In times of crisis, fraudsters attempt to exploit the latest news developments to lure investors into scams, and the once-in-a-century global health crisis we are currently facing is no exception. On February 4, 2020, the SEC noted in an Investor Alert that it was aware of a number of web-based promotions claiming that the products or services of publicly-traded companies could prevent, detect, or cure COVID-19—and that the stock of these companies would skyrocket as a result. The Investor Alert warned market participants to be vigilant and put publicly-traded companies on notice that the Commission is watching.
On May 14, 2020, the SEC announced charges against two companies that claimed to offer products suited to fight COVID-19 in press releases. The first, Applied BioSciences, claimed in a March 31 press release that it had begun offering and shipping COVID-19 tests to the general public that could be used for “Homes, Schools, Hospitals, Law Enforcement, Military, Public Servants or anyone wanting immediate and private results.” During the course of that day, Applied BioSciences’ stock price increased almost 80 percent from the previous day, and its volume increased by a factor of 85. According to the Complaint, the COVID-19 tests were not intended for home use by the general public and could be administered only in consultation with a medical professional. The Complaint also alleged that Applied BioSciences, a company focused on cannabinoid-based products prior to March 2020, had not shipped any COVID-19 tests as of the date of the press release at issue, which also failed to disclose that the tests were not authorized by the FDA. Indeed, around the time of the press release, the FDA publicly warned that it had not authorized any COVID-19 tests to be completely used and processed at home.
The second company, Turbo Global Partners, Inc., was charged alongside its CEO Robert W. Singerman. Turbo allegedly issued false and misleading press releases on March 30 and April 3 regarding a purported “multi-national public-private-partnership” to sell thermal scanning equipment designed to detect individuals with fevers in large crowds. The press releases also included statements, attributed to the CEO of Turbo’s supposed “corporate partner,” that the technology “is 99.99% accurate” and was “designed to be deployed IMMEDIATELY in each State.” The complaint alleges that Turbo had no agreement to sell the product, there was no partnership involving any government entities, and the CEO of Turbo’s supposed “corporate partner” did not make or authorize the statements attributed to him. According to the complaint, Singerman drafted the releases, which he knew to be false.
These two provocative examples underscore the importance of the information that publicly-traded companies disclose in press releases—not just SEC filings. And these cases are likely to be the first of many charging COVID-19 cons. According to Steven Peikin, Co-Director of the SEC’s Division of Enforcement, “These fraud actions demonstrate the SEC’s vigilance over public companies that make materially misleading claims in press releases . . . [The SEC] will continue to act swiftly when necessary to protect investors.”
* * *
Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. Visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.