As the Covid-19 pandemic continues to disseminate into the fall, the Securities Exchange Commission has heavily monitored a new realm of securities fraud: Covid-19 Scams. Since the beginning of the Covid-19 pandemic, several corporations have taken advantage of this situation and have issued false and misleading statements pertaining to Covid-19 related products and the impact of Covid-19 on their businesses. Also, fraudsters have used online investment platforms like Robinhood, TD Ameritrade, E-Trade and Fidelity to launder stolen Covid-19 relief funds intended for small businesses.

I. Enforcement Actions Concerning the Manufacture of Covid-19-Related Product

On June 9, 2020, the SEC alleged securities fraud and Securities Act claims against Neslon Gomes, Michael Luckhoo-Bouche and six other defendants alleged to have enabled the unlawful sale of shares of several companies, including one company that allegedly manufactured medical-quality face masks.[1] From January 2018 to the filing of the complaint, the SEC alleged in the complaint that Gomes, in conjunction with other defendants “facilitated stock dumps of shares of more than twenty penny stock companies” by “dominat[ing] the market for the issuer’s stock” and selling the stock without complying with SEC regulations requiring disclosure of stock sales by corporate control persons. These stock sales were accompanied by “promotional campaigns [that] included false and misleading information about the companies whose shares Gomes was selling, including false and misleading claims designed to fraudulently capitalize on the Covid-19 pandemic.”[2] Specifically, the complaint alleges such campaigns included false statements regarding company-owned kiosks, stating the “kiosks were a solution for retailers in response to the Covid-19 pandemic” when in fact, they “reported no revenue and reported that it only owned three kiosks when it filed its annual report . . . .”[3] This scheme purportedly generated more than $25 million in unlawful profits.

Corporations have also wrongfully used the Covid-19 pandemic to their advantage. On December 17, 2020, the filed suit against Decision Diagnostics Corporation and its president and CEO, Keith Berman.[4] The SEC alleged from March through at least June of 2020, Berman issued false and misleading press releases during which he portrayed the corporation as “having created a working, breakthrough technology that could accurately test for [Covid-19] using a finger-prick of blood and provide results in less than a minute.” Berman is also alleged to have made false statements about DECN’s efforts to obtain emergency use authorization from the FDA which was required before DECN could sell its tests in the United States. In fact, at the time Berman made these statements, the SEC has asserted the corporation had not manufactured a single test kit or prototype and Berman knew the corporation was unlikely to meet the FDA’s testing requirements.[5] Recently, the Southern District of New York has granted the Government’s motion to intervene in the case and stay all discovery until the conclusion of Mr. Berman’s parallel criminal case.[6]

II. Enforcement Actions Concerning the Impact of Statements Related to the Impact of Covid-19 on Businesses

Corporations have also made false assurances concerning their “health” amidst the pandemic. For example, on July 24, 2020, the SEC filed suit in Florida against Lisa McElhone and her husband, Joseph LaForte.[7] The complaint alleges the couple raised investor funds through unregistered securities offerings for Complete Business Solutions Group, Inc., which was doing business under the name “Par Funding.” According to the SEC, through Par Funding, McElhone and LaForte made “opportunistic loans, some of which charged more than 400% interest, to small businesses across America.”[8] The complaint also alleged an agent for Par Funding led investors to believe it would be futile to sue Par Funding after the company defaulted on promissory notes because of the financial impact of Covid-19 on its business, which led investors instead to agree on restructuring the payments. The agent, however, allegedly later stated the company was “post-Covid pretty healthy.”[9] Currently, the investigation is still ongoing.

III. Fraudsters Laundering Covid Relief Funds through Investment Platforms

Lastly, according to a CNBC article[10], tech-savvy fraudsters are stealing from the government’s Covid pandemic relief programs to help businesses find a more convenient way to launder money. Fraudsters are opening accounts with at least four online investment platforms such as Robinhood, TD Ameritrade, E-Trade and Fidelity.

These investment platforms are easy to dump money into by setting up accounts with stolen identities. More than $100 million in fraudulent funds have passed through investment accounts since Congress passed the CARES Act last March. Further, the government quickly rolled out the Payment Protection Program and the Economic Injury Disaster Loan last year to help small businesses. Both programs have been plagued with problems and an inspector general’s report issued last October blamed inadequate controls for billions of dollars in potential fraud. Money laundering expert Charles Intriago has estimated “more than $100 million has gone through these platforms.”[11]

Three of the investment platforms responded to a request to comment and have told CNBC they have strong anti-fraud protocols in place to verify account information and have been working with law enforcement on the issue. A Robinhood spokesperson said: “We are laser focused on preventing fraud before it happens and our fraud and security teams have been working with law enforcement to mitigate and address this industry-wide problem. Like other brokerages and financial institutions, Robinhood verifies new customer information across various data sources, and requires government-issued IDs as appropriate.”[12]

IV. Conclusion

The continuous pandemic has opened various doors for fraudulent behavior on behalf of both individuals and corporations. The SEC is trying its best to mitigate damages and pursue as many claims as possible, but only time will tell as to how far these entities will go.


[1] Complaint, SEC v. Gomes, No. 20-11092 (D. Mass. June 9, 2020), ECF No. 1,  https://www.sec.gov/litigation/complaints/2020/comp24839.pdf

[2] Id.

[3] Id.

[4] Complaint, SEC v. Berman, No. 20-10658 (LAP) (S.D.N.Y. Dec. 17, 2020), ECF No. 1, https://www.sec.gov/litigation/complaints/2020/comp-pr2020-327.pdf.

[5] Id.

[6] SEC v. Berman, 2021 WL 2895148, at *1 (S.D.N.Y. June 8, 2021).

[7] Complaint, SEC v. Complete Bus. Sol. Grp. Inc., No. 20-81205 (S.D. Fl. July 31, 2020), ECF No. 1, https://www.sec.gov/litigation/complaints/2020/comp24860.pdf.

[8] SEC Litigation Release No. 24860 (July 31, 2020), https://www.sec.gov/litigation/litreleases/2020/lr24860.htm.

[9] Complaint, SEC v. Complete Bus. Sol. Grp. Inc.

[10] Scott Zamost, Fraudsters Are Laundering Millions In Covid Relief Funds Through Online Investment Platforms CNBC (Mar. 29, 2021),https://www.cnbc.com/2021/03/29/fraudsters-launder-millions-through-online-investment-platforms-like-robinhood.html.

[11] Id.

[12] Id.