The SEC also brought charges against a California trader for perpetrating a pump-and-dump scheme and engaging in illegal spoofing.
The SEC has charged a California-based penny stock trader for conducting a fraudulent pump-and-dump scheme of biotechnology company, Arrayit Corporation, while the DOJ charged the company’s president for his participation in schemes to mislead investors (SEC v. Nielsen, June 9, 2020).
DOJ charges. The unsealed complaint charging Arrayit’s president is the "first criminal securities fraud prosecution related to the COVID-19 pandemic that has been brought by the Department of Justice." According to the affidavit in support of the complaint, from around 2018 and continuing through February 2020, Arrayit’s president and others "paid kickbacks and bribes to recruiters and doctors to run an allergy screening test for 120 allergens (including things ranging from stinging insects to food allergens) on every patient regardless of medical necessity."
Potential investors were then misled about the test sales, Arrayit’s financial condition, and its future prospects. Through tweets and press releases, Arrayit’s president and others discussed purported "partnerships with Fortune 500 companies, government agencies and public institutions," but failed to disclose that the partnerships "either did not exist or were of de minimis value."
The arrival of the COVID-19 pandemic then led Arrayit’s president and others to tout Arrayit’s ability to "provide accurate, fast, reliable and cheap COVID-19 tests in compliance with state and federal regulations," but they failed to disclose questions concerning the validity of the data presented and the accuracy of its COVID-19 test. Ultimately, Arrayit submitted over $69 million in false and fraudulent claims for allergy and COVID-19 testing.
"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," 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."
DOJ potential penalties. In a criminal complaint, the DOJ charged Arrayit’s president with one count of conspiracy to commit health care fraud, carrying maximum penalties of not more than 10 years imprisonment, not more than a $250,000 fine, not more than three years supervised release and $100 assessment, in addition to one count of securities fraud, carrying maximum penalties of not more than 20 years imprisonment, not more than a $5,000,000 fine, not more than 3 years supervised release and $100 assessment.
SEC charges. According to the SEC’s complaint, beginning around March 2, 2020, a California-based trader used online posts to drive the share price of Arrayit’s stocks higher by repeating false assertions regarding an approved COVID-19 test while not disclosing his significant holdings in Arrayit or that he planned to sell those holdings. The complaint also alleges that the trader placed and canceled several large purchase orders for Arrayit’s shares in a tactic known as "spoofing." The trader made approximately $137,000 in six weeks, but his profits could have been higher had the SEC not suspended trading.
"We allege that Nielsen engaged in multiple forms of deception to exploit investors amidst the COVID-19 pandemic," said Erin E. Schneider, Director of the SEC’s San Francisco Regional Office. "Investors should be aware of the potential for stock manipulation, including through claims regarding products or services related to COVID-19."
SEC relief sought. The SEC seeks permanent injunctions, civil money penalties, a penny stock bar, and disgorgement with prejudgment interest against the California-based trader.
The case is No. 5:20-cv-03788.
Attorneys: Erin E. Schneider for the SEC. William Frentzen, U.S. Attorney's Office, for the United States.
Companies: Arrayit Corporation
MainStory: TopStory CorporateGovernance Covid19 DirectorsOfficers Enforcement ExchangesMarketRegulation FraudManipulation GCNNews InvestorEducation PublicCompanyReportingDisclosure SECNewsSpeeches CaliforniaNews NevadaNews
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