SEC Charges Company and Former CEO with Misleading Investors about Sale of Covid-19 Test Kits
The Securities and Exchange Commission today charged New York-based SCWorx Corp. and its former Chief Executive Officer and Chairman of the Board, Marc S. Schessel, with making false and misleading statements about SCWorx’s plans to distribute COVID-19 rapid test kits in April 2020. SCWorx has agreed to settle the SEC’s charges and will pay a $125,000 civil penalty.
The SEC’s complaint alleges that, with SCWorx struggling financially, Schessel and SCWorx issued a press release on April 13, 2020, falsely stating that SCWorx had a “committed purchase order” from a purported buyer to purchase two million COVID-19 rapid test kits. The press release further stated that the purchase order included a “provision for additional weekly orders of 2 million units for 23 weeks, valued at $35M [million] per week.” Following the issuance of the press release, SCWorx’s stock price surged 425% 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.
The SEC alleges that Schessel and SCWorx issued this press release despite having neither a legitimate supplier of COVID-19 test kits nor an executed purchase agreement with a buyer. The complaint further alleges that Schessel and SCWorx publicly repeated the false and misleading statements about the distribution of COVID-19 rapid test kits over the course of April 2020.
At the time, the SEC ordered that trading be suspended temporarily in the securities of SCWorx between April 21, 2020, and May 5, 2020, because of questions and concerns regarding the adequacy and accuracy of publicly available information in the marketplace concerning SCWorx.
“We allege that the defendants engaged in an age-old fraud—lying about their business prospects—to capitalize opportunistically on the COVID pandemic,” said SEC Chair Gary Gensler. “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.”
“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. “Today’s 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, the payment of a $125,000 penalty, and disgorgement of $471,000 with prejudgment interest of $32,761.56. SCWorx is expected to satisfy its obligation to pay the disgorgement and prejudgment interest by contributing stock, valued at $600,000 at the time of issuance, to harmed investors in a private class action settlement in Yannes v. SCWorx Corp., et al., 1:20-cv-03349 (S.D.N.Y.).
In a parallel action, the U.S. Attorney’s Office for the District of New Jersey today announced criminal charges against Schessel.
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. The SEC appreciates the assistance of Nasdaq’s Enforcement Department.
The SEC’s Office of Investor Education and Advocacy issued an alert urging investors to look out for false and misleading claims about purported COVID-19 related products.
To learn more about how the SEC can help you avoid scams, please visit: https://www.sec.gov/Protecting-You.