Nano Magic Inc. (NMGX)

[lucky, mydog]

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
ADMINISTRATIVE PROCEEDING
File No. 3-19787
In the Matter of
Nano Magic Inc.,
Respondent
INFORMATION BEFORE THE COMMISSION
AT THE TIME OF THE TRADING SUSPENSION
Pursuant to the Commission’s Order Requesting Additional Written Submissions issued
May 8, 2020 (“Order”), the Division of Enforcement has attached the Declaration of Cecilia B.
Connor, dated May 14, 2020, setting forth the substantive facts before the Commission at the
time it issued the order suspending trading in Nano Magic Inc. securities on April 30, 2020.
Pursuant to footnote 5 of the Order, the Declaration does not disclose privileged analysis or
sensitive information about the staff’s investigation methods. The Division additionally is not
filing information the disclosure of which would otherwise violate applicable federal law or
regulations.
Respectfully submitted,
DIVISION OF ENFORCEMENT
By its Attorneys:
Cecilia B. Connor
Kingdon Kase
Christopher R. Kelly
Jennifer C. Barry
Securities and Exchange Commission
1617 JFK Boulevard, Suite 520
Philadelphia, PA 19103
Dated: May 14, 2020
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UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION
In the Matter of
Nano Magic Inc., Administrative Proceeding
File No. 3-19787
DECLARATION OF CECILIA B. CONNOR
I, CECILIA B. CONNOR, declare pursuant to 28 U.S.C. § 1746 as follows:
1. I am Counsel with the United States Securities and Exchange Commission
(“Commission”) and have been employed by the Commission as an attorney in the Division
of Enforcement (“Division”) since 2016.
2. I submit this Declaration in compliance with the Commission’s May 8, 2020
Order Requesting Additional Written Submissions (“Order”) ordering that the Division of
Enforcement file all information that was before the Commission as of April 30, 2020, the
date the Commission ordered a suspension of trading in the securities of Nano Magic Inc.
(“NMGX” or the “company”). Paragraphs 4 through 27 below set forth the information that
was before the Commission as of April 30, 2020 with respect to the suspension of trading in
the securities of NMGX.
3. Pursuant to footnote 5 of the Order, the Division is not filing information
which would disclose privileged legal analysis or sensitive information about the staff of the
Division’s investigative methods. The Division additionally is not filing information the
disclosure of which would otherwise violate applicable federal law or regulations.
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A. Background
4. NMGX is a Delaware corporation incorporated in 2014 with its principal
executive offices located in Bloomfield Hills, Michigan. NMGX was originally incorporated
in 2014 under the name Applied Nanotech Holdings, Inc. On September 3, 2014, the
company merged with Nanofilm, Ltd. (“Nanofilm”) and changed its name to PEN, Inc.
(“PENC”). Nanofilm was founded in 1985 by PENC’s former CEO, Scott Rickert. On
January 26, 2016, NMGX effected a 1-for-180 reverse split of its issued and outstanding
shares of common stock. On October 18, 2018, NMGX’s current CEO, Tom Berman,
replaced Scott Rickert as President of the company and, on April 3, 2019, Berman was
elected to the position of CEO.
5. On March 2, 2020, NMGX’s Board of Directors adopted an amendment to its
certificate of incorporation, changing its name from PEN, Inc. to Nano Magic Inc., in order
“to better convey our business and products to investors and customers.” On April 7, 2020,
the company announced the name change and a change in ticker symbol to NMGX, as well
as a rebrand and new product line.
6. According to the OTC Markets Group Inc.’s website, NMGX purports to be
“a global leader in developing, commercializing and marketing enhanced-performance
products enabled by nanotechnology.” As stated in NMGX’s most recent Form 10-K, filed
on November 13, 2019 for the fiscal year ended December 31, 2018, the company’s
“[r]evenue is based on the retail and institutional sale of specialty products, sold as liquids,
gels, foam, and towelettes, utilizing nanotechnology to deliver unique performance attributes
. . . .”
