June 5, 2020
Authored by: Eric Rieder
Federal, state and local law enforcement and consumer protection agencies have been issuing alerts and investigating cases regarding efforts by fraudsters to exploit the coronavirus crisis for profit. The SEC is taking similar action, focused on the use of public securities markets to carry out fraud.
Since the onset of coronavirus, or COVID-19, the SEC has suspended trading in the stock of more than 30 companies in connection with coronavirus-related fraud, pursuant to its authority to suspend trading temporarily where it believes that information about a company is unreliable or inaccurate.
And the SEC’s Enforcement Division in recent weeks has brought enforcement actions in several cases alleging fraudulent statements regarding coronavirus products designed to boost a company’s share price. The actions were brought against smaller companies issuing releases with false claims about products and services likely to be in high demand because of the pandemic, such as virus tests, hand sanitizer and masks. The statements are alleged to cause rapid increases in stock price and volume, and are alleged to violate section 10(b) of the Securities Exchange Act of 1934 and rule 10b-5.
The SEC’s latest coronavirus-related complaint, filed this week in the Southern District of Florida, involved a different fact pattern. It charged an investment adviser, E*Hedge Securities, Inc., and its CEO with violations of the Investment Advisers Act of 1940 for failure to produce books and records in the course of an SEC investment-adviser examination, and for failure to properly register under the Act. E*Hedge on March 22,