Last spring, the U.S. Securities and Exchange Commission sued Praxsyn Corporation and its CEO, alleging that they issued false and misleading press releases claiming that the company was able to acquire and supply large quantities of N95 or similar masks to protect wearers from the COVID-19 virus. Recently, Praxsyn and its CEO agreed to pay a total of $65,000 to settle the charges.
In its lawsuit, the SEC alleged that the company issued a press release in February, entitled “Praxsyn Joining The Global Fight To Stop The Spread Of Corona Virus," which stated that it was negotiating for the sale of millions of N95 masks and "evaluating multiple orders and vetting various suppliers in order to guarantee a supply chain that can deliver millions of masks on a timely schedule." The SEC further alleged that, in March, Praxsyn issued another press release, entitled "Update: Praxsyn’s Coronavirus Mask Demand," which claimed that it had a large number of N95 masks on hand and had created a "direct pipeline from manufacturers and suppliers to buyers" of the masks. The SEC also said that Praxsyn's CEO was quoted in the release as telling any interested buyers that the company was accepting orders of a minimum of 100,000 masks.
The SEC charged that, despite these claims in its press releases, Praxsyn never had any masks in its possession, any orders for masks, or a single contract with any manufacturer or supplier to obtain masks. The SEC alleged that Praxsyn's press releases violated Section 10(b) of the Exchange Act and Rule 10b-5, which essentially prohibits, in connection with the purchase or sale of securities, both fraud and any untrue statements of material fact (or a failure to disclose material facts).
The SEC's enforcement action here is an important reminder to marketers that their public relations efforts can implicate more than just the laws governing advertising. While it's important to ensure that your claims in press releases, and other non-traditional advertising materials, are truthful and substantiated, as required by federal and state advertising and consumer protection laws, companies shouldn't forget that the securities laws may be implicated as well. This issue has also come up recently in social medial, with the SEC targeting actor Steven Seagal, music producer DJ Khaled and boxer Floyd Mayweather Jr. over social media posts promoting coin offerings.