The U.S. Dept. of Justice announced that it charged Arrayit president March Schena for alleged involvement with fraudulent claims for allergy and COVID-19 testing.
In a news release, the DOJ alleged that Schena participated in schemes to mislead investors, manipulate Arrayit’s stock price and conspired to commit health care fraud in connection with the submission of over $69 million in false and fraudulent claims for allergy and COVID-19 testing. It is the first criminal securities fraud prosecution related to the COVID-19 pandemic brought by the DOJ.
According to the affidavit in support of the complaint, 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.
DOJ said Schena and others paid kickbacks and bribes to recruiters and doctors to run an allergy screening for 120 allergens on every patient, regardless of necessity, and made misrepresentations to potential investors about the company’s test sales, financial condition and future prospects. These actions allegedly took place between 2018 and around February of this year.
Once the COVID-19 pandemic came to the fore this spring, 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.
DOJ noted 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.
“This defendant allegedly defrauded Medicare through illegal kickbacks and bribes, and then turned to exploiting the pandemic by fraudulently promoting an unproven COVID-19 test to the market,” DOJ criminal division Assistant Attorney General Brian Benczkowski said in the release. “Working together with our law enforcement partners, the criminal division is committed to safeguarding the integrity of the Medicare system and protecting the investing public from securities scams.”
“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,” added U.S. Attorney David 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.”