7. As of April 21, 2020, NMGX had more than 7 million shares outstanding, and
its market capitalization on April 22, 2020, was over $12.9 million. NMGX’s latest financial
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statements were included in a Form 10-Q filed with the Commission on January 14, 2020 for
the period ended September 30, 2019, reporting: cash of $110,692, total assets of $1,254,697,
liabilities of $ 1,793,616, revenue of $518,351, and a net loss of $232,875.
8. NMGX has a class of securities registered under Section 12 of the Securities
Exchange Act of 1934 (“Exchange Act”) and is quoted on OTC Link (previously “Pink
Sheets”), operated by OTC Markets Group Inc., under the ticker symbol NMGX.
9. As of April 27, 2020, NMGX’s common stock had seven market makers and
was eligible for the “piggyback” exception of Exchange Act Rule 15c2-11(f)(3).
B. Promotional Activity Discussing NMGX and the Coronavirus
10. Between at least February 24, 2020 and April 14, 2020, accounts on
Twitter.com (“Twitter”) and InvestorsHub.com (“InvestorsHub”) posted approximately 60
promotional messages, many authored by the same users, discussing NMGX in connection
with coronavirus and claiming, among other things, that NMGX holds a patent for a product
that kills human coronavirus. The posts implied that the company’s product was capable of
killing the virus that causes COVID-19. Examples of these posts include:
• On February 24, 2020, InvestorsHub user luke424 posted, among several other
similar posts in the following days, “PENC [the prior ticker symbol for NMGX] has a
patent that kills Coronavirus 99.99% of the time.”
• On February 28, 2020, InvestorsHub user BJ_Cooper posted, “I truly believe that the
Corona Virus patent is just the tip of the iceberg. It’ll be interesting to see what else is
in the works.” InvestorsHub user BJ_Cooper posted at least nine promotional posts
regarding NMGX between February and April 2020.
• On February 29, 2020, Twitter user @t4kingoff posted, “$PENC On 10/15/19 patent
approved for disinfectant that kills #coronavirus 99.9% of time and many other nasty
things.” This user was the author of numerous posts promoting NMGX on both
Twitter and InvestorsHub between February and April 2020.
• On March 1, 2020, Twitter user @JoeDTrader posted, “What?! $PENC already have
the solution to kill the Corona Virus since 2015?! All governments should get a hold
of this company ASAP! #CoronaVirusUpdate.”
• On March 2, 2020, Twitter user Dream85705614 posted, “$PENC 780k float
#coronavirus play. People are starting to find it.”
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• On March 8, 2020, Twitter user @holdingprofits posted, “$PENC don’t sleep on this
#CoronavirusOutbreak stock. PENC has . . . patent to kill virus in 10 minutes on
public transportation systems.” User @holdingprofits was the author of at least six
promotional posts regarding NMGX during February and March 2020.
• On March 29, 2020, Twitter user Auggie20010 posted, “CORONAVIRUS UPDATE:
US SCIENTISTS FROM $PENC ALREADY found the NANOMATERIAL that
kills the VIRUS in 10 MINUTES on a surface for up to 5 DAYS. PATENTED
10/2019.” Auggie2010 was the author of six additional posts on InvestorsHub in
March 2020, promoting NMGX as a lucrative investment.
11. In total, between February 14 and April 24, 2020 there were over 450 posts on
the InvestorsHub message board, with additional posts on Twitter, promoting NMGX
generally and discussing whether to purchase NMGX stock. This message board activity is a
significant increase from previous periods. During the entire year of 2019, the InvestorsHub
message board contained only nine posts discussing PENC (now known as NMGX).
