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SEC Brings Action Against Company and its CEO for Alleged COVID-19 Scam

In what will likely be the first of many, the SEC brought an action against a company for false and misleading press releases related to the COVID-19 pandemic. In the Complaint, which can be found here (https://www.sec.gov/litigation/complaints/2020/comp-pr2020-97.pdf), the SEC charged Praxsyn Corporation and its CEO, Frank J. Brady, for allegedly “issuing false and misleading press releases claiming the company was able to acquire and supply large quantities of N-95 or similar masks to protect wearers from the COVID-19 virus”. 

The Complaint charges Praxsyn and Brady with violating antifraud provisions of the federal securities laws, seeking permanent injunctive relief against the company, civil penalties, and an officer and director bar against Brady, individually.  The Complaint alleges that the company issued a false press release in February 2020 alleging it was working towards the sale of millions of N-95 masks, specifically stating that it was “vetting various suppliers in order to guarantee a supply chain that can deliver millions of masks on a timely schedule.”  The allegations state that the company issued another press release in March 2020 stating that it had possession of N-95 masks and had arranged a “direct pipeline from manufacturers and suppliers to buyers”. The Complaint further alleges that Brady told prospective buyers that the company would only accept orders of 100,000 or more masks. After these press releases, the company’s stock price increased significantly, and the trading volume in the stock was up more than seventy-five times its normal trading volume. 

Praxsyn Corporation (PXYN) which traded via OTC, had its trading suspended by the SEC on March 26.  After a regulatory inquiry, the Complaint states that the company finally admitted that it never had any masks available to sell to anyone.  In a statement, the SEC opined “Praxsyn and Brady sought to exploit unsuspecting investors by issuing false and misleading press releases concerning Praxsyn’s ability to source and supply N95 masks for the COVID-19 virus”.     

The SEC, and specifically its Enforcement Division, will likely confront similar situations in an effort to hold companies and individuals accountable, when warranted, from misleading investors during the COVID-19 pandemic. The present case is a stark reminder of how unscrupulous companies and/or individuals may attempt to profit from current events. 

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Author

David L. Ward is a Mintz attorney whose practice includes financial services regulatory matters, internal investigations, and securities-related litigation in state and federal courts. He represents financial services clients before the US Department of Justice, SEC, FINRA, and other regulators.