The U.S. Securities and Exchange Commission (SEC) handed down charges this week to healthcare software developer SCWorx and its former chief executive over what the agency classified as “false and misleading statements” about the company’s plans to begin selling COVID-19 rapid test kits at the start of the pandemic.
In April 2020, SCWorx published a press release claiming it had received a “committed purchase order” to supply 2 million COVID tests to telehealth provider Rethink My Healthcare. The order also included a provision to supply 2 million more tests each week for up to 23 weeks, which SCWorx said would bring in around $35 million per week.
A few days later, the New York-based company doubled down on those claims, issuing another press release to confirm those plans to distribute tests to Rethink My Healthcare.
According to the SEC, however, the deal never came to fruition. In fact, the agency alleged, SCWorx issued the announcements despite having “neither a legitimate supplier of COVID-19 test kits nor an executed purchase agreement with a buyer.”
The SEC notes that the announcements led SCWorx’s stockholders to send the share price skyrocketing based on their belief in the company’s claims. After the first release, specifically, the price grew 425% compared to the previous day’s closing number.
“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.”
In its complaint, the agency charged SCWorx and Marc Schessel—its CEO and chairman of the board at the time of the announcements—with violating federal anti-fraud provisions. In addition to collecting injunctive relief, disgorgement and civil penalties from both defendants, the complaint is also seeking to bar Schessel from holding future officer or director positions.
SCWorx agreed to a settlement with the SEC that will see it pay a $125,000 penalty and a disgorgement of $471,000 plus prejudgment interest of just over $32,700. The company didn’t admit to nor deny any of the allegations in accepting the settlement.
The settlement terms were first outlined in April. At the time, Tim Hannibal, who took over for Schessel as CEO in June 2021, said in a statement: “The company fully cooperated with the SEC’s investigation and believes the settlement is in the best interest of the company. SCWorx takes its regulatory obligations seriously, and the integrity of the company, its management and board of directors is of paramount importance.”
He continued, “SCWorx provides critical and high-quality data and software solutions to hospitals, and it is very important that these issues from 2020 are put behind us, as they do not in any way reflect on the quality of our product, integrity of our company or the hard work of our employees.”
The disgorgement and interest payments will come in the form of a previously settled class-action suit in which SCWorx agreed to pay out $600,000 worth of common stock to affected shareholders.
Separately, the U.S. Attorney’s Office for the District of New Jersey announced Tuesday that it is pursuing criminal charges against Schessel.