12. Although NMGX’s predecessor company, PEN, Inc., was assigned a patent on
October 15, 2019 for “[d]isinfectant material comprising a copper halide salt and surfactant”
(“NMGX Patent”), neither copper halide salt nor surfactant are ingredients approved by the
Environmental Protection Agency (“EPA”) for use against SARS-CoV-2,
1 and the patent
contains no claims regarding COVID-19.
13. Additionally, although an experimental test of the disinfectant covered by the
NMGX Patent conducted in approximately 2015 apparently resulted in a 99.99% reduction in
the Human Coronavirus 229E, this type of coronavirus is distinctly different from SARSCoV-2, the virus that causes COVID-19. Human Coronavirus 229E is a common type of
coronavirus that causes mild to moderate illnesses such as the common cold, and the Centers
1 The EPA’s list of disinfectants approved for use against SARS-CoV-2 is available at
https://www.epa.gov/pesticide-registration/list-n-disinfectants-use-against-sars-cov-2.
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for Disease Control and Prevention recently stated that it “should not be confused with
coronavirus disease 2019”2 [emphasis in original].
14. As of April 30, 2020, NMGX had not disavowed the promotional activity
concerning its patent.
C. NMGX Press Release and an Interview With NMGX
15. On April 7, 2020, NMGX issued a press release titled “Nano Magic Inc.,
Formerly PEN Inc., Announces New Name, New Trading Symbol, Rebrand, and New
Product Line Coming Soon.” According to the press release, “The Company is preparing for
the launch of their new Nano Magic-branded product line that will include lens care,
electronic device screen cleaning and protection, sport and safety anti-fog solutions, auto
windshield cleaning and protection, as well as household surface cleaning and protectant
solutions.” Furthermore the press release states: “In fact, Berman [CEO of NMGX] was
excited to share that they are eager to join the Covid-19 fight.” Prior to this press release, the
company last issued a press release on October 28, 2018.
16. The press release provided no specific information as to how NMGX planned
to “join the Covid-19 fight,” and, as of April 30, 2020, the company had made no subsequent
claims regarding any COVID-19 related products or business activities. Nor was there any
mention of either COVID-19 or the Human Coronavirus 229E disinfectant on the company’s
website.
17. On April 14, 2020, FINRA’s Office of Fraud Detection and Market
Intelligence sent written questions to the company in which FINRA inquired about the
promotion of NGMX.
2 Centers for Disease Control and Prevention – Common Human Coronaviruses,
https://www.cdc.gov/coronavirus/general-information.html.
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18. On April 24, 2020, Kingdon Kase, Assistant Regional Director, and I (the
“Division’s staff”) conducted a telephonic interview with Berman, NMGX’s CEO, and its
General Counsel, Jeanne Rickert, both of whom stated that they were not aware of any
promotional activity involving NMGX in the past two months, including any claims related
to COVID-19.
19. While Berman referenced the NMGX Patent in the April 24, 2020 interview,
he acknowledged that the disinfectant covered by the NMGX Patent was never tested with
respect to SARS-CoV-2, the virus that causes COVID-19. Berman stated that NMGX is
attempting to re-register the product with the additional ingredient of povidone-iodine.
However, he acknowledged that additional testing is needed to determine whether the
product can be used against SARS-CoV-2, although he appeared unfamiliar with the EPA’s
testing processes and did not know what testing would be required to establish the approved
uses for the re-registered product. Berman stated that he did not believe that povidone-iodine
was currently approved to treat the human coronavirus. In fact, povidone-iodine is not
currently an ingredient approved by the EPA for any use, let alone use against human
coronavirus or SARS-CoV-2.
20. Berman also stated that he used the phrase “eager to join the Covid-19 fight”
in the April 7, 2020 press release because NMGX is “trying to sell cleaning products to
ultimately provide cleaner surfaces to hopefully rid dirt and grime and nastiness from
people’s lives.” Berman stated that NMGX “would love to be able to develop a product to
join the COVID-19 fight,” but acknowledged that, at the present time, NMGX had no
specific plan to do so, other than its attempts to re-register the NMGX Patent with povidoneiodine, an additional ingredient that is not approved by the EPA for any use, let alone to fight
the human coronavirus or SARS-CoV-2.
