Medicare Fraud Case Evokes Theranos Déjà Vu

In a story that evokes feelings of Theranos déjà vu, a Silicon Valley medtech executive is on trial this week for allegedly making false claims about his company's blood testing technology.

Law360 reports that a California federal jury heard opening statements Monday in the criminal fraud trial of Mark Schena, president of Sunnyvale, CA-based Arrayit. Schena is facing nine counts of fraud and conspiracy for allegedly lying about the development of a COVID-19 test. He has served as president and chief science officer at Arrayit since 2008 and is married to the company's CEO, Rene Schena, according to a complaint filed by the U.S. Securities and Exchange Commission.

In March 2020, Mark Schena announced that the company had developed a finger-stick COVID-19 test and had received more than 50,000 orders for the tests despite having not yet even ordered the reagents required to produce such a test. The SEC suspended trading of Arrayit shares between April 14, 2020 and April 27, 2020. Without admitting to the allegations, the company and Rene Schena accepted an agreement with the SEC to settle the charges. As a result of that settlement, Renee Schena may not operate a public company for three years and she was slapped with a $50,000 civil penalty. In June 2022, Arrayit investor Jason Nielsen pled guilty to securities fraud.

According to a June 2020 statement from the Department of Justice, the complaint against Mark Schena was the first criminal securities fraud prosecution related to the COVID-19 pandemic that was brought by the DOJ.

According to the affidavit in support of the complaint, Schena touted that Arrayit is the “only laboratory in the world that offers” revolutionary “microarray technology” that allows Arrayit to test for allergy and COVID-19 based on a drop of blood that is 250,000 times smaller than the technology touted by Theranos.

“The allure of cheap reliable alternatives to today’s standard blood tests panels has captured the imagination of the healthcare industry, making such alternatives a prime subject for fraudsters,” said U.S. Attorney David L. Anderson of the Northern District of California. “The scheme described in the complaint, in which the defendant allegedly leveraged this allure by appending the fear of the COVID-19 pandemic, amounts to a cynical multi-million dollar hoax.”

The DOJ also accused Mark Schena of paying kickbacks and bribes to recruiters and doctors to run an allergy screening test for 120 allergens on every patient regardless of medical necessity, and then made numerous misrepresentations to potential investors about the company's allergy test sales, financial condition, and future prospects.

According to the DOJ, Mark Schena told investors it was simple to develop a test for COVID-19 because the switch from testing for allergies to testing for COVID-19 was “like a pastry chef” who switches from selling “strawberry pies” to selling “rhubarb and strawberry pies.”  Arrayit’s stock price doubled in mid-March, but Schena and others never disclosed that there were questions about the validity of its data and the accuracy of its COVID-19 test, the DOJ said.

According to the SEC complaint, investors send email inquiries asking if Arrayit had a COVID-19 test that was approved by FDA and Mark Schena responded, "we have a test," while omitting the fact that the test was not approved by FDA or any other regulatory entity. The government also pointed to several email examples where Schena told investors that the company's COVID-19 test was pending emergency use authorization by FDA. A subsequent letter addressed to "valued customer" was later sent to numerous investors claiming that Arrayit had received more than 50,000 requests for the test.

On Monday, during opening statements in his trial, prosecutors told a jury that Mark Schena falsely claimed that the company had developed a COVID-19 blood test but was actually using blood drawn from patients to run hundreds of expensive and unnecessary allergy tests and billing Medicare for it, Law360 reported. As part of his defense, Schena's lawyers pointed to his undergraduate and doctorate degrees in biochemistry and argued that he worked primarily in Arrayit's labs. They also claimed that doctors ordered the patients' allergy tests, not the company.

Jacob Nathaniel Foster of the DOJ is representing the government in the trial. Todd Pickles of Greenberg Trauig is representing Schena. Judge Edward Davila of the Northern District of California is the presiding judge in the case. Davila also presided over the trials of both Elizabeth Holmes, founder and ex-CEO of Theranos, and Ramesh "Sunny" Balwani, the former chief operating officer at Theranos.

Is Silicon Valley hemorrhaging lies?

As we settle in for Schena's trial so soon after Balwani's verdict was handed down last month, it's all too easy to spot the similarities between Theranos and Arrayit. Both Silicon Valley companies claimed to be working on fingerstick blood tests that required minimal amounts of blood. Theranos was led by Holmes and Balwani who, we now know, were in a long-term romantic relationship behind the scenes. Arrayit was led by the Schenas, a husband-and-wife duo.

Theranos whistleblower Erika Cheung (pictured above), is on tap to deliver a keynote at the 2022 edition of BIOMEDevice Boston. Cheung is now the CEO of Ethics in Entrepreneurship, which helps businesses create a proactive ethical culture amongst startups. Her keynote will focus on aiding future tech leaders to recognize and act when ethical problems arise within the industry. A former medical researcher turned technology and innovation ecosystem builder, Cheung will recount her experience at Theranos and how to avoid the same ethical problems.

The two-day conference and exhibition, slated to take place September 28-29 at the Boston Convention & Exhibition Center, serves as the east coast's premier event that showcases emerging technologies and trends from cutting-edge engineers, innovative thinkers, and business leaders who impact the progression of the world's biomedical field.