As COVID-19 continues to claim lives and disrupt the global economy, the U.S. Securities and Exchange Commission (the “SEC”) has begun taking a number of actions to protect investors from COVID-19-related frauds.
On April 24, 2020, the SEC announced the creation of a cross-divisional COVID-19 Market Monitoring Group (the “Monitoring Group”).1 The Monitoring Group is designed to assist the SEC with its oversight and enforcement of COVID-19-related effects on markets, issuers, and investors.2 The Monitoring Group is tasked with working with multiple divisions within the SEC, as well as assisting the President’s Working Group on Financial Markets, the Financial Stability Oversight Council, and Financial Stability Board to “respond to the effects of COVID-19 on [] capital markets.”3
In addition, on April 27, 2020, the SEC declared that its Investor Advisory Committee, which advises the SEC on initiatives to protect investors—e.g., regulation of securities products, fee structures, and regulatory priorities—would hold a remote meeting on May 4, 2020, to discuss considerations surrounding public company disclosures and virtual shareholder meetings during the COVID-19 pandemic.4 During that meeting, SEC Chairman Jay Clayton commented that the SEC intends to focus its attention on analyzing disclosures relating to:
- How long can the business sustain its current operating posture in the absence of additional funding?
- Have supply and distribution chains been temporarily or permanently disrupted?
- How do you plan to manage the health and safety of your employees and customers as you and other market participants seek to increase activity?5
And on the enforcement side, on April 28, 2020, the SEC filed a complaint against Florida-based Praxsyn Corp., the parent company of Mesa Pharmacy, and its CEO, Frank J. Brady, for allegedly making false and misleading statements in a series of press releases. The first press release, issued in February 2020, stated that Praxsyn was negotiating the sale of millions of N95 masks, the masks that have been highly sought after since the outbreak of COVID-19 due to their potential to safely protect individuals from contracting COVID-19.6 According to the complaint, about a week after the initial press release was issued, Praxsyn released another press release, stating that it had a large quantity of N95 masks and had created a “pipeline” for distributing the N95 masks directly from manufacturers and suppliers to purchasers.7 The CEO allegedly stated in that press release that the minimum number of masks a buyer would be required to order was 100,000.8 According to the complaint, Praxsyn issued a third press release in which it admitted that it never had any N95 masks to sell.9 In bringing this enforcement action, Steven Peikin, Co-Director of the SEC’s Enforcement Division stated, “We will move swiftly against those who seek to profit off this national emergency by cheating or misleading investors.”10 The SEC has also updated its Investor Alerts and Bulletins webpage, cautioning investors to be wary of promotions claiming that publicly traded companies have products that can prevent, detect, or cure viruses, which can lead to increased stock value.11
This quick succession of SEC actions suggests that the SEC is prepared to seek out potential fraud in the securities markets as they occur, and take other actions it deems necessary to protect investors and ensure the economic markets maintain efficiency. Public companies should stay apprised of new developments and seek guidance from counsel in the event they believe the SEC may take interest in their COVID-19 related efforts.
1 Press Release, SEC Forms Cross-Divisional COVID-19 Market Monitoring Group, Sec. & Exch. Comm’n (Apr. 24, 2020), https://www.sec.gov/news/press-release/2020-95.
2 Id.
3 Id.
4 Press Release, SEC Announces Investor Advisory Committee Meeting Focusing on COVID-19, Sec. & Exch. Comm’n (Apr. 27, 2020), https://www.sec.gov/news/press-release/2020-96.
5 Remarks to the Special Meeting of the Investor Advisory Committee, SEC Chairman Jay Clayton, May 4 2020, Mondo Visione (May 4, 2020), https://m.mondovisione.com/news/remarks-to-the-special-meeting-of-the-investor-advisory-committee-sec-chairman/.
6 Press Release, SEC Charges Company and CEO for COVID-19 Scam, Sec. & Exch. Comm’n (Apr. 28, 2020), https://www.sec.gov/news/press-release/2020-97.
7 Id.
8 Id.
9 Id.
10 Id.
11 Look Out for Coronavirus-Related Investment Scams – Investor Alert, Sec. & Exch. Comm’n (Feb. 4, 2020), https://www.sec.gov/oiea/investor-alerts-and-bulletins/ia_coronavirus (last updated May 1, 2020).
