACTUALLY EXISTED.
Instead, it was all part of a grand scheme to sell additional shares, and line their pockets with investors’ cash.
Here’s how it went down, and it involved a trio.
Francis “Frank” Reynolds was the president, CEO, and founder of startup PixarBio. His partner in crime Kenneth Stromsland was PixarBio’s CIO and VP of investor and public relations. And his sidekick was a long buddy of Francis, M. Jay Herod.
Together this trio raised over $12.7 million for the company in an unregistered and FRAUDULENT offering.
To raise this capital, Francis made quite a few misleading statements and told even more lies. That’s why it’s important to conduct research and not buy into what the executives say all the time, when it comes to startups.
Some examples of his storytelling…
- The FDA had fast-tracked the regulatory approval process for a special drug PixarBio was developing.
- The company had raised enough funding back in 2016 to fund all operations through 2017.
- The company was starting clinical human studies.
- PixarBio had a $10 million credit line.
- Francis personally INVENTED the very first medical device to address and treat acute spinal cord injury. (A claim that would result in its own scandal and lawsuit.)
- He also claimed to have personally gathered multiple neuroscience patents.
I don’t know about you, but all of those bullet points would lead me to do some digging. Of course, to the untrained investor, they would probably jump for joy when they hear of these milestones.
Both Herod and Stromsland solicited investors with the Francis tall tales.
Investors believed that their investments would get clinical testing for NueroRelease up and running. But the truth was NueroRelease was nowhere near that stage.
The Timeline Of Their Ruse
From the end of 2015 to summer 2016 PixarBio raised about $5.8 million from approximately 89 investors. Some of those investors were actually unaccredited. Francis would have employees doctor documents to make things seem on the up and up.
By mid-2016 PixarBio announced its grand plan to raise $20 million more. It would be selling off 10 million shares of PixarBio common stock.
In less than 3 months PixarBio raised $5.4 million more from over 100 investors.
November 25, 2016, PixarBio filed paperwork with the SEC to register 82.5 million shares that PixarBio had sold so far.
As it would play out the commission’s division of corporation finance would raise a few questions about the paperwork. In turn, PixarBio would never reply to these questions or finish the registration process.
However, that wouldn’t stop them from still offering PixarBio securities.
By 2018 PixarBio raised $12.7 million from over 200 investors.
I don’t know about you, but with so many capital raises… that threw up a bunch of red flags.
The theme that carried throughout this offering was that the investors’ funds would go to the development of NueroRelease. NueroRelease, according to Francis, would be the pain reliever that would end the U.S.’s opioid epidemic. As it was a revolutionary non-opioid post-op pain reliever.
However, there would be a whole illegal side hustle to this mess.
At the start of 2016, with CEO Francis as a puppeteer, he claimed PixarBio was merging with an unnamed public company.
They used that story to take profits on their shares, and Stromsland and Herod made sure PixarBio sold at top dollar. They personally bought and sold the stock themselves to create the illusion of market activity.
This side hustle that Francis pulled broke federal securities laws. These laws prohibit people that are associated with the publicly-traded company from stock sales…… Not to mention the illegal stock manipulation committed by Herod and Stromsland.
Soon everything would begin to fall apart. A smart person would come clean.
Francis and Herod would dig in their heels.
At the start of 2017, under oath, Francis was questioned about the $300K check his wife received from Herod. Francis claimed this was a loan to cover his bills during a lawsuit (Those lies came back to haunt him all). He would further state that there was nothing to verify this other than his word.
Come February, Herod, under oath, miraculously produced a document signed by Francis and his wife verifying the loan.
A document that Francis would confirm as legit when he took the stand in September 2017. This caused him to backpedal on his earlier testament. The statement where he claimed that there was no document proving the $300K loan. A funny account due to the date on the document. A date only 1 month prior to his first testament.
However, the SEC didn’t fall for the lies.
Now in 2020 Francis has received a sentence of 7 years in prison. Then 3 years of supervised release. He will then pay $7.8 million in restitution and forfeit $280,000. A federal jury has also charged Francis with securities fraud and obstruction of justice.
Both Stromsland and Herod tapped out and pled guilty to their crimes and in return received lighter sentences.
When it comes to any potential investments, I believe it’s important to conduct due diligence and know the ins and outs of the company.
Of course, the startup space is the only area in the market where there’s shady activity. In fact, I think there’s shady activity going on in the stock market, and it often happens in the dark pools.
If you want to learn how the dark pools function, I think you should check out my training session and show you how I use this information to my advantage.