Med-Tech Firm Updates Old Fraud Scheme for the COVID-19 Era
In the first case of securities fraud related to COVID-19 to be brought before a US court, prosecutors charged the president of a California-based medical technology company with defrauding investors, manipulating stock prices and submitting fraudulent claims for allergy and coronavirus testing from which he allegedly made US$69 million.
“As part of the scheme, Schena and others submitted or caused the submission of false and fraudulent allergy test claims to the Medicare Program that were procured by the payment of illegal kickbacks and bribes,” said the complaint.
“Schena and others at Arrayit transmitted email communications and marketing materials that misrepresented Arrayit’s ability to provide accurate, fast, reliable, and cheap COVID-19 tests,” it said.
Further, Arrayit pushed to have their medically unnecessary, but highly lucrative allergy tests bundled with their COVID-19 tests.
From 2018 to February 2020, Schena and others had allegedly paid recruiters and doctors to run an allergy screening test for 120 allergens, from stinging insects to food allergens, on every patient regardless of medical necessity, prosecutors claim.
The group also misinterpreted to potential investors Arrayit’s allergy test sales, financial condition, and its future prospects, the statement said.
The COVID-19 pandemic and the relief efforts which followed in its wake have led to a wave of fraud cases in the United States.
“The allure of cheap reliable alternatives to today’s standard blood tests panels has captured the imagination of the healthcare industry, making such alternatives a prime subject for fraudsters,” said U.S. Attorney David L. Anderson of the Northern District of California.
“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,” he said.
Arrayit’s lie was eerily familiar. According to the complaint the company said it’s test used “microarray technology” and could analyze drops of blood “which are 250,000 times smaller than the volume of the Theranos nanotainer.”
The nanotainer, which was famously touted by Theranos, a Medical technology company which for years made fantastical claims to investors about the device's ability to collect and analyze micro-blood samples - something that would have revolutionized medical testing.
Unfortunately the device never worked and Theranos leadership knew it, ultimately leading to the bankruptcy and shutdown of the company and the indictment of it’s leadership on fraud charges in 2018.
Nonetheless, Arrayit repackaged the lie for the COVID-19 era, making similarly fantastic claims about their new tests and their ability to move from allergy testing to COVID-19 testing.
“As the COVID-19 crisis began to escalate in March 2020, Schena and others made false claims concerning Arrayit’s ability to provide accurate, fast, reliable and cheap COVID-19 tests in compliance with state and federal regulations, and made numerous misrepresentations to potential investors about the COVID-19 tests and Arrayit’s future prospects for COVID-19 testing,” said the DOJ statement.
According to the complaint, in March Schena told investigators that the ability to switch over from allergy testing was like “‘a pastry chef’ who switches from selling ‘strawberry pies’ to selling ‘rhubarb and strawberry pies.’”