SEC Alleges Biotechnology Company Falsely Claimed it Developed ‘Break-through’ COVID-19 Test

On Thursday in the Southern District of New York, the Securities and Exchange Commission (SEC) filed a complaint against Keith Berman and Decision Diagnostics Corp. (DECN), alleging that the defendants made false and misleading public statements in the spring that they had developed a “break-through” finger-pricking device to test for the novel coronavirus when they actually had not finished the product nor even developed a prototype.

In mid-February, Berman, president and CEO of biotechnology company DECN, learned of the location of DECN’s manufacturing site for its glucose testing strip for diabetes and decided to pursue the development of a coronavirus testing kit — the first time the company had attempted to create a virus detection test — according to the complaint.

Berman and his company, from March to at least June 2020, issued news releases announcing the creation of their purported coronavirus testing kit, branded and marketed as “GenViro!” In one of the press releases dated March 11, the company said, “The introduction of our new screening methodology for the Coronavirus (Covid19) will provide a timely, simple to use and cost effective solution for the screening of the frightening COVID19 virus.”

However, during this period, the plaintiff claimed, the defendants had only a concept of the testing device and “had not manufactured a single testing kit or prototype device capable of testing for the presence of Covid-19 in a blood sample.” The plaintiff also claimed that the company created false images of the testing device, despite knowing the product did not exist.

The plaintiffs also alleged that Berman made false statements about the progress being made to get emergency use authorization (EUA) from the FDA. In an April 23 news release, Berman said, “We believe we have completed discussions and have come to an understanding with the FDA on all of the testing required to receive the EUA. We plan to engage a specialty reference laboratory to complete this testing in the next 10 days. Testing should take about a week.” The plaintiffs purported that this statement and others made within the time period in question “were materially false and misleading” because they conveyed that DECN was ready to begin the required testing to receive the EUA, but the defendants had no physical testing kit that could undergo tests, the complaint said.

These false and misleading statements affected the price and volume of DECN stock, according to the complaint. In the three months before March 3, DECN’s share price was between $0.0101 and $0.023, averaging 237,701 shares per day. On April 23, after 14 news releases about the reported coronavirus testing kit, the stock reached $0.50 per share. Also on April 23, the SEC issued an order to suspend trading in DECN stock from April 24 to May 7 due to “questions regarding the accuracy and adequacy of information in the marketplace” about the company, the complaint said.

The SEC purported that DECN and Berman’s conduct was in violation of the Exchange Act, including through “employ(ing) devices, schemes, or artifices to defraud” and “ma(king) untrue statements of material fact or omit(ing) to state material facts necessary in order to make the statements … not misleading.”

The plaintiff requested an order that the defendants pay civil penalties pursuant to violating the Exchange Act, that they be barred from further violations of federal securities regulations and that Berman is prohibited “from acting as an officer or director of any issuer that has a class of securities registered pursuant to Section 12 of the Exchange Act.”