The SEC and Shareholders Signal Aggressive Litigation for Alleged COVID-19-Related Fraud

Alerts / May 4, 2020

Since the onset of the global COVID-19 pandemic, the U.S. Securities and Exchange Commission (SEC or Commission) has been issuing guidance to assist public companies with their disclosure obligations related to coronavirus impact,[1] warnings against would-be bad actors from exploiting the pandemic,[2] and investor alerts[3] on potential frauds related to COVID-19. The SEC has also been actively monitoring the marketplace for fraudulent conduct related to COVID-19, and, as we previously reported,[4] the crisis raises enforcement and litigation risks for disclosures by public issuers. To date, the SEC has issued 25 trading suspensions and on April 28, announced its first COVID-19-related enforcement action.

The plaintiffs’ bar has also jumped into the fray, commencing a number of proposed class actions against issuers and individuals related to COVID-19 disclosures. The combination of an aggressive plaintiffs’ bar and a vigilant SEC requires issuers to be cautious when potentially making market-moving disclosures concerning the COVID-19 crisis.

Trading Suspensions

Since early February, the Commission has issued 25 trading suspensions in connection with the coronavirus. More than 80% of these suspensions occurred in April and run the gamut of disclosures including the distribution of personal protective equipment,[5] virus treatments[6] and 15-second rapid test kits.[7]

The SEC’s First COVID-19 Enforcement Action
  • SEC v. Praxsyn Corp.: Following a trading suspension in March, on April 28, the SEC announced charges against Praxsyn Corp. (“Praxsyn”) and its CEO, Frank J. Brady,[8] for allegedly issuing false and misleading press releases claiming the company could acquire and supply large quantities of N95 or similar masks.[9] In its Complaint for Injunctive and Other Relief, the SEC alleges Praxsyn violated the Securities Exchange Act, including Sections 10(b) and 10b-5, by issuing press releases that “were blatantly false” – the company never received an order from buyers to purchase masks, nor was it in contact with manufacturers or suppliers to obtain masks.[10] The SEC seeks injunctive relief and civil penalties against both defendants, and an officer-and-director bar against Mr. Brady.[11]
COVID-19 Class Actions

As we previously reported, while the SEC stated that it will not take action against “good faith attempts to make appropriately framed forward-looking information,” we warned that companies should nevertheless be mindful that nothing prohibits stockholders from bringing actions against companies for their COVID-19-related disclosures and forward-looking statements.[12] As predicted, several public companies face class action claims by shareholders regarding statements and omissions related to the impact of COVID-19 on their operations and performance. Cases filed to date include:

  • Yannes v. SCWorx Corp.: Alleges SCWorx and its CEO made misleading disclosures concerning the procurement and sale of rapid testing kits.[13] The class action follows an SEC trading suspension of the issuer’s stock.[14]
  • Drieu v. Zoom Video Communications, Inc.; Brams v. Zoom Video Communications, Inc.: Allege federal securities law claims based on Zoom allegedly having inadequate security and privacy measures, which were revealed due to Zoom’s increased use during the pandemic.[15]
  • Douglas v. Norwegian Cruise Lines; Atachbarian v. Norwegian Cruise Lines et al.: Allege federal securities law claims based on allegedly false and misleading statements that were averred to have minimized the health crisis and its impact on the company’s business.[16]
  • McDermid v. Inovio Pharmaceuticals, Inc.: Alleges federal securities law claims based on allegedly false and misleading statements regarding the development of a COVID-19 vaccine.[17]

The SEC will undoubtedly continue to issue trading suspensions and use its enforcement tools to prosecute securities law violations. Shareholders have shown that they will not wait for the Commission to act on their behalf, but will bring their own private litigation for alleged wrongdoing.

Companies should continue to follow the SEC’s guidance on their COVID-19 disclosure obligations[18] and avail themselves of safe harbors related to forward-looking statements. As demonstrated by Gilead Sciences, Inc.’s recent disclosures concerning the apparent success of one of its drugs in treating COVID-19, the market is hungry for any information, whether it pertains to treatments for the virus, testing or its effects on an issuer’s business operations. Because such information will likely have an immediate market impact, positive or negative, issuers can expect these disclosures to receive heightened scrutiny from the SEC and plaintiffs’ bar. While the SEC has indicated that it will not pursue forward-looking disclosures made in good faith, issuers should not expect the same forbearance from shareholders.

