Thanks to HBO’s documentary, “The Inventor: Out for Blood in Silicon Valley,” and a barrage of media coverage about Elizabeth Holmes and her defunct company, Theranos, it is unmistakable that big misrepresentations can lie in public statements regarding miniscule quantities of blood.

This lesson proved true again last month, when the CEO of Decision Diagnostics, a pharmaceutical testing company, widely publicized that the company could accurately test for COVID-19, providing near-instant results with only a finger-prick of blood. In one press release, the CEO, Keith Berman, went so far as to say the COVID-19 testing would be “commercial ready” by summer of 2020.  The market took note, and the company’s stock soared (by a whopping 1,200%) following Berman’s statements.

Unfortunately, these claims may have been too good to be true. According to a complaint filed by the SEC last month, Berman knew the company’s manufacturer hadn’t made a single testing kit or prototype device able to test for COVID-19 in a blood sample of any size. The SEC also alleges that in his public statements, Berman went so far as to fabricate images purporting to show the testing device, even though he knew it didn’t exist.

Based on these allegations, the SEC’s action asserts violations of the Exchange Act and seeks to bar Berman and Decision Diagnostics from violating federal securities laws and order them to pay civil penalties, among other things.

This case is not the first securities fraud suit relating to COVID-19 testing misrepresentations.  The SEC has filed numerous complaints premised on allegedly false or misleading claims by publicly-traded companies that their products or services could prevent, detect, or cure COVID-19. Private investors have followed suit. For example, last month, shareholders of Sona Nanotech sued the company based on allegedly misleading statements about the timing and likelihood of approval of rapid detection COVID-19 antigen tests, precipitating multiple drops in share prices.

In light of these and other newly emerging examples, publicly traded companies should be on notice that representations relating to COVID-19 testing – from the timing for its development to its very viability –will undoubtedly attract scrutiny from both the SEC and shareholders.

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Proskauer’s cross-disciplinary, cross-jurisdictional Coronavirus Response Team is focused on supporting and addressing client concerns. Visit our Coronavirus Resource Center for guidance on risk management measures, practical steps businesses can take and resources to help manage ongoing operations.

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Photo of Erica T. Jones Erica T. Jones

Erica Jones is an associate in the firm’s Litigation Department, where her practice encompasses a range of business, regulatory, and corporate governance matters. She has worked extensively in defense of securities class actions, derivative suits, and white collar criminal matters involving investigations by…

Erica Jones is an associate in the firm’s Litigation Department, where her practice encompasses a range of business, regulatory, and corporate governance matters. She has worked extensively in defense of securities class actions, derivative suits, and white collar criminal matters involving investigations by the SEC, DOJ, and state attorneys’ offices. In addition, Erica has advised on antitrust matters involving allegations of price fixing, restraint of supply, monopolization, group boycott, bid rigging, and collusion across industries that include agriculture and health care. She is also a member of the litigation team representing the Financial Oversight and Management Board in the Commonwealth of Puerto Rico’s bankruptcy proceedings.

Erica maintains an active, diverse pro bono practice, with a focus on immigration law, compassionate release and habeas corpus, and racial justice. She is an associate trustee with the Washington Lawyers’ Committee for Civil Rights and Urban Affairs and has been recognized by the District of Columbia Courts’ Capital Pro Bono Honor Roll. Erica was also one of a few women selected to be a Protégée for Proskauer’s Women Sponsorship Program, an initiative for high performing midlevel lawyers that champions emerging leaders.

Erica strives to stay on the cutting edge of developing areas of law through her membership in Proskauer’s COVID-19 Task Force, ESG Working Group, and Private Credit Litigation Group.  Erica’s ability to advocate for her clients is further bolstered by her recent Master’s Degree in Accounting from the University of North Carolina’s Kenan-Flagler Business School with a concentration in Financial Reporting and Analysis.

Prior to joining Proskauer, Erica was an intern with the Department of Justice in the Constitutional and Specialized Tort Litigation Section. Outside of her career in the law, Erica has been featured on Fox’s So You Think You Can Dance, teaching ballroom dance to students at Lighthouse for the Blind.