A federal jury convicted the president of a medtech company — Arrayit — accused of participating in a scheme to mislead investors over COVID-19 tests.
In June 2020, the U.S. Department of Justice (DOJ) charged Arrayit president March Schena for alleged involvement with fraudulent claims for allergy and COVID-19 testing. The charges alleged a scheme to mislead investors, commit health care fraud, and pay illegal kickbacks in connection with the submission of over $77 million in false and fraudulent claims for COVID-19 and allergy testing.
Schena, 59, engaged in a scheme to defraud Arrayit’s investors, according to court documents and evidence presented at trial. He allegedly claimed he invented revolutionary technology to test for virtually any disease using just a few drops of blood.
In a 2020 affidavit in support of the claim, Schena claimed that Sunnyvale, Calif–-based Arrayit was the only laboratory in the world offering microarray technology that can test for allergy and COVID-19 based on a drop of blood 250,000 times smaller than technology boasted by Theranos and Elizabeth Holmes, who was eventually found guilty on fraud charges.
According to a DOJ news release, Schena and a publicist claimed he was the “father of microarray technology” in meetings with investors. Additionally, he falsely stated that he was on the shortlist for the Nobel Prize. Evidence presented showed that Schena falsely represented Arrayit’s value. He told investors that Arrayit could be valued at $4.5 billion based on purported revenues of $80 million per year.
Evidence then showed that Schena failed to release Arrayit’s SEC-required financial disclosures. In doing so, he concealed that the company was on the verge of bankruptcy. Concerned investors were invited to private meetings and thrown off by false press releases and tweets saying Arrayit entered into lucrative partnerships, DOJ said.
The partnerships included companies, government agencies and public institutions. No such agreements existed or they were of minimal value, DOJ said.
Schena also orchestrated a kickback and healthcare fraud scheme, the DOJ release said. It involved submitting fraudulent claims to Medicare and private insurance for unnecessary allergy testing.
Arrayit ran allergy screening tests on every patient for 120 different allergens (ranging from hornet stings to codfish) regardless of medical necessity. To obtain blood specimens, Schena paid kickbacks to marketers in violation of the Eliminating Kickbacks in Recovery Act.
He went on to claim that the Arrayit test was highly accurate in diagnosing allergies. It was not a diagnostic test, DOJ said. Arrayit billed more per patient to Medicare for blood-based allergy testing than any other laboratory in the U.S., evidence demonstrated, and billed some commercial insurers over $10,000 per test.
Once the COVID-19 pandemic came to the fore in the spring of 2020, Schena and others allegedly claimed Arrayit could provide accurate, fast, reliable and cheap COVID-19 tests in compliance with regulations and made misrepresentations to potential investors about the test and the company’s prospects in that testing space. The scheme falsely claimed that prominent government officials, including Dr. Anthony Fauci, had mandated testing for COVID-19 and allergies at the same time and required that patients receiving the Arrayit COVID-19 test also be tested for allergies.
Schena went on to claim that the Arrayit COVID-19 test was more accurate than common PCR tests. However, the FDA had informed him that the Arrayit test was not accurate enough to receive emergency use authorization (EUA). When DOJ charged Schena in 2020, it pointed out that Arrayit’s stock price doubled in mid-march (from 20¢ per share to 40¢ per share) but Schena and others did not disclose that there were questions over the validity of its data and the accuracy of its COVID-19 test.
The conviction includes one count of conspiracy to commit health care fraud and conspiracy to commit wire fraud, two counts of health care fraud, one count of conspiracy to pay kickbacks, two counts of payment of kickbacks, and three counts of securities fraud.
Schena is scheduled to be sentenced on Jan. 30, 2023, facing a maximum penalty of 20 years imprisonment for the conspiracy to commit health care fraud and conspiracy to commit wire fraud; 10 years of imprisonment for each count of health care fraud; five years imprisonment for conspiracy to pay kickbacks; 10 years imprisonment for each count of payment of kickbacks; and 20 years imprisonment for each count of securities fraud.
U.S. District Judge Edward J. Davila will determine any sentence after considering the U.S. sentencing guidelines and other statutory factors, the DOJ said.