May 31 (UPI) -- A former chief executive officer of a publicly traded healthcare company was charged Tuesday with misleading investors about deals concerning tens of millions of COVID-19 tests, causing the company's share price to surge and investors to lose millions of dollars.
Marc Schessel, 62, of Greenwhich, Conn., has been charged with two counts of securities fraud by a federal grand jury for a scheme described in the indictment as an attempt to fraudulently increase and maintain his company's share price through making false and misleading statements about the purchase of COVID-19 rapid test kits early within the pandemic.
The U.S. Securities and Exchange Commission also announced charges against Schessel and the company he worked for, SCWorkx, on accusations of violating the antifraud provisions of the federal securities laws. The commission said SCWorx has agreed to pay a $125,000 civil penalty to settle charges that it neither admits to nor denies.
"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 in a statement.
According to the indictment, Schessel caused the struggling company to issue multiple public statements in April 2020 that said they were buying $48 million Chinese-made test kits for resale despite knowing this was not true.
Prosecutors said that Schessel entered an agreement to obtain 2 million COVID-19 tests a week for six months from an Australian supply company and at the same time entered an agreement to sell them to a New Jersey medical-related services company.
Days after the deals were made, Schessel is accused of learning that the Australian company was no longer authorized to distribute the COVID-19 tests following a dispute with the manufacturer, indicting that SCWorkx "would not have COVID-19 tests that could be distributed in the United States" nor fulfill its purchasing agreement with the New Jersey company.
"Nonetheless, Schessel made and caused to be made at least four false and misleading statements to shareholders and to the public regarding Company-1's deals to purchase and resell COVID-19 tests," the court document states while not naming Schessel's company.
The public statements caused the company's share price to rise by more than 400% from about $2.25 to an intraday high of $14.88, and investors lost at least $116 million for purchasing stock at artificially inflated prices and selling their shares at a loss, it said.
At the time, the SEC ordered trading of SCWorkx stock temporarily suspended from April 21 to May 5, 2020, due to "questions and concerns regarding the adequacy and accuracy of publicly available information in the marketplace" about its business, the SEC said in a statement.
The SEC in the complaint states it is seeking from both defendants permanent injunctive relief, disgorgement with prejudgment interest and civil penalties as well as an officer and director bar against Schessel.
If convicted on the two counts of securities fraud, Schessel faces a total maximum penalty of up to 45 years in prison.
"It is unacceptable to fraudulently capitalize on a national health emergency," Assistant Director Luis Quesada of the FBI's Criminal Investigative Division said in a statement.