'Cynical Multimillion-Dollar Hoax': DOJ Charges Medical Tech Company With Fraud Amid COVID-19
Arrayit Corp. has been charged with the DOJ's first criminal securities fraud prosecution related to the COVID-19 pandemic.
June 09, 2020 at 06:17 PM
3 minute read
The U.S. Department of Justice has filed its first criminal securities fraud case related to the COVID-19 pandemic by targeting a California medical technology company, according to law enforcement officials.
U.S. Attorney David Anderson of the Northern District of California charged Mark Schena, the president of the Sunnyvale, California-based Arrayit Corp., with one count of securities fraud and one count of conspiracy to commit health care fraud.
Arrayit purported to identify COVID-19 infections and allergies with a finger prick of blood placed on a paper card and sent into the company's laboratory, prosecutors said. Schena allegedly participated in a scheme that led consumers to submit more than $69 million in false and fraudulent claims for allergy and COVID-19 testing, according to prosecutors.
Anderson called the business a "cynical multimillion-dollar hoax."
"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.
The company's Facebook page also invoked a measurement coined by another company tangled up in fraud litigation: Elizabeth Holmes' company Theranos. "Arrayit touts that it is the 'only laboratory in the world that offers' this test and claims on the Arrayit Facebook page that the Arrayit microarray can use drops of blood 'which are 250,000 times smaller than the volume of the Theranos nanotainer,'" according to the complaint.
The charges allege that Arrayit paid doctors kickbacks and bribes in exchange for promoting its allergy test, which yielded results with "little clinical relevance to the treatment of allergy symptoms."
In addition to kickbacks to medical professionals, prosecutors allege Schena aggressively marketed the tests on Twitter and issued press releases that asserted "non-existent" ties to Fortune 500 companies, government agencies and public institutions. Anderson contends that Schena fraudulently offered the COVID-19 test to gain access to Medicare beneficiary information, so that the company could submit false claims for the more expensive allergy test.
The complaint asserts that Arrayit's stock price doubled in mid-March, after the company began promoting its allergy test as a bundle with a COVID-19 test.
In April, the U.S. Food and Drug Administration notified Arrayit that its COVID-19 test did not meet standards, which the company failed to disclose, according to the complaint. Arriya also has not filed financial statements to the SEC between June 2018 and March 2019, according to the complaint. The Securities and Exchange Commission halted the trading of Arrayit stock in April over questions of the company's financial viability and truthfulness of claims around the blood test. The SEC later reinstated trading.
"The investigation has revealed that Schena used the COVID-19 pandemic as an opportunity to expand the pre-existing allergy test scheme and to capitalize on a national emergency for his own financial gain," the complaint states.
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