The Deal: SEC Suspends Biozoom Trades After Ad Promotions

NEW YORK ( The Deal) -- The Securities and Exchange Commission said Tuesday, June 25, that it suspended trading of Biozoom Inc., a German-based company that purports to be developing a hand-held "biofeedback" device, after the stock was recommended in advertisements that had been purchased in the Sunday New York Times and on the Rush Limbaugh radio show.

The SEC said in its administrative order that it was taking action "due to a lack of current and accurate information concerning Biozoom" and because of concern that some Biozoom affiliates and shareholders may have "unjustifiably" relied upon Rule 144, the provision of the Securities Act that governs sales of restricted shares. Those shareholders, the company and others may be engaged in an unlawful distribution of shares through the OTC Markets QB platform, the SEC said.

OTC Markets is a market for stocks that aren't listed on the major U.S. exchanges. Its QB platform features shares of such companies that are current in their filings with the SEC.

Biozoom, which trades under the symbol BIZM, closed at $3.45 on June 24, implying a market capitalization of $206.1 million. The stock has almost tripled since May 22.

Biozoom went public in February, through a reverse merger with a registered shell company. At the time, it raised $1.15 million in a private placement of convertible preferred stock to an investor that the company did not identify.

Neither SEC officials nor representatives of Biozoom returned calls seeking comment.

An article recommending Biozoom shares took up most of the space in full-page ads that were published in the June 23 issue of the New York Times and the June 21 issue of USA Today. Both of the ads were packaged, not as promotions of the stock, but as advertisements for a magazine called Global Financial Insight and included subscription information for the magazine.

In the advertisement on the nationally syndicated Rush Limbaugh Show, Biozoom shares were mentioned as one of the top stock picks of a newsletter called TheStockReport.com.

Biozoom has also been featured in more common outlets for stock promotions, including e-mail newsletters and Web sites that recommend penny stocks. At least 13 e-mail newsletters have included recommendations for Biozoom, according to Hotstocked.com, a Web site that tracks stock promotions.

One of the promotions claimed that Biozoom's "hand held device for the non-invasive transdermal analysis of antioxidants and other biomarkers in the human body ... replaces expensive, time consuming and invasive blood tests."

"Future applications, future roll-out markets and applications are even more impressive," another newsletter stated. "Relevant biomarkers can and will be identified and analyzed for things such as cholesterol, alcohol, various illegal drugs, smoke, poisons, and blood pressure -- to name a few. The unit is being further developed to measure blood sugar levels, tapping into a staggering $220 billion a year diabetes market in the U.S. and 350 million people with diabetes around the world."

All of the Biozoom promotions documented by Hotstocked.com included an unusual legal disclaimer: They all stated that promotions were not paid for.

Legal disclaimers in penny stock newsletters often identify the companies that pay for stock promotions and sometimes provide details of the compensation, as is required under securities law.

Other times, e-mails that appear to be stock promotions include no disclosures.

The Global Financial Insight article, featured in the New York Times and USA Today ads, ran under the headline, "Innovative Technology Company Invents Real 'Star Trek' Medical Scanner that Diagnoses Patient Health in Seconds."

A call to Ryan Nelson, identified as the author of the Global Financial article on Biozoom, was not returned.

Biozoom, according to its Web site, is based in Kassel, Germany, and also has an office in Agoura Hills, Calif. The company claims its device will be used by consumers who, at the press of a button, will be able to gather data on their own health and send it to Biozoom computer servers for analysis, and access the information through the company's web portal. The device is currently capable of measuring antioxidant levels, stress levels and skin moisture, among other data, according to Biozoom.

The company said in a June 24 press release that it recently started manufacturing the scanners. "The first shipment of scanners is expected to arrive in September," Biozoom Chief Technology Officer Wolfgang Kocher said in the statement. "They will be used to extend our test marketing with key commercial, healthcare and governmental entities."

Biozoom said in a March filing with the SEC, which documented its reverse merger, that its device may be subject to review by the Food and Drug Administration. Clinical trials required by the FDA "may take an extensive period of time and would necessarily require significant capital outlays, which we have no commitments for at this time," the filing stated.

The filing disclosed that Biozoom has not had any commercial revenues for the 11 months ending Feb. 28. The company posted a loss of $36,405 for that period. Biozoom had a cash balance of zero, prior to its private placement financing. From the company's inception in June 2007, Biozoom had generated no revenue and a net loss of $187,592.

Written by Bill Meagher