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21. Following this interview of Berman, Mr. Kase and I spoke with the product
manager at the EPA’s Office of Pesticide (“EPA Product Manager”) who had previously
communicated with Berman regarding re-registration of NMGX’s disinfectant product with
the additional ingredient of povidone-iodine. The EPA Product Manager confirmed that
povidone iodine is not currently registered with the EPA, and thus any review of a product
containing this ingredient would be a de novo review, rather than a re-registration.
According to the EPA Product Manager, such a review is a lengthy, complex, and costly
process involving many studies to demonstrate, among other things, the toxicity of the new
active ingredient, and takes an average of approximately two years.
D. NMGX’s Stock Price and Trading Volume
22. In the three months prior to February 24, 2020, NMGX’s closing share price
fluctuated between $0.55 and $0.83 with an average closing price of $.66 and an average
daily trading volume of 1,626 shares. On 63% of the trading days during this time period,
trading volume in NMGX securities was less than 500 shares. Between February 26 and
March 8, 2020, during just the first two weeks of the promotional activity, NMGX’s share
price more than doubled, from a closing price of $0.67 per share to a closing price of $1.45
per share. NMGX’s closing share price spiked during this period on March 2, 2020, the day
after the Tweet by @JoeDTrader stating that PEN Inc. has had “the solution to kill the
Corona Virus [sic] since 2015,” to a closing share price of $2.10, a 256% increase from its
closing share price on the day before the commencement of the promotional activity. During
this time period, NMGX’s average trading volume also increased 770% from the previous
three months to an average daily volume of 12,522 shares, and its average closing share price
increased 218% from the previous three months to an average closing share price of $1.44.
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23. The closing share price of NMGX continued to fluctuate between $0.95 and
$2.24 from March 9 until the issuance of the April 7, 2020 press release, with an average
closing share price of $1.43 and an average daily trading volume of 4,677, an increase of
287% from the average daily trading volume in the three months preceding the start of the
promotional activity. Following the issuance of the April 7, 2020 press release, the closing
share price of NMGX steadily increased each day from $1.20 to $2.40 as of April 24, 2020, a
292% increase from the closing price on the day before the commencement of the
promotional activity. NMGX’s trading volume fluctuated, but, as of April 24, 2020,
remained significantly higher than the stock’s average daily trading volume prior to the
commencement of the promotional activity, with an average daily trading volume that was
239% higher than the average daily trading volume in the three months prior to February 24,
2020.
E. NMGX’s March 2020 Capital Raise
24. During the April 24, 2020 interview by the Division’s staff, Berman stated
that his main goal as CEO is to help NMGX get out of debt. When asked how he planned to
accomplish that goal, Berman replied that he was working on negotiating payment plans and
increasing sales for the company in order to ultimately make the company more profitable.
After the Division staff asked Berman whether NMGX had recently made any efforts to
obtain financing from investors, he revealed that NMGX had conducted two private capital
raises, the first of which concluded in June 2019 and the second in March 2020, while the
promotional activity described above was ongoing.
25. No brokers or underwriters were involved in either raise and NMGX did not
file a Form D with respect to either raise. Specifically, Berman stated that NMGX
raised $540,000 and $25,000 on March 24 and 26, 2020, respectively. Berman also stated that it may be necessary for
NMGX to raise additional funds through private offerings.
26. The following chart reflects the dates of certain of the events discussed above in relation to NMGX’s
closing price and trading volume during this time period:
NMGX’s Closing Price and Trading Volume Between January 2, 2020 and April 24, 2020
Source: Bloomberg
NMGX press release and capital raise activity, and examples of promotional activity:
1. February 24, 2020: The beginning of the promotional activity. InvestorsHub user luke424 posts, “PENC
has a patent that kills Coronavirus 99.99% of the time.”
