SEC Continues to Prioritize COVID Fraud Cases
Wednesday, October 7, 2020

On September 25, 2020, the SEC filed a civil injunctive action against a microcap company, Arrayit Corp., and its President and Chief Science Officer for falsely stating in March-April 2020 that Arrayit had developed a COVID-19 blood test when it had not yet purchased materials to make a test. The SEC further alleged that the test had been submitted for emergency approval, and falsely boasted to investors that there was a high demand for the test.

As we previously discussed, over the past several months the SEC has been using trading suspensions to prevent fraud and investor harm related to the COVID-19 pandemic. The SEC has pressed forward with cases charging securities fraud for COVID-19-related misrepresentations. On May 14, the SEC charged Applied BioSciences Corp. with securities fraud based on the company’s public statements with regard to offering products to combat COVID-19. The SEC had previously suspended trading of Applied BioSciences Corp.’s stock. Similarly, Praxsyn Corporation, whose stock the SEC had also halted trading of, was charged with fraud for falsely stating the company’s ability to secure large quantities of masks used to protect against COVID-19.

Because SEC trading suspensions are typically followed by investigations, and eventually by lawsuits, we can expect to see more litigation by the Division as the year progresses. Thus far, the agency appears to be focusing on microcap fraud rather than on more sophisticated COVID-related disclosure issues associated with listed public companies. These actions are part of the SEC’s larger Coronavirus (COVID-19) Response across its various divisions.


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