CEO Charged in Rapid COVID-19 Test Scam
The US Securities and Exchange Commission (SEC) and the Department of Justice (DOJ) have charged the CEO of a California-based medical device company for allegedly leading a scheme to defraud investors out of millions of dollars by falsely claiming his company created a 15-second rapid COVID-19 test.
Decision Diagnostics Inc. (DECN) CEO Keith Berman has been charged by the DOJ with one count of securities fraud and one count of making false statements, while the SEC has charged Berman and his firm with violating antifraud provisions of the securities laws.
“During this unprecedented time, when the need for truthful disclosures concerning COVID-19 tests is of vital importance, Decision Diagnostics and its CEO allegedly misled investors by claiming to have made a working test device when all they had was an idea that had not materialized into a product,” Stephanie Avakian, director of the SEC’s Division of Enforcement, said in a statement.
According to the indictment, Berman and his firm were “experiencing financial difficulties” early this year and, in an email, he described his personal situation as “perilous.” But in March, he allegedly decided to use the coronavirus pandemic to increase the company’s value, saying in an email that “we need a new story and this coronavirus through impedance is the story that will allow me to raise millions.”
That story allegedly was a fabricated COVID-19 test that not only worked super fast, but also provided a probability statistic that purportedly allowed users to determine the likelihood of a false positive or negative. The indictment alleges that Berman falsely claimed in press releases that Decision Diagnostics had developed a rapid test to detect COVID-19 in a finger prick sample of blood in just 15 seconds. However, Berman allegedly “well knew” the test hadn’t been created.
“Berman used the COVID-19 pandemic as an opportunity to capitalize on the public health crisis,” according to the indictment. “It was the purpose of the scheme for Berman to artificially increase and maintain the share price of DECN securities to enrich himself through access to additional corporate funds and compensation.”
Berman also allegedly told investors that the US Food and Drug Administration (FDA) was close to approving Decision Diagnostics’ request for emergency use authorization of the new COVID-19 test, despite knowing this wasn’t true.
In late April, the SEC suspended trading in shares of Decision Diagnostics over questions regarding the accuracy of information in the company’s press releases regarding COVID-19. Between early March and the trading suspension, the price of Decision Diagnostics’ stock had soared by more than 1,500%.
“All DECN actually had at the time of Berman’s statements was a theoretical concept that had not yet materialized into a product,” the SEC said in its complaint. “And without a product, Berman knew that DECN could not meet the FDA’s emergency use authorization testing requirements. These misstatements led to surges in the price and trading volume of DECN.”
Berman is also accused of using an alias to post false and misleading positive statements about the company to investors on internet message boards, as well as to refute allegations of fraud and to threaten potential whistleblowers with civil or criminal sanctions. Under the alias, Berman projected that demand for Decision Diagnostics’ test would be “close to 3 billion [test] kits” and claimed that the company was “in the forefront no matter how loud the naysayers are.”
The SEC is seeking a court order permanently enjoining Decision Diagnostics and Berman from directly or indirectly violating those provisions and ordering them to pay civil penalties.
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