The jury convicted Schena of three counts of securities fraud, two counts of payment of kickbacks, one count of conspiracy to pay kickbacks, two counts of health care fraud, and one count of conspiracy to commit health care fraud and conspiracy to commit wire fraud. [1] While he won’t be sentenced until early 2023, Schena faces a maximum of 20 years for each count of securities fraud alone. [1]

While this case draws quite a few parallels to the early-2022 trial and eventual conviction of Elizabeth Holmes, the founder of Theranos, it has thus far drawn far less media attention. [2] Still, Schena’s conviction provides another important glimpse into the dangers investors may face when dealing with alleged cutting edge or “revolutionary” technologies.

Schena was the president of Arrayit Corporation, a publicly traded company based in California’s Silicon Valley. [1] On the securities fraud counts, the evidence at trial convinced jurors of Schena’s elaborate scheme to defraud investors through false and misleading statements about the company’s operations and technology, along with failures to release Arrayit’s financial disclosures as required by the Securities and Exchange Commission (“SEC”). [1]

Arrayit purported to offer blood testing via a “revolutionary technology” that could use one drop of blood to test for a wide array of diseases. [1] Schena even dubbed himself the “father of microarray technology,” as part of his efforts to “lull” concerned investors into a sense of comfort even as they doubted the company’s legitimacy. [1]

Schena and his publicist further leveraged false press releases and tweets, purporting to evidence partnerships with governmental entities and large companies, as part of the scheme to build false investor confidence in Arrayit. [1] As some investors began expressing doubt in Arrayit’s technological capabilities, Schena continued to falsely represent that the company’s valuation sat above $4 billion. [1]

Separate and apart from Schena’s investment fraud scheme, the jury also concluded that Schena perpetrated a scheme involving illegal kickbacks and health care fraud. [1] These schemes involved allergy testing, which Arrayit would run on every single one of its patients irrespective of medical need. [1]

While Arrayit’s allergy tests were not even diagnostic tests to begin with, the company touted their accuracy in diagnosing allergies, and paid kickbacks to marketers in order to obtain additional blood samples to test. [1] Arrayit then billed Medicare and commercial insurers for these allergy tests at a rate higher than any other lab in the United States. [1]

Finally, in 2020 when the Covid-19 pandemic hit, Arrayit pivoted toward marketing its own Covid-19 test. [1] Despite the Food and Drug Administration’s refusal to conclude that Arrayit’s Covid-19 blood test was accurate enough to receive an Emergency Use Authorization, Schena continued to claim that Arrayit’s test surpassed PCR tests in accuracy. [1]

In all, Schena defrauded investors of more than $77 million through his various fraudulent schemes related to Arrayit. [1] This case is yet another illustration of the pitfalls investors can face when making investments in start-ups or other companies touting new and innovative technologies. Please reach out to a trusted attorney at Savage-Villoch if you have questions.

Source: [1] https://www.justice.gov/opa/pr/medical-technology-company-president-convicted-77-million-covid-19-and-allergy-testing-scheme [2] https://lawandcrime.com/covid-19-pandemic/federal-jury-convicts-tech-executive-in-first-of-its-kind-covid-19-testing-related-securities-fraud-he-even-lied-about-being-a-nobel-prize-candidate/

At the heart of the decision to pivot in this manner has been a focus on steadily rising inflation, which some policymakers fear the pandemic’s longevity will only amplify. [1] This fear stems from the fact that in large part, populations are learning to coexist with the virus.

As time passes and each new wave appears, is studied, and spreads toward dominance, people become generally better equipped to deal with the pandemic’s impacts – economic and otherwise. Whether because of rising vaccination rates or better overall caution and awareness, many now agree that the largest current threat to the economy is inflation rather than COVID-19. [1]

This is, of course, not to say that COVID-19 doesn’t continue to significantly impact the global economy, as it has since it was first discovered about two years ago. When news of the most recent Omicron strain was released near Thanksgiving, stocks and energy prices took a significant dive, with the Dow Jones Industrial Average falling 2.5% for its steepest one-day percentage downturn in over a year. [2] In the several weeks following Omicron’s emergence, however, the stock market has largely rebounded.

Given the many remaining questions surrounding Omicron, including existing vaccines’ ability to effectively protect against the strain, as well as the severity of infection, further economic impacts may certainly come to fruition. As details continue to fill in, however, it is a fitting time to carefully consider some of the myriad market impacts already ushered in by the COVID-19 pandemic.

One of these market impacts has been the meteoric rise in retail investing, fueled by app-based securities trading platforms like Robinhood and Stash, aimed for use by the average main street investor. These platforms empower retail investors to participate in the stock market by facilitating trades on fractions of shares, all from the convenience of a smart phone. The use of these apps also facilitated the “meme stock” frenzy, wherein retail investors gathered over social media and stoked intense interest in stocks like GameStop and AMC – sending their share prices flying.

