SEC Sues Finance Firm for False Press Claims About COVID-19May 6, 2020 – Alerts
Alleging that a Florida company fabricated a pair of press releases to create the false impression of having contracts to supply N95 masks to health care providers, the Securities and Exchange Commission filed suit seeking fines and injunctive relief – including a bar on the company’s CEO holding any position in a public company.
The SEC filed a complaint on April 28, 2020 against Praxsyn Corp. and its CEO, Frank Brady, alleging that Praxsyn’s stock trading volume increased significantly after press releases in late February and early March, and that its stock price also increased significantly after the second release.
Praxsyn is a Nevada corporation that has its principal offices located in West Palm Beach, Florida. Praxsyn is a specialty finance company focused on providing cash flow solutions and medical receivables to health care providers in the United States that focus on personal injury and workers compensation.
Pair of Press Releases
The SEC alleges that in two press releases, Praxsyn falsely claimed it was going to acquire and supply large quantities of N95 masks to protect people from contracting the COVID-19 virus. Praxsyn allegedly issued press releases on February 27 and March 4 asserting that it had N95 masks, and was taking orders. The SEC contends that both press releases were false, as Praxsyn never had orders to purchase masks, and never had a contract with any manufacturer to obtain the masks.
After the February 27 and March 4 press releases, the SEC inquired as to whether Praxsyn’s statements were accurate. On March 31, Praxsyn issued a third press release acknowledging it never actually had the hotly sought after masks. The SEC suspended trading in Praxsyn’s securities from March 26 through April 8, 2020. The SEC thereafter filed a complaint and alleged Praxsyn and its CEO violated antifraud provisions of the federal securities laws. The SEC is seeking civil penalties against both Praxsyn and its CEO.
Use Caution When Making Public Statements Related to COVID-19
Statements in press releases are public and may be relied upon by investors. With the Praxsyn case, the SEC has made clear that it is monitoring claims related to COVID-19 business dealings, and that false or misleading press releases may be treated as efforts to defraud the investing public, potentially leading to swift actions by the SEC.
Shortly after the complaint against Praxsyn was filed, the SEC issued its own press release affirming its “dedication to investor protection and accountability.” Steven Peikin, the Co-Director of the SEC’s Division of Enforcement, said that the SEC “will move swiftly against those who seek to profit off this national emergency by cheating or misleading investors.”
The SEC believes that press releases like the February 27 and March 4 ones by Praxsyn are tantamount to a COVID-19 investment scam. As such, the SEC vowed to seek trading suspensions where appropriate, and to pursue fraud charges against both entities and individuals when warranted.
Any company that has issued or is planning to issue a press release related to COVID-19 business, or that has already been contacted by the SEC about such statements, should seek legal counsel immediately for guidance on how to ensure compliance with the federal securities laws.
Fox Rothschild attorneys are experienced in advising businesses in regulatory and criminal investigations. If you have any questions about this alert, please contact Marissa Koblitz Kingman at 973.548.3316 or [email protected], or any member of Fox Rothschild's national White-Collar Criminal Defense & Regulatory Compliance practice group.