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Regulation and Compliance > Federal Regulation > SEC

SEC Brings First Fraud Charges Related to COVID-19

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The Securities and Exchange Commission announced its first fraud charges Tuesday against a firm for a COVID-19 related scam.

According to the SEC complaint, microcap issuer Praxsyn Corp. and its CEO, Frank Brady, issued false and misleading press releases claiming Praxsyn was able to acquire and supply large quantities of N95 or similar masks to protect wearers from the novel coronavirus.

The SEC has brought COVID-19 related trading suspensions, but the case against Praxsyn is the first fraud charge.

The SEC issued an order on March 26 temporarily suspending trading in the securities of Praxsyn.

Praxsyn, which is purportedly based in West Palm Beach, Florida, issued a press release on Feb. 27 stating that it was negotiating the sale of millions of N95 masks and “evaluating multiple orders and vetting various suppliers in order to guarantee a supply chain that can deliver millions of masks on a timely schedule.”

On March 4, Praxsyn issued another press release claiming it had a large number of N95 masks on hand and had created a “direct pipeline from manufacturers and suppliers to buyers” of the masks.

“Both 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.”

Dozens of emails and other documents from late February through March show Brady and at least one Praxsyn director knew efforts to obtain and sell N95 or other masks were proving futile. Praxsyn admitted as much when, after regulatory inquiries, it issued a third press release on March 31, acknowledging it never had masks on hand.

“As alleged in the complaint, in the midst of the ongoing COVID-19 pandemic, Praxsyn and Brady sought to exploit unsuspecting investors by issuing false and misleading press releases concerning Praxsyn’s ability to source and supply N95 masks for the COVID-19 virus,” said Eric Bustillo, director of the SEC’s Miami Regional Office.

The SEC’s complaint, filed in federal court in the Southern District of Florida, charges Praxsyn and Brady with violating antifraud provisions of the federal securities laws, and seeks permanent injunctive relief and civil penalties. The SEC also seeks an officer and director bar against Brady.

The SEC’s investigation, which is ongoing, has been conducted by the Microcap Fraud Task Force.

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