© 2015 The Texas Lawbook.
By Mark Curriden
(March 10) – Former Woodlands-based technology company Uni-Pixel Inc. agreed to pay the U.S. Securities and Exchange Commission $750,000 to resolve allegations that it fraudulently misled investors – many of them in Texas – about its finances and operations in 2013.
The SEC also announced Wednesday that it has filed charges in the federal court in Houston against two former Uni-Pixel executives – former CEO Reed Killion and former CFO Jeffrey Tomz – who the regulatory agency claims were part of a scheme in which “materially misleading” statements about the production and sales of a touch-screen sensor product were made public.
The false statements, according to Shamoil Shipchandler, the regional director of the Fort Worth office of the SEC, caused Uni-Pixel’s stock to spike and resulted in Killion and Tomz profiting more than $2 million from selling their own shares of company stock.
The SEC claims, according to documents filed in the Southern District of Texas in Houston, that Killion and Tomz allegedly knew the company’s statements were untrue and Uni-Pixel’s manufacturing process was still incapable of mass-producing commercial quantities of sensors.
“We allege that Uni-Pixel and top executives portrayed a company whose technology had arrived when in truth it was still in the developmental stage,” Shipchandler said. “Tech companies and their officers must be honest with investors about the state of their products and cannot portray them as something they are not.”
The SEC entered into a deferred prosecution agreement with the company’s former chairman of the board, who has agreed to cooperate and be barred from serving as an officer and director for five years.
Jeff Hawthorne, president and chief executive officer of UniPixel, issued a statement pointing out that the SEC violations occurred in 2013 and involved corporate leaders who are no longer with the company.
“Our new management team has put in place best practices in corporate governance and accounting,” Hawthorne said. “In addition, current management takes great pains to accurately report its financial results and the status of its various technology programs. We are pleased to have this behind us and are focused on growing our business in the coming years. None of the prior senior management team are employed by UniPixel today.”
Uni-Pixel is represented by Toby Galloway, a partner at Kelly Hart & Hallman and is a former chief trial lawyer for the SEC’s Fort Worth office.
King & Spalding partners Paul Bassette and Michael Biles said Thursday that their clients, Killion and Tomz, declined to comment because of the pending litigation.
According to the SEC’s complaint:
• Uni-Pixel announced “multi-million dollar” sales agreements in 2012 and 2013 that highlighted potential revenues but omitted material conditions the company had to meet to actually receive those revenues;
• Uni-Pixel announced in April 2013 that its high-volume production line was “qualified and production ready” and its capacity “started at fifty moving to hundreds and then thousands over the next several months.” At the time, Uni-Pixel had yet to produce any functional sensors through its high-speed process; and
• Uni-Pixel issued a press release in November 2013 touting a “purchase order” for its sensors that expected to ship an initial “commercial run” of sensors by year-end. The company concealed that the order was for a mere $10 worth of sensors for the customer to review as samples.
The deferred prosecution agreement with former board chairman Bernard T. Marren alleges that he became aware that information in Uni-Pixel’s press releases was inaccurate but failed to ensure that the company corrected the releases. The agreement requires him to cooperate with the SEC’s continuing case while complying with certain undertakings in order to avoid civil charges against him.
Steve Korotash, a partner at Morgan Lewis & Bockius and former deputy director of the SEC’s Fort Worth office, represents Marren.
The SEC’s investigation was conducted by enforcement attorney David Whipple, SEC staff accountant Carol Hahn, and David King. The case is supervised by assistant regional director Jessica Magee. The SEC’s litigation will be led by SEC trial attorney and former federal prosecutor Matt Gulde.
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