Fla. Microcap Firm Lied About N95 Supply, SEC Alleges

By Emilie Ruscoe
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Law360 (April 28, 2020, 4:58 PM EDT) -- A Florida company "blatantly" lied about being able to provide buyers with N95 respirators as it scrambled and ultimately failed to find a reliable source of the scarce, highly sought-after protective gear, the U.S. Securities and Exchange Commission alleged Tuesday in a federal lawsuit.

The regulator claimed in its action that as concerns mounted around the globe about the spread of the novel coronavirus, microcap company Praxsyn Corp. and its chief executive Frank J. Brady willfully misled the public in a pair of press releases — put out on Feb. 27 and March 4, respectively — that misrepresented Praxsyn's efforts to line up a supplier for the protective equipment.

Eric I. Bustillo, the director of the SEC's Miami Regional Office, said in a statement Tuesday that "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."

Praxsyn is one of the publicly traded companies for which the SEC's enforcement division has suspended trading in connection with the COVID-19 pandemic so far. The majority of those orders involve unsubstantiated claims about the companies' efforts to combat the pandemic.

According to the SEC, Praxsyn's Feb. 27 press release stated that the company was currently "negotiating the sale of millions of" N95 masks and was at the point of evaluating orders and vetting suppliers so that it could "guarantee a supply chain" for the in-demand gear.

But internal Praxsyn emails from before that date reveal those statements were untrue, the SEC said. By that point, only two buyers had reached out with preliminary general inquiries about buying masks from Praxsyn, and the company had exchanged some initial emails with purported suppliers without making any concrete commitments, the complaint said.

The company's March 4 press release "made even more egregiously false statements," the SEC said, because it claimed the company had "created a direct pipeline from manufacturers and suppliers to buyers giving those that qualify, the fairest price on the market" for minimum orders of 100,000 N95 units.

"Every factual statement in the March 4 press release was false," the SEC said Tuesday.

The company allegedly spent the next month trying to validate the press release claims, but ultimately wasn't able to realize those claims, the SEC said. After regulatory pressure, the company issued another press release on March 31 acknowledging it had lied.

The World Health Organization declared COVID-19 a pandemic on March 11, and the U.S. Department of Health and Human Services designated N95 respirators scarce in a notice that became effective March 25, federal records show.

The SEC said that the two earlier Praxsyn announcements kicked off significant increases in trades of the company's shares on the off-exchange platform where its shares traded, and the regulator suspended trading of the company's securities for roughly two weeks between March 26 and April 8.

The SEC accused the company of violating the Securities Exchange Act of 1934 and sought to permanently bar the company and Brady from future violations. The regulator also asked to see both defendants pay a fine for their alleged misdeeds and to have Brady banned from serving as an officer or director of similarly structured companies in the future.

An attorney for Praxsyn declined to comment on Tuesday, and the SEC did not immediately respond to a request for comment.

The SEC is represented in-house by Robert Kent Levenson.

Praxsyn and Brady are represented by Stanley C. Morris of Corrigan & Morris LLP.

The case is Securities and Exchange Commission v. Praxsyn Corp. et al., case number 9:20-cv-80706, in the U.S. District Court for the Southern District of Florida.

--Editing by Daniel King.

For a reprint of this article, please contact reprints@law360.com.

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