The Securities and Exchange Commission (SEC) has announced that two former executives of a public company, based in The Woodlands until 2015, have agreed to pay penalties to settle charges that they misled investors about the production status and license agreement relating to its key product.
The company in question is Uni-Pixel which manufactures sensors for touch screens. It was formed in 2007 and started trading on the Nasdaq in 2010. Until December 2013 the CEO of Uni-Pixel was Reed Killion, a resident of Spring, TX . Jeffrey Tomz, a resident of The Woodlands, was the CFO until May 2015. The SEC alleged that, between December 2012 and February 2014, the company issued a series of press releases, supposedly announcing cutting-edge technologies and pivotal business relationships which then failed to achieve commercial quality and generated little or no revenues.
For example, in November 2013, the company issued a press release stating that it had ‘received its first purchase order from their lead PC OEM Partner for its revolutionary InTouch Sensors’. In reality, the OEM Partner (Dell) had ordered 1,000 sensors at $0.01 per unit for a total price of $10!
Between 2007 and 2012, the company had total revenues of $515,000 and cumulative losses of nearly $50 million, yet the market capitalization, at one point, rose to $415 million on the back of the press releases.
Killion purportedly made $770,000 and Tomz $1.2 million from stock sales during the period in question.
Without admitting or denying the SEC’s charges, Killion and Tomz agreed to pay civil penalties of $100,000 and $50,000 respectively. Killion was barred from serving as an officer or director for 4 years, while Tomz agreed not to participate in the financial reporting or audits of public companies for 4 years. In an earlier settlement in 2016, the company paid a penalty of $750,000.
At face value, it seems that the executives got off lightly in terms of penalties paid in relation to gains made. However, since 2016, the executives have been in dispute with the company (now based in Santa Clara) over the amount of legal defense fees that the company is meant to be covering. In August 2017 a court ordered the company to pay $1.4 million to the former executives for unpaid legal fees. Instead, the company filed for Chapter 11 leaving the executives as unsecured creditors, meaning they would have to pay the large legal bills themselves.