The SEC has been attacking COVID-19 fraud aggressively over the past three weeks using its civil enforcement authority to suspend trading in securities of companies making suspect or questionable disclosures about vaccines, protective devices, testing, mitigation and technology. The compression of 17 trading suspensions into as many trading days highlights how the SEC’s Enforcement Division has an acute focus on what the agency perceives as efforts to deceive investors believing they are jumping on the bandwagon of a groundbreaking solution, when, in fact, the SEC suspects classic securities fraud and stock manipulation. And, in my 33 years of securities enforcement law practice, including almost 10 years in the SEC’s Enforcement Division, no other period or event comes to mind – not even 9/11 – when the SEC issued so many substantive trading suspensions in so many securities in such a short time-frame.
The highest profile trading suspension to date of the 17 was the agency’s concern over the possible confusion of over-the-counter stock Zoom Technologies, Inc. (ZOOM), the price of which ran from roughly $10 per share to $35 per share in two trading days, with the high-flying NASDAQ NDAQ -listed Zoom Video Communications, Inc. (ZM), the source of videoconferencing technology in exponential use since COVID-19 and which has entered nearly every home with a computer or cell phone. The SEC explained its March 25, 2020 ten-day trading suspension as evidencing “concerns about the adequacy and accuracy of publicly available information concerning ZOOM, including its financial condition and its operations, if any, in light of the absence of any public disclosure by the company since 2015; and concerns about investors confusing this issuer with a similarly named NASDAQ-listed issuer, providing communications services, which has seen a rise in share price during the ongoing COVID-19 pandemic.” Unlike the California-based telecommunications company which is current with its SEC reporting and its disclosures, Zoom Technologies has its principal executive offices in Beijing, China, last filed a periodic report with the SEC in November 2015 terminating its securities registration, and appears to have last described its business as claiming to engage in the manufacture, development, and sale of electronic and telecommunication products, with no further specificity.
Much of the focus on the SEC’s COVID-19 pronouncements and their implications has been on statements about ensuring the accuracy of corporate disclosures and the stability of the capital markets. SEC Chairman Jay Clayton and Division of Corporation Finance Director William Hinman issued a joint public statement stressing the importance of disclosure as central to investor protection and maintaining market integrity, urging “companies to provide as much information as is practicable regarding their current financial and operating status, as well as their future operational and financial planning.” On March 25, 2020, the SEC published guidance regarding coronavirus disclosures, discussing the importance of comprehensive and timely information as to the business impacts of COVID-19.
Meanwhile, on the civil enforcement side, the SEC has the legal authority to suspend trading summarily in securities for a period of ten days when the SEC determines that doing so is necessary in the public interest and for the protection of investors. The accuracy and adequacy of information about a company and its activities in the marketplace is a common justification for a trading suspension. The SEC, acting on the recommendation of the Enforcement Division’s staff, imposes the trading suspension early in the evolution of a fast-moving investigation. In short, and addressing this as someone who during my own tenure in the Enforcement Division was involved in seeking and obtaining trading suspensions of three companies in a suspected stock manipulation, the SEC is judicious in its use of trading suspensions, ensuring first that concerns and suspicions of possible fraud are well-founded.
The SEC’s 16 additional COVID-19 product or technology related trading suspensions imposed from March 25, 2020 through April 17, 2020 run a full range of COVID-19 solutions:
- Praxsyn Corporation (PXYN) on March 25, 2020 for making two announcements that it has a large number of N95 masks, capable of protecting wearers from inhaling viruses, including the COVID-19 Coronavirus available for order. Praxsyn referenced its use of a worldwide network and creation of a direct pipeline from manufacturers and suppliers to buyers giving those that qualify, the fairest price on the market. On March 31st, Praxsyn retracted its press release, acknowledging that its “press release could give the reader the impression that we had millions of masks on hand. This is not the case.” A reader may interpret the retraction press release as an admission of, at a minimum, having made a materially false and misleading statement that the SEC ultimately may find to be a basis for formal securities fraud charges.
- No Borders, Inc. (NBDR) on April 3, 2020 for statements about NBDR’s products and business activities related to the COVID-19 pandemic, including its COVID19 specimen collection kits, an agreement to bring COVID-19 test kits to the United States, and activities related to the distribution of personal protective equipment. NBDR made the statements in social media posts, press releases, website information and submissions to OTC Markets Group, Inc. (OTCM).