While these app-based platforms have empowered more investors than ever to enter the market, they’ve also posed potential financial pitfalls along the way. One such pitfall involves margin investing, wherein investors may supercharge their potential gains in the market by investing not only their own money, but also money they’ve borrowed. While the rewards of margin investing may be great, the risks are potentially even greater. [3]

Specifically, investor’s trading with margin are subjected to a minimum balance in their accounts. If their balance falls below this minimum – as can very well happen during a sudden market downturn or sell-off like the one effectuated by the news of Omicron in late November – the investor may be subjected to a margin call. When a margin call is issued, the investor is required to deposit additional money into their account in order to meet their required minimum balance.

Furthermore, many equate excessive levels of margin investing with “euphoric” behavior in the market – which can often be a sign of a serious impending market downturn. [3] As of now, the market does not appear to have reached dangerous levels of such market euphoria. [3] But as inflation continues to rise and COVID-19 continues to impact our lives in new ways, investors should exercise caution, as always, when making decisions about margin investing.

Sources:

[1] https://www.wsj.com/articles/central-banks-worry-omicron-could-sustain-inflation-11639909805

[2] https://www.wsj.com/articles/global-stock-markets-dow-update-11-26-2021-11637901748?mod=article_inline

[3] https://www.wsj.com/articles/black-friday-rout-shows-dangers-of-margin-borrowing-11638100800

Stock fraud may occur when a company defrauds investors when convincing them to buy shares in their company. The investment fraud may be a market manipulation scheme. It may be an unethical brokerage firm forcing their brokers to sell the ‘stock of the day’ knowing full-well the stock is not worth a fraction of what the price the sell to you.

But, perhaps the worst form of stock fraud, to my mind, is the stock fraud that takes advantage of people’s fear about current events. Understandably, potential investors or victims of fraud are today extremely concerned and frightened about catching Covid-19. This is especially true for that frequent target of fraudsters, older people. Not only is this segment of the population more vulnerable to Covid 19, but their fears are likely at a higher level. This set of circumstances just creates a more fertile ground for investment fraud that takes advantage of loneliness and fear such as we have today with the pandemic. So, it is vital to get the word out to older people and their children or caretakers to be especially vigilant about investment fraud phone calls.

Everyone should also take the time to connect with their parents and grandparents to make sure they understand the significant risk associated with potential Covid-19-related stock fraud. Of course, we should all take any claims of huge potential profits with a healthy dose of skepticism. But we all want to believe in the huge investment upside; these outsized profits do occur, but not that often or that quickly. And probably not from the slick-talking stockbroker pitching his or her idea.

There are fraudsters are out there right now working to capitalize on the public’s fear created by the Covid-19 pandemic and the millions of Americans who have tested positive and the more than 150,000 (as of this writing) Americans who have died from Covid-19.

Covid-19 is ripe for stock fraud because investors are rightfully very worried about Covid-19, for which there is no known cure or vaccine. There are many companies are trying to develop a response to Covid-19. With the uncertainty about the pandemic and vaccine creation coming from the government, it is easy work for an unethical salesperson to convince an investor that their recommended stock has the cure or an effective treatment almost ready. It should strike you as odd that some cold-calling stockbroker is letting you in on the greatest investment of all time. People want good news and want to believe the rosy predictions spewed by a fraudster. So, an unethical stockbroker will create and tell a tantalizing story of a company well-suited to make enormous profits from their ‘vaccine’ or ‘treatment’ – “and you, mister or missus investor can get in on the ground floor!”

Most people would understand that the first company to come out with a cure or vaccine for Covid-19 will likely make huge profits. Most would want to participate in that profit. These facts combined with a convincing stock salesperson is a dangerous mix and ripe for investment scams.

Fraudsters are pushing investments in companies that make and sell N-95 masks, or alleged Covid-19 cures, home testing kits for the disease, or even products they falsely claim give people immunity from Covid-19. In fact, according to the SEC in June 2020, it had temporarily halted trading the shares of 30 companies to protect investors and had charged companies with Covid-19 related fraud. The SEC filed charges against a company that made the false claim that they were negotiating the sale of millions of N-95 masks. Another company that the SEC charged had put out a press release stating that they had a home test kit for Covid 19 that would give results in less than 15 minutes. The SEC charged that the test kit was not intended for home and could only be used with the help of medical professionals.

Be wary of a cold-call from a slick stockbroker that purports to get you in on the only stock that cures Covid or effectively treats Covid. Reach out to your loved ones to make sure they understand the risks and to talk you before making any investment based on their fears and concerns.