Medtech Company President Accused of Defrauding Investors, Healthcare Benefit Programs

The president of a California-based medical technology company was charged in a complaint unsealed June 9 in the Northern District of California, in connection with his alleged participation in schemes to mislead investors, to manipulate the company’s stock price and to conspire to commit health care fraud in connection with the submission of over $69 million in false and fraudulent claims for allergy and COVID-19 testing. 
 
The complaint against Mark Schena, 57, of Los Altos, Calif., president of Arrayit Corporation, is the first criminal securities fraud prosecution related to the COVID-19 pandemic that has been brought by the Department of Justice and charges one count of securities fraud and one count of conspiracy to commit healthcare fraud. 
 
“This defendant allegedly defrauded Medicare through illegal kickbacks and bribes, and then turned to exploiting the pandemic by fraudulently promoting an unproven COVID-19 test to the market,” said Assistant Attorney General Brian A. Benczkowski of the Justice Department’s Criminal Division. “Working together with our law enforcement partners, the Criminal Division is committed to safeguarding the integrity of the Medicare system and protecting the investing public from securities scams.”
 
“The allure of cheap reliable alternatives to today’s standard blood tests panels has captured the imagination of the healthcare 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.”
 
“Investigating COVID-19 fraud scams billed to federal health programs—such as those charged here—are a top priority for our agency,” said Special Agent in Charge Steven J. Ryan for the Office of Inspector General of the U.S. Department of Health and Human Services (HHS-OIG). “The ongoing public health crisis has spawned a rash of fraudulent schemes; therefore, we will continue working with law enforcement partners to protect beneficiaries, programs and taxpayers.”
 
“Those seeking to maximize profits while misleading investors should expect to pay a heavy price, especially now,” said Inspector in Charge Delany De Leon-Colon of the U.S. Postal Inspection Service (USPIS) – Criminal Investigations Group. “The U.S. Postal Inspection Service is proud to work alongside the Department of Justice and our other law enforcement partners to identify and investigate anyone who capitalizes on this pandemic to commit fraud. By working together, we can keep our communities and our vulnerable populations safe from financial exploitation.”
 
“Scams that trade on the VA’s name to portray an air of credibility will not be tolerated,” said Special Agent in Charge Kim R. Lampkins of the Veterans Affairs Office of Inspector General (VA OIG). “These charges reflect the VA OIG’s commitment to working with our law enforcement partners to investigate any fraudulent schemes that affect VA’s COVID-19 testing or other responses to the pandemic.”
 
“Today’s unsealing of the criminal complaint and the subsequent arrest of Mr. Schena are significant steps forward in this case to root out fraud and corruption being committed against the U.S. healthcare system, including the Department of Defense’s TRICARE program,” said Special Agent in Charge Bryan D. Denny, Defense Criminal Investigative Service, Western Field Office. “Any attempts to subvert the integrity of the TRICARE program, especially as we all are struggling to cope with the COVID-19 pandemic, will be aggressively investigated and prosecuted, if appropriate, to preserve and recover precious taxpayer dollars.”
 
According to the affidavit in support of the complaint, Schena touted that Arrayit is the “only laboratory in the world that offers” revolutionary “microarray technology” that allows Arrayit to test for allergy and COVID-19 based on a drop of blood that is 250,000 times smaller than the technology touted by Theranos. 
 
Beginning in or around 2018 and continuing to in or around February 2020, Schena 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, and then made numerous misrepresentations to potential investors about Arrayit’s allergy test sales, financial condition, and its future prospects. Schena and others issued press releases and tweeted about partnerships with Fortune 500 companies, government agencies and public institutions, without disclosing that such partnerships either did not exist or were of de minimis value. 
 
As the COVID-19 crisis began to escalate in March 2020, Schena and others made false claims concerning Arrayit’s ability to provide accurate, fast, reliable and cheap COVID-19 tests in compliance with state and federal regulations, and made numerous misrepresentations to potential investors about the COVID-19 tests and Arrayit’s future prospects for COVID-19 testing. 
 
Schena stated that it was simple to develop a test for COVID-19 because the switch from testing for allergies to testing for COVID-19 was “like a pastry chef” who switches from selling “strawberry pies” to selling “rhubarb and strawberry pies.” Arrayit’s stock price doubled in mid-March, but Schena and others never disclosed that there were questions about the validity of its data and the accuracy of its COVID-19 test. 
 
A complaint is merely an allegation and the defendants are presumed innocent until proven guilty beyond a reasonable doubt in a court of law. 
 
HHS-OIG’s San Francisco Regional Office and Detroit Regional Office, USPIS, the FBI, VA-OIG and DCIS investigated the case. Assistant Chiefs Jacob Foster and Justin Weitz of the Criminal Division’s Fraud Section and Assistant U.S. Attorney William Frentzen of the Northern District of California are prosecuting the case. The department appreciates the assistance of the Securities and Exchange Commission.