SEC Files Suit Relating to COVID-19 Testing – The National Law Review

Thanks to HBOs documentary, The Inventor: Out for Blood in Silicon Valley, and a barrage of media coverage about Elizabeth Holmes and her defunct company, Theranos, it is unmistakable thatbig misrepresentations can lie in public statements regarding miniscule quantities of blood.

This lesson proved true again last month, when the CEO of Decision Diagnostics, a pharmaceutical testing company, widely publicized that the company could accurately test for COVID-19, providing near-instant results with only a finger-prick of blood. In one press release, the CEO, Keith Berman, went so far as to say the COVID-19 testing would be commercial ready by summer of 2020. The market took note, and the companys stock soared (by a whopping 1,200%) following Bermans statements.

Unfortunately, these claims may have been too good to be true. According to acomplaintfiled by the SEC last month, Berman knew the companys manufacturer hadnt made a single testing kit or prototype device able to test for COVID-19 in a blood sample of any size. The SEC also alleges that in his public statements, Berman went so far as to fabricate images purporting to show the testing device, even though he knew it didnt exist.

Based on these allegations, the SECs action asserts violations of the Exchange Act and seeks to bar Berman and Decision Diagnostics from violating federal securities laws and order them to pay civil penalties, among other things.

This case is not the first securities fraud suit relating to COVID-19 testing misrepresentations.The SEC has filed numerous complaints premised on allegedly false or misleading claims by publicly-traded companies that their products or services could prevent, detect, or cure COVID-19.Private investors have followed suit. For example, last month, shareholders of Sona Nanotechsuedthe company based on allegedly misleading statements about the timing and likelihood of approval of rapid detection COVID-19 antigen tests, precipitating multiple drops in share prices.

In light of these and other newly emerging examples, publicly traded companies should be on notice that representations relating to COVID-19 testing from the timing for its development to its very viability will undoubtedly attract scrutiny from both the SEC and shareholders.

2020 Proskauer Rose LLP. National Law Review, Volume XI, Number 32

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SEC Files Suit Relating to COVID-19 Testing - The National Law Review