Michael Barbella, Managing Editor06.01.22
The U.S. government is charging a former healthcare CEO with securities fraud for allegedly misleading investors about his company’s plans to distribute COVID-19 rapid test kits in the pandemic's early days.
A U.S. Security and Exchange Commission (SEC) complaint charges Marc S. Schessel, 62, with making false and misleading statements about SCWorx's plans to distribute COVID-19 rapid tests kits in April 2020. SCWorx has agreed to settle the SEC's charges and will pay a $125,000 civil penalty. A federal grand jury, meanwhile, has indicted Schessel on two counts of securities fraud, which carry a maximum 45-year prison term. The FBI's Newark (N.J.) Division is investigating the case.
Schessel's LinkedIn profile still lists him as SCWorx CEO as well as a healthcare consultant for MSWorx LLC.
The SEC complaint claims Schessel and the financially troubled company—through an April 13, 2020, news release—falsely stated that SCWorx had a “committed purchase order” from a purported buyer to purchase 2 million COVID-19 rapid test kits. The press release further stated the purchase order included a “provision for additional weekly orders of 2 million units for 23 weeks, valued at $35M [million] per week.” After issuing the news release, SCWorx’s stock price surged 425 percent from the prior trading day on volume of 96.2 million shares, which was more than 900 times the prior three-month average daily volume.
"We allege that the defendants engaged in an age-old fraud—lying about their business prospects—to capitalize opportunistically on the COVID pandemic," SEC Chair Gary Gensler said. "As the challenges from the pandemic continue, investors should be vigilant about COVID-related claims. The SEC will continue to root out fraud and prosecute those who attempt to use the surge of uncertainty from the pandemic to defraud the investing public."
The SEC alleges that Schessel and SCWorx issued the press release despite having neither a legitimate supplier of COVID-19 test kits nor an executed purchase agreement with a buyer. The complaint further accuses Schessel and SCWorx with repeatedly lying about the distribution of COVID-19 rapid test kits throughout April 2020.
At the time, the SEC ordered that trading be suspended temporarily in SCWorx securities between April 21, 2020, and May 5, 2020, due to questions and concerns about the adequacy and accuracy of publicly available information in the marketplace concerning SCWorx.
"As alleged in our complaint, Schessel and SCWorx repeatedly made false representations to the investing public about the distribution of COVID-19 rapid test kits at a time when the need for truthful disclosures was especially critical," said Gurbir S. Grewal, director of the SEC’s Division of Enforcement. "This filing is a testament to the resilience and dedication of the SEC staff who during the height of the pandemic uncovered the alleged fraud and expeditiously suspended trading in the securities of SCWorx soon after the first alleged misstatement."
The SEC’s complaint, filed in federal district court in New Jersey, charges Schessel and SCWorx with violating the antifraud provisions of the federal securities laws. The SEC’s complaint seeks from both defendants permanent injunctive relief, disgorgement with prejudgment interest, and civil penalties. The complaint also seeks an officer and director bar against Schessel. Without admitting or denying the allegations, SCWorx has agreed to a settlement, subject to court approval, that includes permanent injunctions, a $125,000 penalty payment, and $471,000 disgorgement with $32,761.56 prejudgment interest. SCWorx is paying the disgorgement and prejudgment interest by contributing $600,000 worth of stock to harmed investors in a private class action settlement in Yannes v. SCWorx Corp., et al.
The SEC’s investigation was conducted by Michael Brennan, with assistance from Robert Nesbitt, Howard Kaplan, Sachin Verma, and Peter Rosario, and supervised by Kevin Guerrero and Jennifer S. Leete. The litigation will be led by James Connor under the supervision of Olivia Choe.
A U.S. Security and Exchange Commission (SEC) complaint charges Marc S. Schessel, 62, with making false and misleading statements about SCWorx's plans to distribute COVID-19 rapid tests kits in April 2020. SCWorx has agreed to settle the SEC's charges and will pay a $125,000 civil penalty. A federal grand jury, meanwhile, has indicted Schessel on two counts of securities fraud, which carry a maximum 45-year prison term. The FBI's Newark (N.J.) Division is investigating the case.
Schessel's LinkedIn profile still lists him as SCWorx CEO as well as a healthcare consultant for MSWorx LLC.
The SEC complaint claims Schessel and the financially troubled company—through an April 13, 2020, news release—falsely stated that SCWorx had a “committed purchase order” from a purported buyer to purchase 2 million COVID-19 rapid test kits. The press release further stated the purchase order included a “provision for additional weekly orders of 2 million units for 23 weeks, valued at $35M [million] per week.” After issuing the news release, SCWorx’s stock price surged 425 percent from the prior trading day on volume of 96.2 million shares, which was more than 900 times the prior three-month average daily volume.
"We allege that the defendants engaged in an age-old fraud—lying about their business prospects—to capitalize opportunistically on the COVID pandemic," SEC Chair Gary Gensler said. "As the challenges from the pandemic continue, investors should be vigilant about COVID-related claims. The SEC will continue to root out fraud and prosecute those who attempt to use the surge of uncertainty from the pandemic to defraud the investing public."
At the time, the SEC ordered that trading be suspended temporarily in SCWorx securities between April 21, 2020, and May 5, 2020, due to questions and concerns about the adequacy and accuracy of publicly available information in the marketplace concerning SCWorx.
"As alleged in our complaint, Schessel and SCWorx repeatedly made false representations to the investing public about the distribution of COVID-19 rapid test kits at a time when the need for truthful disclosures was especially critical," said Gurbir S. Grewal, director of the SEC’s Division of Enforcement. "This filing is a testament to the resilience and dedication of the SEC staff who during the height of the pandemic uncovered the alleged fraud and expeditiously suspended trading in the securities of SCWorx soon after the first alleged misstatement."
The SEC’s complaint, filed in federal district court in New Jersey, charges Schessel and SCWorx with violating the antifraud provisions of the federal securities laws. The SEC’s complaint seeks from both defendants permanent injunctive relief, disgorgement with prejudgment interest, and civil penalties. The complaint also seeks an officer and director bar against Schessel. Without admitting or denying the allegations, SCWorx has agreed to a settlement, subject to court approval, that includes permanent injunctions, a $125,000 penalty payment, and $471,000 disgorgement with $32,761.56 prejudgment interest. SCWorx is paying the disgorgement and prejudgment interest by contributing $600,000 worth of stock to harmed investors in a private class action settlement in Yannes v. SCWorx Corp., et al.
The SEC’s investigation was conducted by Michael Brennan, with assistance from Robert Nesbitt, Howard Kaplan, Sachin Verma, and Peter Rosario, and supervised by Kevin Guerrero and Jennifer S. Leete. The litigation will be led by James Connor under the supervision of Olivia Choe.