As we noted in our prior blog post, the SEC has been busy responding to different issues arising as a result of the pandemic. Even in the last few weeks, the Commission has taken additional action.
The Commission has filed its first enforcement action.
On April 28, 2020, the SEC filed a complaint against Praxsyn Corporation (“Praxsyn”) and Frank J. Brady, in the Southern District of Florida, alleging that the defendants issued press releases falsely claiming Praxsyn was able to provide large amounts of N95 (or equivalent) masks. The complaint states that Praxsyn admitted the press releases were false when it issued another one acknowledging that it had never had the masks. Praxsyn’s stock trading volume and stock price both increased significantly after the purportedly false press releases. The Commission asserted that the defendants’ conduct violated Sections 10(b) and 10b-5(a) of the Exchange Act, and it is seeking injunctive relief, civil penalties, and an officer-and-director bar against Brady.
The SEC has suspended trading for several more securities.
In addition to this enforcement action, the SEC has announced trading suspensions in the securities of several more companies due to issues related to Covid-19. On May 5, the SEC suspended trading in the securities of Custom Protection Services, Inc., because of concerns about the accuracy and adequacy of the company’s statements about “frontline screening solutions” for Covid-19, the “overwhelming” response it had received, and estimates that contracts for the screening solutions would generate revenue of $10,000 per day. On May 1, the SEC announced trading suspensions in the securities of three companies arising from the companies’ statements about the development of the identical drug candidate (WP 1122) and the prospect of expedited regulatory approval: CNS Pharmaceuticals, Inc., Moleculin Biotech, Inc., and WPD Pharmaceuticals, Inc. On April 30, the SEC announced a suspension of the securities of Nano Magic, Inc., because of concerns over the accuracy and adequacy of statements in the marketplace that the company had a patent for a disinfectant that “kills” coronavirus. And on April 27, the SEC announced the suspension of trading in the securities of Kleangas Energy Technologies, Inc. a/k/a CalPharms, Inc., because of concerns over the accuracy and adequacy of the company’s statements on Twitter about its purported access to and sales of personal protective equipment approved by the government for use against Covid-19.
This level of activity likely will continue in the coming months, which is why it is important for companies to continue monitoring the controls in place to ensure that all public disclosures are accurate and timely.
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.
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