The SEC filed an Exchange Act Section 10(b)/Rule 10b-5 complaint in the Southern District of Florida against a West Palm Beach corporation and its CEO for issuing in February and March 2020 when the coronavirus took hold, two press releases falsely claiming to be negotiating the sale of millions of N95 masks for customer purchase. A third press release on March 31 admitted that the company never had any masks available to sell. The Commission’s complaint seeks a permanent injunction, civil monetary penalty, and a bar banning the CEO from serving as any public company’s officer or director (SEC v. Praxsyn Corporation, April 28, 2020).
Corporation’s false negotiations to buy COVID-19 masks for sale. The SEC’s complaint alleged that the corporation through its CEO issued a press release on February 27, 2020, falsely stating that the company was:
- negotiating the sale of millions of masks meeting the NIOSH N95 mask standard and similar standards, capable of protecting wearers from breathing in viruses, including the Novel Coronavirus COVID-19;
- vetting various suppliers in order to guarantee a supply chain that can deliver millions of masks on a timely schedule; and
- looking at buying masks from foreign suppliers to sell to foreign purchasers.
But, declared the Commission, the press releases were false and misleading because, at the time of their respective release dates, the company had not reached any specific agreement with a supplier or purchaser to buy or sell masks, and the company had no orders from any potential purchaser to evaluate. Additionally, the “orders” and “negotiating” sale of masks consisted of two inquiries. one from an Italian company and one from a Hong Kong company, but both letters were undated and contained no information about the companies themselves, their alleged need for masks, payment terms or timetables. The CEO saw copies of both letters.
The SEC Enforcement Division’s Co-Director, Steven Peikin, said that “today’s fraud against Praxsyn and its CEO demonstrates the SEC’s dedication to investor protection and accountability. We will move swiftly against those who seek to profit off this national emergency by cheating or misleading investors.”
The case is No. 20-cv-80706.