COVID-19 Test Kit Scam Results in Fraud Class Action

Investors of SCWorx healthcare supplier filed a class action lawsuit claiming that the company released information about a fake COVID-19 test order.

In mid-April, SCWorx reportedly announced that they had received a committed purchase of 2 million COVID-19 test kits “with provision for additional weekly orders of 2 million units for 23 weeks, valued at $35M per week.”

With news of this massive purchase, the share price for SCWorx increased by $9.77 in one day.

“Widespread testing for COVID-19 disease in the United States is absolutely critical for saving lives and reopening our economy,” said Marc Schessel, CEO of SCWorx, in a press statement.

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“Our substantial purchase order from Rethink My Healthcare will significantly increase the availability of rapid-test kits in the United States. Additional purchase orders currently under negotiation with certain other parties could further increase the U.S. supply of these important tests in the near term.”

However, the details of the COVID-19 test deal quickly came under scrutiny. Hindenburg Research, a forensic financial research firm, called the deal “completely bogus” after looking into the buyer and supplier.

The test supplier, Promedical, is reportedly run by a “convicted rapist” CEO “who formerly ran another business accused of defrauding its investors and customers” and “was also alleged to have falsified his medical credentials.”

The company allegedly claimed to the FDA and Australian regulators that they were distributing COVID-19 test kits manufactured by Wondfo, but Hindenburg revealed that “Wondfo put out a press release days ago stating that Promedical ‘fraudulently misrepresented themselves’ as sellers of its Covid-19 tests and disavowed any relationship.”

Hindenburg also noted that SCWorx’s buyer may not be as reliable as portrayed. The virtual health care company was allegedly started by a 25-year-old in August 2018.

This small scale company drew scrutiny from Hindenburg who argued that the buyer may not be “capable of handling hundreds of millions of dollars in orders.”

After Hindenburg revealed their research, SCWorx was faced with significant consequences. First, the company’s share price fell by more than 17 percent over the course of three trading sessions.

Later, the U.S. Securities and Exchange Commission temporarily suspended all stock trades for SCWorx due to “questions and concerns” over the “adequacy and accuracy of publicly available information.”

“The Commission cautions broker-dealers, shareholders, and prospective purchasers that they should carefully consider the foregoing information along with all other currently available information and any information subsequently issued by the company,” the commission said in a statement.

Shortly after the stock started to fall and the Securities Commission stepped in, plaintiff Daniel Yannes filed a class action lawsuit against SCWorx.

Yannes says that he purchased stock in the company after viewing representations about their massive COVID-19 test sales.

However, after the stock prices fell, the plaintiff and other investors were allegedly financially injured.

According to Yannes, he and other investors would not have purchased stock or would have paid less if they were aware of the facts behind the SCWorx COVID-19 test sale.

“Throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects,” Yannes argues in his COVID-19 test investor class action lawsuit.

SCWorx allegedly failed their investors by misrepresenting its operations, failing to disclose that their buyer was small and unlikely to support future large orders, overstating or fabricating the COVID-19 test purchase details, and making statements which were unsubstantiated or misleading.

Yannes seeks to represent a Class of consumers who purchased SCWorx securities between April 13 and April 17, 2020.

This is not the first time that a company has faced legal action over misrepresenting coronavirus products.

In March, Inovio Pharmaceuticals was hit with an investor class action lawsuit alleging that the company’s CEO made false claims about developing a vaccine on national television.

The company reportedly said that the pharmaceutical company had developed a vaccine for COVID-19 “in a matter of about three hours once we had the DNA sequence from the virus” and that human testing would hopefully be started in the summer.

These claims skyrocketed investment prices, quadrupling their value in the days and weeks after the announcement. However, investors were allegedly injured after stock prices plummeted following the news that a COVID-19 vaccine hadn’t been developed.

Yannes and the investors are represented by Gregory B. Linkh, Robert V. Prongay, Charles H. Linehan and Pavithra Rajesh of Glancy Prongay & Murray LLP and Frank R. Cruz.

The COVID-19 Test Investor Fraud Class Action Lawsuit is Yannes v. SCWorx Corp., et al., Case No. 1:20-cv-03349, in the U.S. District Court for the Southern District of New York.

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