NEW YORK – The US Securities and Exchange Commission filed a cease-and-desist order Wednesday and ordered Co-Diagnostics to pay $250,000 in fines on allegations the firm filed misleading press releases about its COVID-19 tests and failed to disclose transactions involving executives' family members.
SEC officials said in a filing that Salt Lake City, Utah-based Co-Diagnostics had agreed to settle the matter without admitting or denying the agency's findings. According to the SEC, Co-Diagnostics issued two press releases in February 2020 that misleadingly suggested its research-use-only PCR test for COVID-19 could be used by consumers to detect the virus, potentially misleading investors about the company's ability to sell tests at a time when COVID-19 testing was scarce.
Authorities at the SEC also said Co-Diagnostics failed to disclose that the firm had hired CEO Dwight Egan's son as the firm's director of sales and marketing and the son of then-CFO and General Counsel Reed Benson as the firm's head of corporate communications and investor relations. The SEC separately levied a $40,000 fine against Benson, who signed off on the annual reports that should have disclosed compensation paid to the two as well as a consulting company co-owned by Benson's son, according to the agency.
Co-Diagnostics provided a statement that "The Company is pleased to put this matter behind us as we move forward and continue to focus on our mission of preventing the spread of infectious diseases by increasing the availability of high-quality PCR diagnostics worldwide."
The SEC said Co-Diagnostics' February 2020 press releases included statements that suggested the company's Logix Smart Coronavirus COVID-19 Test was ready for sale to laboratories, hospitals, and other institutions; the product was ready for sale throughout the world; and the rapid design and commercialization of the test illustrated the advantages of the firm's processes and technology. The SEC said the firm's share price closed up around 19 percent on Feb. 6, the day of the first press release, compared to the day prior, and it closed up 32 percent on Feb. 10, the day of the second press release, compared to the day prior.
On Feb. 11 and 26, 2020, the US Food and Drug Administration contacted the firm and requested that Co-Diagnostics correct language in the press releases that misleadingly implied the Logix COVID-19 test could be used for diagnostic purposes and made unapproved claims about the test's performance. The firm responded by adding notes that the tests were for research use only and not available in the US.
However, between those two letters from the FDA, on Feb. 13, Co-Diagnostics sold 3,324,676 shares of common stock at $3.08 per share in a direct public offering, securing proceeds of $10.2 million, at which time the press releases remained on the firm's site and Co-Diagnostics "had neither retracted nor modified the materially misleading statements contained in the February 6 or 10 Releases," according to the SEC.
Co-Diagnostics eventually secured FDA Emergency Use Authorization in April 2020 to sell its Logix Smart Coronavirus COVID-19 Test to CLIA labs.
Wednesday's filing shows that $3.08 per share was a sharp rise in the company's share price since July 2019, when Co-Diagnostics received notice from the Nasdaq that its stock had fallen below the minimum $1 per share requirement for 30 consecutive days and the firm faced delisting action. The SEC said the firm increased its public relations efforts following that notice, including use of a firm co-owned by the CFO's son, Andrew Benson, to distribute press releases and other company information.