- Wellness Matrix Group Inc. (WMGR) on April 7, 2020 for statements made through affiliated websites and a company consultant about selling at-home COVID-19 testing kits that the FDA had approved.
- Prestige Capital Corp. (PGEC) on April 7, 2020 over concerns about its financial condition and its operations, and, similar to the Zoom scenario, that investors were confusing Prestige Capital with a similarly-named private company, Prestige Ameritech, which is one of the largest manufacturers of surgical masks and respirators in the United States.
- Key Capital Corporation (KCPC) on April 7, 2020 for claiming to have the ability to develop a COVID-19 vaccine and make it available to the mass market in three to six months.
- BioELife Corp., formerly known as U.S. Lithium Corp. (LITH) on April 8, 2020 [hyperlink to ] for press releases, reinforced by third-party stock promoters, regarding a purported new “Coronavirus (COVID-19) Prevention Products Line” which the company claimed to be producing and distributing, together with potentially manipulative trading activity.
- Turbo Global Partners Inc. (TRBO) on April 9, 2020 for statements in press releases claiming to have entered into an agreement with a company to provide non-contact human temperature screening and facial recognition technology, and the ability to ship the technology to customers within five days of receiving an order.
- Parallax Health Sciences Inc. (PRLX) on April 10, 2020 for statements on its website and in five press releases about its purported development of a rapid screening test for COVID-19 and its purported access to large quantities of COVID-19 diagnostic testing kits and personal protective equipment.
- Roadman Investments Corp. (RMANF) on April 10, 2020 for publishing at least 12 press releases claiming commercialization of cedar leaf oil as a promising treatment for COVID-19.
- Solei Systems Inc. (SOLI) on April 10, 2020 for a press release and a national cable news program interview with the Chief Executive Officer of its wholly-owned subsidiary, CareClix, Inc., claiming that CareClix had the ability to provide COVID-19 testing kits that would allow a patient to submit a testing sample from home.
- Arrayit Corporation (ARYC) on April 13, 2020 for claiming that it had developed an approved COVID-19 blood test. Arrayit last filed a substantive disclosure document with the SEC in 2015, in which the company described itself as a life sciences research company.
- Applied BioSciences Corp. (APPB) on April 13, 2020, for a press release claiming to be selling and having started shipping 15-minute coronavirus test kits for home, school, hospital, law enforcement and military use, along with developing additional products to help the COVID-19. The company’s claims included being positioned to begin filling large and domestic and international orders of the single-use test kits within weeks.
- Signpath Pharma Inc. (SGTH) on April 15, 2020 for a public claim that the company had developed a COVID-19 treatment, in addition to there being a lack of current financial information in the marketplace about the company.
- BioXTran Inc. (BIXT) on April 15, 2020 for press releases, blog posts, and a podcast about the company’s present ability to develop a drug to mitigate or treat COVID-19. The SEC also identified possible manipulative trading of the company’s stock from late January into February 2020.
- Bravatek Solutions Inc. (BVTK) on April 15, 2020 for statements in press releases and social media posts about third party tests of its partner’s disinfectant against COVID-19, its work to register the disinfectant with the EPA, and a $150 million order for the product that the company claimed to have received.
- PreCheck Health Services Inc. (HLTY) on April 16, 2020 for press releases about its orders of COVID-19 tests for overseas customers, and press releases and other publicly disseminated statements about the existence of customer orders for the tests.
The next chapter for each of these companies and those responsible for what the SEC reasonably will characterize as materially false and misleading public statements is, at a minimum, near certain civil enforcement action. Criminal prosecutions also are not just possible but probable. Attorney General William Barr’s recent public statement directing federal prosecutors “to prioritize the investigation and prosecution of Coronavirus-related fraud schemes,” and the close working relationship between the SEC and the Department of Justice portends potential criminal cases associated with these 17 companies and the related securities trading.
The SEC has put on notice that it is scrutinizing closely all companies in the capital markets making claims regarding COVID-19. The public can expect to see much more enforcement activity, including more trading suspensions, in the SEC’s investor protection emphasis.