COVID-19 Scam Halted
Events generating large amounts of publicity are almost certain to attract the attention of those who would — and unfortunately often do – use it to profit at the expense of others. As crypto assets emerged the Commission brought a series of action against those who used words like “crypto” and “blockchain” to market a variety of fraudulent schemes. When marijuana stated to be legalized by some states the same pattern repeated.
Now, in the mist of the worst pandemic in memory, there are those who would profit from the tragic events of COVID-19. Playing on the shortage of medical equipment such as face masks, the defendants an action brought earlier this week by the Commission issued press releases offering to sell face masks. The firm’s stock price climbed dramatically until it was forced to retract its claims by regulators. SEC v. Praxsyn Corporation, Civil Action No. 9:20 -cv- 80706 (S.D. Fla. Filed April 28, 2020).
Praxsyn’s shares are quoted on OTC Link – previously known as the Pink Sheets. The Nevada firm has offices in West Palm Beach. It claims to be a specialty finance company that provides cash flow solutions and medical receivables financing for healthcare provides. It CEO is Defendant Frank Brady.
In late February 2020 the company issued a press release sent to the Globe News Wire titled “Praxsyn Joining the Global Fight To Stop The Spread” of COVID-19. The release claimed that the firm was negotiating the sale of millions of masks meeting the NIOSH N95 mask standard. The masks were capable of protecting users from COVID-19, according to the company. Praxsyn, it went on to state, was “currently evaluating multiple orders and vetting various suppliers in order to guarantee a supply chain that can deliver millions of masks on a timely schedule.” Mr. Brady noted in a quote contained in the release that the firm was looking at foreign suppliers.
At the time of the release Praxsyn did not have any orders to sell masks. It did not have any agreement to acquire any masks. Its documents did contain two undated letters to foreign firms making inquiries about obtaining masks. A company director had exchange emails with two other foreign firms about the possibility.
A second press release was issued six days later in early March 2020. The release, titled “Update: Praxsyn’s Coronavirus Mask Demand,” was distributed through the same news outlet employed for the first release. This release went on to state that the firm “has a large number of N95 masks, capable of protecting wearers from inhaling viruses, including the COVID-19 Coronavirus available for order.” Praxsyn claimed in the release that it had used its worldwide network to create a “direct pipeline” from the manufacturers and suppliers to bring the masks to market at the “fairest” prices. Mr. Brady stated in the release that the company was accepting orders for a minimum of 100,000 masks.
At the time of the second press release the firm did not own any masks. It did not have a contract to acquire any masks. There is no evidence of any pipeline. The firm did, however, make efforts over the next four weeks to locate a supplier. It was not successful.
Finally, on March 31, after receiving inquiries from regulators, Praxsyn was forced to issue a third press release. This release admitted the firm never had any masks to sell. During the period the firm’s stock price and trading volume did increase significantly. The complaint alleges violations of Exchange Act Section 10(b). The case is pending. See Lit. Rel. No. 24807 (April 2, 2020).