SEC Charges Firm, Officers Re False Statements in Private Offerings
The Commission has long focused on microcap frauds, repeatedly brining cases in this area. It has also focused in recent years on offering fraud actions, filing a string of cases. The agency began this week with another offering fraud action. This time rather than the usual unregistered securities charge tied to selling interests in a limited partnership, a pyramid scheme or a Ponzi scheme, the action centers on the sale of shares through private placements for a privately held development stage company. In the Matter of Mergenet Medical Inc., Adm. Proc. File No. 3-18253 (October 16, 2017).
Respondent Mergenet is a Florida based firm engaged in the development of medical devices for pulmonary and respiratory conditions. Also named as Respondents are: Bruce Sher, the firm’s co-founder, co-president and a director; Shara Hernandez, a co-founder and co-president of the firm; and Peter DeCicco Jr., an employee in the firm’s public relations department.
Over a three year period beginning in 2012 the firm raised about $1.4 million from 72 accredited investors. The sales were marketed using private placement memoranda, written company presentations, videos, and oral communications. The PPM and other written materials were mailed to prospective investors.
During the relevant period Respondents “made material misstatements or omissions to investors and prospective investors regarding: (a) the status of Mergenet’s applications to the . . . [the FDA] in 2008 and 2009 for clearance of . . . the High Flow Therapy respiratory device . . .For example, from September 2010 to June 2015, the PPMs Mergenet distributed stated that ‘[s]ome of Mergentet Medical, Inc., technologies have already received FDA clearance and/or approval and others are under review.’ After August 2010, although some of Mergenet’s products were FDA cleared, the FDA had deemed withdrawn Mergenet’s applications for clearance of the HFT Device . . . (b) projected sales of the HFT Device and related medical supplies when at the time the FDA had deemed withdrawn Mergenet’s applications for clearance of the HFT Device . . .” Based on this conduct the Order alleges violations of Securities Act Sections 17(a)(2).
To resolve the matter each Respondent consented to the entry of a cease and desist order based on the Section cited in the Order. In addition, Respondents Sher and Hernandez will each pay a penalty of $60,000 while Respondent DeCicco will pay $50,000.