Medical Technology President Charged With Covid-19 Testing Fraud

The president of a California medical technology company was charged in connection with alleged schemes to mislead investors, manipulate stock prices, and submit more than $69 million in fraudulent claims for testing for allergies and Covid-19, according to a complaint unsealed Tuesday.

Mark Schena, the president of Arrayit Corp., was charged with one count of securities fraud and one count of conspiracy to commit health care fraud. The charges against the executive represent the first criminal securities prosecution related to the ongoing pandemic, according to David L. Anderson, the U.S. Attorney for the Northern District of California.

Starting around 2018, Schena allegedly paid kickbacks and bribes to recruiters and doctors to run allergy testing on all patients, regardless of whether or not they needed it. During that same time, Schena is accused of making misrepresentations to potential investors about the company’s sales and financial situation.

Around March 2020, Schena and others allegedly began making false claims about Arrayit and its ability to provide accurate and inexpensive Covid-19 tests as a result of their work with allergen tests. Schena allegedly said the switch from allergy to Covid-19 testing was “like a pastry chef” switching from strawberry pies and rhubarb and strawberry.

Schena allegedly claimed Arriyit is the “only laboratory” in the world offering “microarray technology” to test for Covid-19 based on a drop of blood 250,000 times smaller than other technologies.

The misrepresentations led the stock price for the company to double in mid-March, despite the fact that there were questions about the validity of its Covid-19 test, federal prosecutors allege.

“The allure of cheap reliable alternatives to today’s standard blood tests panels has captured the imagination of the health care industry, making such alternatives a prime subject for fraudsters,” Anderson said in a Tuesday news release. “The scheme described in the complaint, in which the defendant allegedly leveraged this allure by appending the fear of the Covid 19 pandemic, amounts to a cynical multi-million dollar hoax.”

The alleged scheme also led to a lawsuit Tuesday by the Securities and Exchange Commission, which filed a complaint against penny-stock trader Jason C. Nielsen for an alleged pump-and-dump scheme in connection with Arrayit. Nielsen stands accused of making hundreds of misleading statements about the company, including that it had an “approved” Covid-19 test.

Counsel and contact information for Schena wasn’t immediately available on Tuesday. The government represents itself.

The cases are USA v. Schena, N.D. Cal., No. 5:20-mj-70721, complaint unsealed 6/9/20 and Securities and Exchange Commission v. Nielsen, N.D. Cal., No. 5:20-cv-03788, complaint 6/9/20.

For additional legal resources, visit Bloomberg Law In Focus: Coronavirus (Bloomberg Law Subscription).