Nano Magic Challenges SEC Move -- WSJ
This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (June 5, 2020).
The U.S. Securities and Exchange Commission has been cracking down on companies that make dubious claims about how they can help fight the coronavirus pandemic. Now, one technology company says the regulator went too far.
Nano Magic Inc. (NMGX), a maker of lens care, anti-fog and electronic device protection products, has mounted a novel challenge to an SEC decision on April 30 to temporarily freeze its stock over online claims that a disinfectant the company held a patent for could "kill" the novel coronavirus.
The claims, posted on Twitter and the online message board InvestorHub, caused the micro cap company's share price to spike. But Nano Magic(NMGX) says it wasn't associated with the authors of the posts and wasn't responsible for the allegedly misleading claims. The Bloomfield Hills, Mich.-based company says it wasn't even aware of the online activity until it was contacted by the SEC a week before the suspension order.
While the trading suspension expired on May 14, reputational damage from the SEC's action has jeopardized potential relationships with customers and retailers that Nano Magic(NMGX) hoped would sell its products, the company said in a May 7 petition to the agency to terminate the suspension.
In a response to Nano Magic(NMGX), the SEC said the company was asking it to ignore what appeared to be a coordinated campaign to manipulate Nano Magic's(NMGX) share price. The company's claim that it was unaware of the source of the message board posts was irrelevant, the regulator said.
The SEC has also accused Nano Magic's(NMGX) executives of making matters worse by publishing a press release on April 7 with a statement from its chief executive saying the company was "eager to join the Covid-19 fight."
The statement by CEO Tom Berman was true and didn't justify a trading suspension, Nano Magic(NMGX) contends.
The conflict over the stock-freeze has escalated into an unexpected challenge to the SEC's power to suspend trading in a public company if it believes market manipulation is afoot. SEC officials have spotlighted their emergency suspensions as an important tool in the fight against coronavirus-related fraud.
The agency has issued more than 30 suspensions in an effort to protect investors from false and misleading claims about products or services that could help consumers weather the pandemic, SEC enforcement co-director Steven Peikin said in a speech last month.
Nano Magic (NMGX) has likened its suspension to a corporate death sentence and has accused the SEC of issuing its freeze without first obtaining all the facts. In its case, the use of such a drastic remedy was a mistake, Nano Magic(NMGX) has argued in its filings with the agency.
Nano Magic (NMGX) is listed on OTC Link, an exchange viewed as an alternative trading platform for businesses that don't meet the minimum listing requirements of larger national exchanges such as the Nasdaq or the New York Stock Exchange.
Nano Magic's (NMGX) stock has yet to resume trading despite the expiration of the suspension order, and the company has asked the SEC's commissioners to vacate the order and take steps to mitigate the damage it claims was done to its business.
An SEC spokesman declined to comment further.
"We are confident that we have put a very compelling record in front of the SEC and are hopeful for a quick and favorable resolution," Nano Magic's(NMGX) lawyer, Jacob Frenkel of Dickinson Wright PLLC, said.
Write to Dylan Tokar at dylan.tokar@wsj.com
(END) Dow Jones Newswires
06-05-200232ET
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