On May 18, 2018, a federal district court in Massachusetts entered a preliminary injunction against PixarBio Corporation, Francis M. Reynolds, Kenneth A. Stromsland, and M. Jay Herod, restraining the defendants from violating federal securities laws and maintaining an existing asset freeze until further notice.

The SEC's complaint, filed on April 24, 2018, 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, including that they falsely told investors that the FDA had lowered PixarBio's hurdles for regulatory approval. The complaint also alleges 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. From these sales, Reynolds and Herod pocketed about $400,000, and they used an additional $500,000 to keep PixarBio afloat as Reynolds misled investors about how much money they had raised in the unregistered offering.

The SEC's complaint charges PixarBio, Reynolds, Herod, and Stromsland with violating Sections 5(a), 5(c), and 17(a) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. It also charges Reynolds and Stromsland with violating Section 15(a) of the Exchange Act, and Herod and Stromsland with violating Section 9(a) of the Exchange Act. The SEC is seeking permanent injunctions, disgorgement of ill-gotten gains with interest, penny stock bars, officer and director bars, and financial penalties.

For further information, see Litigation Release No. 24121.