The SEC charged a microcap issuer and its CEO for making false statements that it had acquired for sale a large number of N95 masks through a "direct pipeline from manufacturers and suppliers to buyers." The SEC alleged that the microcap issuer and its CEO "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 SEC alleged that some time later and after regulatory inquiries, the microcap issuer and its CEO issued a press release acknowledging it never had masks available to sell.
The SEC is requesting a final judgment ordering the microcap issuer and the CEO to be (i) permanently restrained and enjoined from further violation of federal securities laws and (ii) ordered to pay a civil money penalty. In addition, the SEC is requesting that the CEO be enjoined from serving as an officer or director of any public company.
Commentary
The SEC acted quickly and aggressively here. The company issued its allegedly false press releases on February 27, 2020 and March 4, 2020, and the SEC had suspended trading in the company by March 25, 2020. The SEC then filed this enforcement action alleging fraud on April 28, 2020. While the allegations in the SEC's complaint suggest that the false statements at issue here were egregious, it makes sense for all public companies to be particularly careful in their public statements addressing the impact of the crisis. As promised in the Enforcement Division's Co-Directors' Statement Regarding Market Integrity, issued on March 23, 2020, the SEC is laser-focused on misconduct related to the coronavirus pandemic and will be for some time.
Originally published April 28, 2020
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