Authorship Credit: Teresa Goody Guillén, Jimmy Fokas, and Michelle N. Tanney

[1] Teresa Goody Guillén, John J. Harrington, Janet A. Spreen, and Michelle N. Tanney, SEC Provides Guidance Regarding COVID-19 Disclosures, BakerHostetler (March 30, 2020), available at
[2] John J. Carney, Jimmy Fokas, and Bari R. Nadworny, SEC Watching for Bad Actors and Preserving Market Integrity During Challenging Times Caused by COVID-19, BakerHostetler (March 27, 2020), available at
[3] Investor Alerts and Bulletins, U.S. Sec. & Exch. Comm’n, Frauds Targeting Main Street Investors – Investor Alert (April 10, 2020; updated April 28, 2020), available at
[4] John J. Carney, Jimmy Fokas, John J. Harrington, Bari R. Nadworny, and Janet A. Spreen, COVID-19 Crisis Raises Enforcement and Litigation Risks for Disclosures by Public Issuers, BakerHostetler (April 7, 2020), available at
[5] See, e.g., In the Matter of No Borders, Inc. File No. 500-1, Order of Suspension of Trading (April 3, 2020), available at (suspension of trading due to questions regarding accuracy of public statements regarding COVID-19 specimen collection kits, an agreement to bring COVID-19 test kits to the U.S. and activities related to the distribution of personal protective equipment).
[6] See, e.g., In the Matter of Roadman Investments Corp., File No. 500-1, Order of Suspension of Trading (April 10, 2020), available at (suspension of trading because of information in at least 12 news releases regarding commercialization of cedar leaf oil as a promising treatment for COVID-19).
[7] See, e.g., In the Matter of Decision Diagnostics Corp., File No. 500-1, Order of Suspension of Trading (April 23, 2020), available at (suspension of trading due to questions regarding accuracy of press releases in which company claimed to have perfected technology to allow it to manufacture and sell COVID-19 test kits that could provide rapid test results).
[8] Press Release, U.S. Sec. & Exch. Comm’n, SEC Charges Company and CEO for COVID-19 Scam, Rel. No. 2020-97 (April 28, 2020), available at
[9] On March 26, 2020, the SEC issued an order temporarily suspending trading in the securities of Praxsyn. See In the Matter of Praxsyn Corp., File No. 500-1, Order of Suspension of Trading, available at
[10] SEC v. Praxsyn Corp. et al., Case No 20-cv-80706 (S.D. Fla. April 28, 2020), available at
[11] Id.
[12] Teresa Goody Guillén, Janet A. Spreen, and Charlotte W. Pasiadis, SEC’s Chairman Clayton and Director Hinman Issue Statement on Disclosure During COVID-19, BakerHostetler (April 10, 2020), available
[13] Yannes v. SCWorx Corp., Dkt. 20-cv-03349 (S.D.N.Y. April 29, 2020), available at
[14] In the Matter of SCWorx Corp., File No. 500-1, Order of Suspension of Trading (April 21, 2020), available at
[15] Drieu v. Zoom Video Communications Inc., No. 20-cv-02353 (N.D. Cal. April 7, 2020), available at; Brams v. Zoom Video Communications Inc., No. 20-cv-02396 (N.D. Cal. April 8, 2020), available at
[16] Douglas v. Norwegian Cruise Lines, No. 20-cv-21107 (S.D. Fla. March 12, 2020), available at; Atachbarian v. Norwegian Cruise Lines et al., No. 1:20-cv-21386 (S.D. Fla. March 31, 2020), available at
[17] McDermid v. Inovio Pharmaceuticals Inc., No. 20-cv-01402 (E.D. Pa. March 12, 2020), available at
[18] See supra notes 1, 13; see also Teresa Goody Guillén and Kate Johnston, SEC’s Office of the Chief Accountant Issues a Statement on Financial Reporting in COVID-19 Environment, BakerHostetler (April 8, 2020), available at; John M. Gherlein and Janet A. Spreen, COVID-19: Public and Private Disclosures and Other Securities Issues, BakerHostetler (March 19, 2020), available at

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