Organizer of $77 Million COVID-19 and Allergy Testing Scheme Convicted on Securities Fraud Charges

On September 2^nd, 2022, the United States Department of Justice (DOJ) announced that Mark Schena, the president of a Silicon-Valley medical technology company, was convicted by federal jury for his role in a $77 million fraudulent Covid-19 and allergy testing scheme. [1]

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/