The SEC has wasted no time in outlining new enforcement priorities in the era of Covid-19. In guidance that was updated on April 8, the SEC has warned that investors should be aware of internet promotions, including through social media, asserting that publicly-traded companies have products or services that can prevent, detect or cure coronavirus, and that these companies’ stock will become profitable investments. The SEC cautioned that these promotions will take the form of “research reports” that will set a “target price” for the stock.
The SEC further advised that microcap stocks, which are low-priced stocks issued by small companies, are particularly vulnerable to these scams. The low prices may tempt investors who are seeking a quick return, and the lack of publicly available information about the companies increases the ease of spreading false reports and rumors that entice the public. As the SEC explained, in a typical “pump-and-dump scheme,” false positive reports are used to “pump up” the stock price, allowing the promoters and other insiders to “dump” the stock at inflated prices before the stock price plummets after the hype ceases.
As of April 28, the SEC has announced the suspension of trading in the stock of at least twenty-four companies, including three on April 21 alone, out of concern about the dissemination of false information concerning the potential detection and treatment of the coronavirus and/or suspicious market activity. For example, on April 23, the SEC announced the suspension of trading in Decision Diagnostics Corp. because of its statements that it had perfected a test kit for COVID-19 that would produce results in 15 seconds and projected sales for the test kit. On April 21, the SEC announced the suspension of trading in the stock of Predictive Technology Group, Inc. out of concern about the accuracy and adequacy of the company’s statements regarding its distribution of tests purportedly able to detect coronavirus antibodies. On April 16, the SEC announced the suspension of trading in the stock of PreCheck Health Services, Inc. concerning its statements about purported overseas orders for a coronavirus test. On April 13, the SEC announced the suspension of trading in the stock of Applied BioSciences Corp. out of concern over its statements about selling coronavirus test kits for home use. On April 9, the SEC suspended trading in the stock of Turbo Global Partners, Inc. because of doubts concerning the reliability of statements about a purported agreement to provide non-human contact temperature and facial recognition.
Other companies similarly had trading in their stock halted because of concerns about the accuracy of similar statements. (The exceptions were the trading halts in Zoom Technologies, Inc., a small Chinese microcap, because investors apparently were confusing the company with Zoom Video Communications, Inc., which provides videoconferencing services that are now in demand; and SpectrumDNA, Inc. because of confusion with a similarly-named private company that manufactures saliva collection devices.)
The co-directors of the Division of Enforcement also warned in a March 23 statement that companies must maintain sufficient internal controls and procedures to prevent the misuse of confidential information, particularly as employees increasingly communicate by teleconferencing. The directors noted that material nonpublic information may have greater value than under normal circumstances, because earnings reports and other required disclosures may be delayed.
Companies must maintain strict controls to prevent misuse of confidential information and provide accurate, timely disclosure concerning the impact of Covid-19, including the current and expected future impact on the company’s operations and financial condition; the effect of any governmental assistance; and efforts to protect the health of employees and customers. As the SEC has stated, historical information now is relatively less significant than disclosure of current and anticipated future results.
For more information regarding strategy involving interactions with the SEC, please contact one of Alto Litigation’s partners: Bahram Seyedin-Noor, Bryan Ketroser, Ellen London.
***
Disclaimer: Materials on this website are for informational purposes only and do not constitute legal advice. Transmission of materials and information on this website is not intended to create, and their receipt does not constitute, an attorney-client relationship. Although you may send us email or call us, we cannot represent you until we have determined that doing so will not create a conflict of interests. Accordingly, if you choose to communicate with us in connection with a matter in which we do not already represent you, you should not send us confidential or sensitive information, because such communication will not be treated as privileged or confidential. We can only serve as your attorney if both you and we agree, in writing, that we will do so.
The materials on this website are not intended to constitute advertising or solicitation. However, portions of this website may be considered attorney advertising in some states.
Unless otherwise specified, the attorneys listed on this website are admitted to practice in the State of California.