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Maker of TestUtah COVID-19 test sued by investors alleging ‘pump-and-dump’ stock scheme

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Co-Diagnostics lab analyst Madison Stark works with samples as the company produces COVID-19 testing kits in Salt Lake City on Tuesday, March 17, 2020.

Jeffrey D. Allred, Deseret News

SALT LAKE CITY — A proposed class action lawsuit filed in federal court Monday accuses the maker of a COVID-19 test used by the TestUtah program and others of making false claims about the accuracy of its test as part of a pump-and-dump stock scheme.

Cayman Islands-based Gelt Trading Inc. alleges executives at Co-Diagnostics misrepresented its Logix COVID-19 test as being “100% accurate” in statements and news releases, a claim that it alleges was later shown to be false but only after the company’s stock value saw dramatic increases.

“Co-Diagnostics, its directors and officers — including Ph.D.-level scientists who should know better — made continual, knowing and willful misstatements about their main product, a COVID-19 diagnostic test, to pump up the price of Co-Diagnostics’ stock while the officers and directors exercised low priced options and dumped their stock into the market,” the complaint reads. “Their fraudulent misstatements, and disregard for the basic scientific principles that make their falsity of their statements clear in retrospect, cost investors to lose millions of dollars.”

The plaintiff claims Co-Diagnostics had a “market first” mentality in developing its COVID-19 test and leveraged the purported accuracy of its test to distinguish the publicly traded company from competitors that were also working to release a viable coronavirus test.

“Co-Diagnostics, its chief technology officer, and its other officers and directors made unequivocal statements to the market that its COVID-19 tests were 100% accurate — a staggering claim that appeared to set Co-Diagnostics apart from other competitors developing COVID-19 tests,” the complaint says. “As was later revealed, however, this was not true: Co-Diagnostics’ COVID-19 tests are materially less than 100% accurate — a discrepancy that can have momentous adverse consequences if Co-Diagnostics’ tests are used on a widespread basis, as intended.”

In the complaint, the plaintiff asserts the accuracy claims by Co-Diagnostics were shown to be false by both independent assessments of the company’s test as well as statements by the U.S. Food and Drug Administration.

Gelt Trading alleges that falsehoods about test accuracy helped drive Co-Diagnostics’ stock value to record-high prices before a “momentous” drop in mid-May that erased hundreds of millions of the company’s market value.

“Co-Diagnostics stock enjoyed an all-time high stock price of $29.72 per share and a market capitalization of over $800 million,” the complaint reads. “This was quite an accomplishment for a company that was at risk of being delisted from the exchange on New Year’s Day, 2020, when it was trading at $.91 and was worth less than $25 million.

“Co-Diagnostics officers and directors were poised to make a fortune on the inflated stock price.” 

Co-Diagnostics stock was trading at $16.74 per share at midday Tuesday for a market capitalization of about $460 million.

Co-Diagnostics shared the following statement with the Deseret News on Wednesday:

“Co-Diagnostics stands behind the quality of our technology platform and performance of our testing products. We intend to vigorously defend this matter.”  

According to a recent federal audit of the TestUtah lab facility, the program has been processing an average of 52,000 COVID-19 tests per month in the state. The Co-Diagnostics COVID-19 test is in use in multiple states in the U.S., the European Union and other locations.

Gelt Trading is seeking unspecified damages in the complaint. The company says it, and other investors, have “suffered damages in that, in reliance on the integrity of the market, they paid artificially inflated prices for Co-Diagnostics common stock” and that it and other potential plaintiffs “would not have purchased Co-Diagnostics common stock at the prices they paid, or at all, if they had been aware that the market prices had been artificially and falsely inflated by defendants’ misleading statements.”