A California trader is in hot water with the SEC after touting a biotechnology company that he claimed had created an “approved” blood test for COVID-19 to investors, according to a complaint filed by the government regulator.
The SEC claimed that Jason C. Nielsen owned about 10% of stock in Arrayit Corp., and he allegedly began endorsing the company to investors on an online forum starting around March 2. According to the SEC, Nielsen was trying to pull off a “pump-and-dump” scheme, where he would encourage investors to purchase Arrayit’s stock, raising the price so he could sell off his own securities for a profit.
Nielsen reportedly told investors that Arrayit developed a test for COVID-19, and that the corporation had an Emergency Use Authorization application for the test pending with the Food and Drug Administration. He also claimed the firm had received authority from the FDA for the test. While Arrayit did eventually submit an application, it did not so until April 13, after Nielsen made his claim to encourage investors to purchase Arrayit stock; at no point did he reveal his own investments in the company, according to the SEC.
Nielsen made about $137,000 in six weeks, according to the complaint. Erin E. Schneider, the director at the SEC’s San Francisco Regional Office, confirmed the commission’s allegations that Nielsen had tried to exploit investors in the midst of the pandemic.
“Investors should be aware of the potential for stock manipulation, including through claims regarding products or services related to COVID-19,” she said.
Additionally, authorities charged Arrayit President Mark Schena with trying to defraud Medicare and investors in regard to COVID-19 tests, in the Department of Justice’s first prosecution for criminal securities fraud concerning the virus’s spread, according to the New York Times.
Additionally, Nielsen engaged in a “spoofing” technique to boost investor interest, according to the SEC. “Spoofing” refers to someone placing (and then canceling) significant orders of a stock to make it seem like there is a higher demand. Nielsen purportedly made and then canceled orders for Arrayit stock, and told investors on online forums that other investors had made the purchases, creating the appearance there was a run on Arrayit securities (the SEC temporarily suspended trading in securities for the company in April, ending Nielsen’s purported scheme).
In the complaint, the SEC charged Nielsen with violating anti-fraud provisions in federal securities, and asked the U.S. District Court for the Northern District of California to institute a permanent injunction and penny stock bar, along with civil penalties and disgorgement.
Nielsen could not be reached for comment.
Both the SEC and FINRA have pursued charges against advisors and brokers attempting to defraud investors during the COVID-19 pandemic. In May, FINRA announced a new task force had been investigating ways to protect vulnerable investors during the spread of the virus, focusing on concerns about potential broker fraud, issuer fraud, insider training and schemes targeting seniors.