The Securities and Exchange Commission (SEC) filed a complaint and reached a settlement with defendants SCWorx Corp. and its former CEO, Marc S. Schessel, who were charged with making false and misleading statements about their plan to distribute COVID-19 testing kits in April of 2020. A press release held by the SEC on Tuesday announced that the defendants had agreed to settle the charges by paying a civil penalty of $125,000 and more.
The complaint was filed Tuesday in the District of New Jersey. In April of 2020, the defendants announced to investors their intent to supply millions of COVID-19 test kits to a telehealth company in exchange for hundreds of millions of dollars. They described the transaction as a “committed purchase order” in which they would supply COVID-19 test kits for up to 23 weeks, totaling a potential profit of $840 million.
Following the announcement of the supposed agreement between SCWorx and the telehealth company, the company’s stock surged over 425%. The announcement did not detail who the supplier of the test kits would be.
The suit filed by the SEC asserts that there was no agreement between SCWorx and the supposed telehealth company, and that SCWorx never had a legitimate supplier for the COVID-19 test kits. When the telehealth company contacted the defendants to clarify that what they had represented to investors as a “committed purchase order” was actually a “preliminary summary draft,” defendant Schessel continued to make false and misleading statements regarding the situation to investors.
The SEC alleges that each of the defendants benefitted from the massive surge in SCWorx’s stock price. SEC Chair Gary Gensler explained that “the defendants engaged in an age-old fraud – lying about their business prospects – to capitalize opportunistically on the COVID pandemic.” Just 16 days after the announcement of the COVID-19 testing kit agreement, SCWorx reported that the agreement had been terminated before the distribution of COVID-19 tests had even began.
The complaint cited violations of the Securities Act and the Exchange Act. Without admitting or denying the allegations, the defendants agreed to a settlement in which they will be subject to permanent injunctions, a $125,000 civil penalty, and disgorgement of $471,000 with prejudgment interest.