Whistleblowers can play an important role working with the SEC to stop fraud and other securities law violations related to the coronavirus pandemic and covid-19.

As quickly as covid-19-related investment scams are popping up, the US Securities and Exchange Commission is trying to stop them.

Whistleblowers can play an important role working with the SEC to stop fraud and other securities law violations related to the coronavirus pandemic and covid-19. The SEC whistleblower program incentivizes whistleblowers to come forward by offering confidentiality, job protection and rewards.

Since early February, the SEC has taken enforcement actions against 24 companies seeking to profit and boost financial performance with false claims related to the coronavirus pandemic, including temporarily suspending trading of their securities.

Some of the companies claimed to have stocks of prized N95 masks and other forms of protective gear. Others claim to have access to coronavirus testing and questionable cures, treatments or preventatives for covid-19.

In its most recent enforcement action, the SEC announced charges on April 28 against a Florida company, Praxsyn, and its CEO for allegedly trying to scam investors about its ability to provide large quantities of N95 masks.

Praxsyn, claimed it had developed a “direct pipeline from manufacturers and suppliers to buyers” of the masks and was accepting orders of a minimum of 100,000 masks. The SEC contends in its complaint that Praxsyn “never had any masks in its possession, any orders for masks, or a single contract with any manufacturer or supplier to obtain masks.”

In other cases last month, the SEC took enforcement actions against two companies after a short seller argued they were making fraudulent claims about covid-19 testing kits.

The SEC called into question Predictive Technology Group Inc.’s press releases claiming it could “immediately distribute large quantities of serology tests to detect the presence of covid-19 antibodies,” as well as the validity of SCWorx Corp.’s  claims of securing a purchase order for two million covid-19 test kits.

“Fraudsters often seek to use national crises and periods of uncertainty to lure investors into scams,” warned the SEC’s Office of Investor Education and Advocacy (OIEA) and the SEC’s Division of Enforcement’s Retail Strategy Task Force. “They may play off investors’ hopes and fears, as well as their charity and kindness, and may try to exploit confusion or rumors in the marketplace.”

In a recently issued investor alert, the SEC elaborated on the specific forms scams can take under current turbulent circumstances, cautioning investors about fraudulent unregistered offerings, phony certificates of deposit and charitable investment scams.

The agency particularly stresses the risks of market manipulation in times of uncertainty, warning investors to “be cautious of claims that a company’s products or services can help stop the coronavirus, especially claims that involve microcap stocks.  These claims may be made as part of fraudulent ‘pump-and-dump’ schemes.”

Fraudsters can “pump” the price of a stock and entice quick investment by spreading false and exaggerated information. After investors buy into the stock, the scammers “dump” their shares, selling them off and causing the value to plummet. A vicious financial ploy, the practice is prohibited by securities law.

Microcap stocks, sometimes called “penny stocks,” are for companies with minimal market capitalization, usually $250 million to $350 million. The SEC cautions that microcaps are “particularly vulnerable to pump-and-dump schemes because there is often limited publicly available information.”

Market insiders are well positioned to stop securities law violations by becoming whistleblowers. If government enforcement agencies collect more than $1 million in sanctions as a result of a whistleblower’s information, the whistleblower is entitled to a reward of 10 to 30 percent of the amount recovered.

If you are aware of fraudulent securities trading related to the ongoing coronavirus pandemic or have knowledge of other securities law violations, you should consult with an experienced whistleblower attorney to explore your options. For a free, confidential consultation about your case, contact Phillips & Cohen LLP.

ABOUT PHILLIPS & COHEN LLP

Phillips & Cohen is the most successful law firm representing whistleblowers, with recoveries from our cases totaling over $12.3 billion. We have been recognized for our work by numerous national awards. Our attorneys and cases have been in The New York TimesThe Wall Street Journal, the Financial Times and other news media. Three of our cases were featured in the CBS series, “Whistleblower.” Phillips & Cohen’s roster includes former federal prosecutors, the first head of the SEC Office of the Whistleblower, a former deputy administrator of the Centers for Medicare and Medicaid Services, the author of a leading treatise on the False Claims Act and attorneys with decades of experience representing whistleblowers.

 

 

 

 

 

 

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