Case of the Month

Feds Launch First COVID-19 Testing Fraud Prosecution

Stop me if you’ve heard this one before. The DOJ has charged a publicly traded Silicon Valley med tech firm and its CEO with touting a sham finger stick blood test to defraud payors and rip off investors. No, the company is not Theranos, and the executive is not Elizabeth Holmes. But while the dimensions and scope of this scam are much smaller, there are some eerie resemblances. And to top it all off, the product at its center is a COVID-19 test.

Feds Sound the Warning on COVID-19 Ripoffs

From almost the moment the pandemic began, there has been a wave of bogus COVID-19 testing products and marketing claims. The federal government certainly noticed this and warned consumers about fraudulent coronavirus testing almost from the moment. (See, for example, “OIG Warns of COVID-19 Testing Scams,” LCA, March 30, 2020.) But it’s taken until June for the prosecutions to begin.

The defendant in this first DOJ criminal action for COVID-19 testing fraud is Mark Schena, president of Sunnyvale, California-based Arrayit. The demand for COVID-19 testing is astronomical but the reimbursement rates relatively modest. But what if a COVID-19 test could be somehow bundled with a much higher-reimbursing product? According to the DOJ criminal complaint, that was the strategy Arrayit used by coupling its finger prick technology, blood-based novel coronavirus rapid detection with its more costly allergies tests kit.

To give things more oomph, Schena and colleagues pumped up its capabilities. In March, they began distributing marketing emails claiming the test was capable of rapid COVID-19 detection when used in combination with the allergies test kit.

But according to the DOJ, the test wasn’t only unproven and unapproved, it didn’t even exist at the time. It was only on the day that the emails were sent that Schena actually ordered the COVID-19 antigens. The company later developed and self-validated the test and submitted it the FDA for emergency use authorization (EUA). But the agency denied EUA clearance after finding the test’s performance was wanting.

The Market Falls for the Pitch

But, of course, none of this was known to investors. Nor did they know that Arrayit was actually broke. All they heard were the company’s claims that it was generating millions of dollars in billings for a rapid COVID-19 detection test. Thinking they had spotted a pearl in the midst of a pandemic, investors caused Arrayit’s stock price to double—albeit it remained a low-priced penny stock. The federal Securities and Exchange Commission (SEC) suspended trading for the stock for two weeks in April.

The DOJ Lowers the Boom

On June 9, the DOJ charged Schena with criminal securities fraud and conspiracy to commit healthcare fraud by transmitting email communications and marketing materials that misrepresented Arrayit’s ability to provide accurate, fast, reliable and cheap COVID-19 tests in compliance with applicable regulations and instructing its patient recruiters and medical clinics to add on or bundle Arrayit’s much more lucrative allergy test with its COVID-19 test regardless of medical necessity.

But there was more. The complaint also alleges that, as part of the scheme, Arrayit paid doctors kickbacks to use their provider numbers to charge insurance companies for patients the doctors had never seen. For example, one doctor told investigators that Arrayit used his provider identifier number to receive insurance reimbursement for allergy tests from patients the doctor had never treated. An Arrayit executive paid the doctor illegal kickbacks from the reimbursement in exchange. Investigators said Medicare paid Arrayit $290,000 and private insurance companies another $2 million for medically unnecessary tests generated as the result of kickbacks.

In a separate action, the SEC charged a penny stock trader with falsely claiming Arrayit had an approved COVID-19 test. SEC said the claim was made to drive up the share price of Arrayit, without disclosing his stake in the company. The trader allegedly made $137,000 in six weeks.


 In terms of the dollar amounts and lives impacted, the Arrayit case is of far less significance than Theranos. However, it’s a harbinger of things to come. You can bet your house that there will be many more enforcement actions against test makers and labs for false billing and marketing of COVID-19 tests in the months ahead.



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