2. February 29, 2020: Twitter user @t4kingoff posted, $PENC On 10/15/19 patent approved for disinfectant
that kills #coronavirus 99.9% of time . . .
3. March 1, 2020: Twitter user @JoeDTrader posts, “What?! $PENC already have the solution to kill the
Corona Virus since 2015?!”
4. March 2, 2020: Twitter user Dream85705614 posts, “$PENC 780k float #coronavirus play. People are
starting to find it.”
5. March 8, 2020: Twitter user @holdingprofits posts, “PENC has government contracts and patent to kill
virus in 10 minutes on public transportation systems.”
6. March 24, 2020: NMGX raises $540,000 in a private offering.
7. March 26, 2020: NMGX raises $25,000 in a private offering.
8. March 29, 2020: Twitter user Auggie20010 posts, “CORONAVIRUS UPDATE: US SCIENTISTS FROM
$PENC ALREADY found the NANOMATERIAL that kills the VIRUS in 10 MINUTES on a surface for
up to 5 DAYS. PATENTED 10/2019.”
9. April 7, 2020: NMGX press release announcing the name/ ticker change and that the issuer is “eager to
join the Covid-19 fight.”
27. In the April 24, 2020 interview by the Division’s staff, Berman stated that,
while he was generally aware that the price of NMGX stock increased over the past two
months, he was “not focused on the stock price” and did not know the reason for the increase
in price.
I declare under penalty of perjury under the laws of the United States of America that
the foregoing is true and correct.
Executed this 14th day of May, 2020 in Haddonfield, New Jersey.

CECILIA B. CONNOR
STATEMENT OF FILING BY EMAIL
I hereby certify that, on this 14th day of May, 2020, with respect to In the Matter of Nano
Magic Inc., Administrative Proceeding File No. 3-19787, I caused a true and correct copy of the
foregoing Information Before the Commission at the Time of the Trading Suspension and
Declaration of Cecilia B. Connor to be filed via email with the Office of the Secretary of the U.S.
Securities and Exchange Commission pursuant to the SEC’s March 8, 2020, Order in In re
Pending Administrative Proceedings. The filing was sent to the email address:
[e-mail].
Cecilia B. Connor
Kingdon Kase
Christopher R. Kelly
Jennifer C. Barry
Securities and Exchange Commission
Division of Enforcement
Philadelphia Regional Office
One Penn Center
1617 JFK Blvd., Suite 520
Philadelphia, PA 1910
Tel: [phone]
Fax: [phone]
[e-mail]
[e-mail]
[e-mail]
[e-mail]
Counsel for the Division of Enforcement
CERTIFICATE OF SERVICE
I hereby certify that, on this 14th day of May, 2020, with respect to In the Matter of Nano
Magic Inc., Administrative Proceeding File No. 3-19787, I caused a true and correct copy of the
foregoing Information Before the Commission at the Time of the Trading Suspension and
Declaration of Cecilia B. Connor (together with the accompanying Statement of Filing by Email)
to be served upon the following by email:
Jacob S. Frenkel
Dickinson Wright PLLC
International Square Building
1825 I St., N.W., Suite 900
Washington, DC 20006
E-mail: [e-mail]

Cecilia B. Connor
Kingdon Kase
Christopher R. Kelly
Jennifer C. Barry
Securities and Exchange Commission
Division of Enforcement
Philadelphia Regional Office
One Penn Center
1617 JFK Blvd., Suite 520
Philadelphia, PA 1910
Tel: [phone]
Fax: [phone]
[e-mail]
[e-mail]
[e-mail]
[e-mail]
Counsel for the Division of Enforcement.

https://www.sec.gov/litigation/apdocuments/3-19787-event-2020-05-15-information-before-the-commission-at-the-time-of-the-trading-suspension.pdf