The SEC sued health-care company Praxsyn Corp. for allegedly issuing false press releases claiming it has access to N95 masks, in what appears to be the agency’s first coronavirus-driven enforcement action.
The healthcare company and CEO Frank J. Brady put out two press releases falsely claiming it had negotiated for and obtained N95 masks capable of protecting wearers from the virus that causes Covid-19, the Securities and Exchange Commission complaint filed in the U.S. District Court for the Southern District of Florida said.
Praxsyn’s Feb. 27 release claimed it was “negotiating the sale of millions of masks” and “vetting suppliers to guarantee a dependable supply chain,” the complaint said. A March 4 release claimed Praxsyn had N95 masks on hand, had created a pipeline for buyers to access masks, and was accepting mask orders for a minimum of 100,000 masks.
But the press releases were “blatantly false,” the SEC said. “Praxsyn never had either a single order from any buyer to purchase masks, or a single contract with any manufacturer or supplier to obtain masks, let alone any masks actually in its possession.”
The company “admitted as much” when it issued a third release March 31 after regulatory inquiries “acknowledging it never had masks on hand,” the complaint said.
Praxsyn’s trading volume increased significantly after the first two releases and its price rose significantly after the second release, the SEC said.
The agency has temporarily halted trading in the securities of at least 24 firms as of April 23 because of concerns the market lacked accurate coronavirus-related information. The SEC suspended trading in Praxsyn stock from March 26 through April 8.
Causes of Action: Exchange Act §10(b)—Using a manipulative or deceptive device or contrivance for a securities transaction in violation of SEC rules (15 U.S.C. §78j); SEC Rule 10b-5—Employing a device, scheme, or artifice to defraud, making untrue statements or omitting facts, or engaging in any act, practice, or course of business which operates as a fraud or deceit (17 C.F.R. §240.10b-5).
Relief: Permanent injunction prohibiting defendants from violating certain federal securities laws; civil fines; order barring Brady from serving as an officer or director of any public company.
Response: Attorneys for Praxsyn and Brady weren’t listed on the docket and couldn’t be identified for comment. Praxsyn didn’t immediately respond to a request for comment April 28.
The case is SEC v. Praxsyn Corp., S.D. Fla., No. 20-cv-80706, complaint filed 4/28/20.