Does the SEC Have Sufficient Resources to Protect Investors in Connection with Relatively New, Smaller NASDAQ Companies?

  United States, California, Irvine - 04/25/2019

All is not always as it seems when it comes to investing in relatively new public companies.  Public companies are mandated to regularly release public filings and reports which oftentimes contain palms-up information about the company’s financials and noteworthy happenings, in order to keep public shareholders well informed. But what happens when those reports contain misrepresentations or conveniently leave out information shareholders may find pertinent? Does the SEC have enough resources or bandwidth to make sure a public company’s filings are on the up-and-up? 

Large established public companies have economic history, the eyes of many public and private interested parties and industry standards to monitor various information and reports issued by the company to keep the company in check. The SEC naturally focuses on these bigger fish, because they impact more investors. But even then, every so often, large public companies such as Enron Corporation are able to slip misinformation through the cracks to the eventual surprise of the public investors. 

If large established corporations can “get one over” on investors, what about newer, smaller public companies which are subject to many fewer factual oversights? One such example is ShiftPixy, Inc. – a California-based public technology company (NASDAQ: PIXY), which has been contracting with, but not paying, Kadima.Ventures, LLC – a Wyoming-based private development firm.

Case in point is the recent Form 10-Q and Q2 2019 Earnings Call, both filed by ShiftPixy, Inc. on April 15, 2019. Meant to inform and disclose pertinent information to shareholders, how accurate or truthful are these public releases? According to their website, ShiftPixy is touted as a technology company with a tech platform, budding with app images peppered throughout their website. 

On the Q2 2019 Earnings Call, ShiftPixy CEO Scott Absher talks about their technology platform with claims of almost 10,000 shifters (users) on their platform by the end of Q2 2019. Yet digging into Apple’s iOS App Store reveals the ShiftPixy app is nonexistent. Historical records show the ShiftPixy app was present in the iOS App Store with an initial release of August 1, 2017, a 2.0 app release on August 31, 2018, and a most recent release of 2.1.7 on March 20, 2019. However, remarkable for a public “technology company”, there is no longer any trace of the ShiftPixy app in the iOS App Store since April 4, 2019. In fact, the most recent iOS app store review dated March 30, 2019 by user 135rty tales how the user “…can’t even log in or create a new account because it [is] stuck on an infinite loading screen.” 

Corroborating version history in the Android Google Play store, even the iOS user’s claims of the app’s “infinite loading screen” were reproducible -- until the app also disappeared from the Google Play Store on April 22, 2019. Furthermore, using the Internet Archive: Wayback Machine to revisit “frozen in time” snapshots of ShiftPixy.com as recently as February 25, 2019, a seemingly user-focused “Login As Shifter” link has also disappeared as of late. The respective login site also fails to load. Yet no mention of the lack of available technology, missing or defunct user app(s), or missing user login websites is discussed or disclosed in the ShiftPixy April 2019 Form 10-Q nor the Q2 2019 Earnings Call. Who wants to hold investments in a technology company that shows no evidence of user-accessible technology? What exactly is going on? 

Further investigation into available reports within the recent ShiftPixy 10-Q filing contains an interesting section titled Kadima.Ventures. Within that section, it is disclosed that Kadima.Ventures is, in fact, ShiftPixy’s software developer since May 2016. Additionally, it reveals that something at ShiftPixy is awry with the software developer, but language leads the user to infer that ShiftPixy is “initiating litigation to force the delivery of the paid for software”, and that ShiftPixy “hopes to recover some of the funds spent with KadimaVentures for their failure to deliver.” However, investigation into what litigation actually exists at the time of this writing reveals a civil litigation suit filed on April 11, 2019 by software developer Kadima.Ventures as the plaintiff, claiming unpaid amounts in excess of $10,000,000 from defendant ShiftPixy, Inc.. No evidence exists that ShiftPixy has initiated litigation against Kadima.Ventures, as their public filing alludes. Why would ShiftPixy make it sound like the other way  around? 

Further conspicuous, in the Q2 2019 Earnings Call, ShiftPixy CEO Scott Absher claims that version 2.0 of their app will release by the end of April 2019. But historical logs in both prominent app stores demonstrate that version 2.0 of the ShiftPixy app already released to the public over seven months ago, and the latest version of their app release was 2.1.7. Is ShiftPixy hoping investors will forget about the historical releases of their technology and overlook that advertising a 2.0 release is actually a regression in technology versions? If ShiftPixy, Inc. is being sued by its software developer and software that was once available to the public has recently disappeared, been deleted, or exists but with “infinite loading screen” loops – evidencing possible suspension of services, does not that constitute important happenings that should have been disclosed to ShiftPixy’s public investors in recent quarterly filings?

Perhaps ShiftPixy is trying to confuse the public or underestimate the public’s ability to piece together publicly available facts. Who will hold a public company accountable for misleading shareholders? Why are shareholders not properly being informed of lawsuits against the company? How are public companies held responsible for the accuracy of information they share? And given the misleading information contained within – and left out of – ShiftPixy’s public filings, what recourse does a small business vendor like Kadima.Ventures have to publicly refute or expose ShiftPixy’s seemingly self-serving side of the story? When will the little guys – like small businesses and shareholder individuals – be the ones protected, or at least provided with an equal playing field?