The U.S. Dept. of Justice announced that Marc Schessel of SCWorx was indicted for charges related to an alleged COVID-19 test scheme.
Schessel, the former CEO of the New York-based company, was charged with two counts of securities fraud for his alleged participation in a scheme to mislead investors about SCWorx’s procurement of COVID-19 rapid test kits in the early stages of the COVID-19 pandemic.
Court documents alleged that Schessel caused SCWorx to issue multiple public statements claiming the company was buying and reselling at least 48 million COVID-19 test kits, despite knowing that such statements were false and misleading. In April 2020 — just a month after the COVID-19 pandemic took hold of the world — Schessel executed a supply agreement with an unnamed Australian company to obtain 2 million COVID-19 test kits per week for six months, starting on April 24, 2020.
The agreement was made based on an understanding that SCWorx had FDA’s permission to distribute COVID-19 tests in the U.S. and already was distributing them, DOJ said in a release. Around the same time, Schessel was alleged to have received a purchase order from a U.S.-based company planning to purchase weekly shipments of 2 million COVID-19 test kits from the company.
SCWorx, allegedly under Schessel’s guidance, issued a press release on April 13, 2020, announcing the purchase order for 48 million COVID-19 rapid test kits, despite the former CEO allegedly learning information on or about two days prior that called into question whether the Australian company had the tests to sell to SCWorx that could be distributed in the U.S.
Further information again highlighted questions over the ability to execute the COVID-19 test kit arrangements, and despite the doubt, Schessel allegedly repeatedly confirmed the status of the arrangements a number of times between April 13, 2020, and April 17, 2020. As a result, SCWorx’s stock rose by over 400% from $2.25 to a high of $14.88, with investors ending up losing at least $116 million, DOJ said.
“Schessel allegedly took advantage of the COVID-19 crisis as an opportunity to scam investors and manipulate the market,” Assistant Attorney General Kenneth A. Polite, Jr. of the Justice Department’s Criminal Division, said in the DOJ release. “Today’s indictment reinforces our commitment to rooting out schemes that have exploited the pandemic and holding accountable those who have prioritized greed during an unprecedented public health emergency.”
Schessel is charged with two counts of securities fraud and, if convicted, he would face a maximum penalty of up to 45 years in prison. A federal district court judge will determine any sentence, while the FBI’s Newark Division is investigating the case.
On the same day as the DOJ indictment, the U.S. Securities and Exchange Commission charged SCWorx and Schessel with making false and misleading statements about SCWorx’s plans to distribute COVID-19 rapid test kits in April 2020. SCWorx agreed to settle and will pay a $125,000 civil penalty.
Following the alleged events of April 2020, as outlined by DOJ, the SEC ordered that trading of SCWorx shares be temporarily suspended between April 21, 2020, and May 5, 2020, because of questions and concerns regarding the adequacy and accuracy of publicly available information in the marketplace.
“We allege that the defendants engaged in an age-old fraud—lying about their business prospects—to capitalize opportunistically on the COVID pandemic,” SEC Chair Gary Gensler said in a news release. “As the challenges from the pandemic continue, investors should be vigilant about COVID-related claims. The SEC will continue to root out fraud and prosecute those who attempt to use the surge of uncertainty from the pandemic to defraud the investing public.”
In April, the company confirmed its agreement to settle with the SEC, and Tim Hannibal, who took the job of CEO after Schessel, issued the following statement:
“Since I accepted the CEO role on June 1, 2021, it has been a top priority to resolve legal issues stemming from the April 13, 2020 press release. It is in the best interest of the Company and its shareholders and customers that all of our focus and funds be on our future growth and not prior legal issues or legal costs. … The company fully cooperated with the SEC’s investigation and believes the settlement is in the best interest of the company. SCWorx takes its regulatory obligations seriously, and the integrity of the company, its management and board of directors is of paramount importance.
“SCWorx provides critical and high-quality data and software solutions to hospitals and it is very important that these issues from 2020 are put behind us, as they do not in any way reflect on the quality of our product, integrity of our company or the hard work of our employees.”