SEC’s MyNyloxin lawsuit survives motion to dismiss
The SEC’s lawsuit against Nutra Pharma Corporation and CEO Erik Deitsch, has survived a Motion to Dismiss.
Some of the defenses raised in the motion however were upheld.
As part of their lawsuit, the SEC alleged Deitsch published press-releases with bogus info.
The press-releases were published pursuant to consultancy agreements with Wall Street Buy, New Vitality and SeeThruEquity.
Nutra Pharma’s consultancy agreement with Wall Street Buy and founder Christopher Castaldo was
signed by Deitsch on Nutra Pharma’s behalf, required Nutra Pharma to pay Wall Street Buy $10,000 in cash plus five million shares of Nutra Pharma stock for each month of the three-month term and to issue a $30,000 note convertible to Nutra Pharma shares to Wall Street Buy.
Two press-releases drafted by Deitsch were published on Nutra Pharma’s website.
The press-releases featured Wall Street Buy and quotes from Castaldo. The consulting agreement was not disclosed.
The consulting agreement with New Vitality was made through MGRD, INc., a company controlled by Deitsch.
New Vitality engaged Deitsch as a consultant.
Pursuant to the agreement, Deitsch was a “Chief Science Officer and Formulator” and had to travel to New Vitality’s offices once per quarter.
New Vitality agreed to pay MGRD $7,000 per month and a percentage of gross receipts of certain New Vitality products.
In August 2013 Nutra Pharma
issued a press release announcing that New Vitality had placed its first order of Nutra Pharma’s Nyloxin product.
The release did not mention the agreement between Deitsch and New Vitality.
In June 2015,
Deitsch and the CEO of SeeThruEquity, an equity research firm, exchanged emails about a potential analyst report of Nutra Pharma stock.
The CEO emailed Deitsch about two pricing options offering “complimentary” reports.
Nutra Pharma paid SeeThruEquity $8,000 for one of the packages.
The reports were republished on Nutra Pharma’s website.
The release stated
SeeThruEquity’s “research is not paid for and is unbiased” and did not mention the financial arrangement between the companies.
The SEC alleged these press-releases ‘contain(ed) material misrepresentations – both false statements and misleading half-truths’, in violation of Section 17(b) of the Securities Act.
In their defense Nutra Pharma and Deitsch argued Section 17(b)
puts the onus on the promoter to disclose compensation it receives from a stock issuer.
This means that the onus was on Wall Street Buy New Vitality and SeeThruEquity to disclose the agreements.
The court found that the Wall Street Buy press-releases linked to videotaped interviews of Deitsch, which did in fact disclose compensation.
The SEC argued that wasn’t enough, and that the disclosures should of been in Nutra Pharma’s press-releases.
The court disagreed.
The releases did provide links to videos where Wall Street Buy sufficiently disclosed the arrangement and compensation between Nutra Pharma and Wall Street Buy.
While the better practice may have been for Defendants to include this information in the written press releases, the Court finds that its inclusion in the video interviews to be sufficient disclosure.
Consequently the SEC’s allegations with respect to the Wall Street Buy press-releases were dismissed.
The allegations with respect to the New Vitality and SeeThruEquity press-releases were upheld.
Nutra Pharma also tried to get allegations dismissed regarding misleading press-releases issued with respect to distribution in Canada, China and India.
The Court upheld the SEC’s allegations, on the basis
Nutra Pharma was held up in regulatory approvals in Canada, had no real plans to distribute in China or India, and did not have cobra farms.
The rest of Nutra Pharma’s and Deitsch’s motion to dismiss claims were denied.
Looking forward, the SEC has been directed to file a Second Amended Complaint. I believe this will be the same as the other complaints, sans the Wall Street Buy allegations.
We’ll continue to monitor the case docket for updates as the case progresses.
Update 11th April 2021 – On April 1st the SEC filed a motion for partial summary judgment.
Based on response scheduling, a decision on the motion is expected sometime after May 21st.
I’ll have an article up detailing the motion after the court issues a ruling.