Earth with a coronavirus virion (Credit: NIH; NASA)

The Securities and Exchange Commission on Tuesday charged a penny stock trader in Santa Cruz, California, with conducting a fraudulent pump-and-dump scheme in the stock of a biotech company, which included making a false assertion that the company had developed an “approved” COVID-19 blood test.

According to the SEC’s complaint, beginning around March 2, Jason Nielsen attempted to drive the stock price of Arrayit Corp. securities higher using online posts encouraging investors to purchase shares, including numerous messages repeating the false assertion regarding an approved COVID-19 test, without telling them about his large position in Arrayit stock or his plans to sell the shares while others were buying.

In March and April 2020, the complaint states, “the news cycle in America was saturated with reports and commentary on the severity of the COVID-19 virus, the need for accurate and rapid COVID-19 tests, the need for increased COVID-19 testing, and the downturn in the stock market and global economy due to the COVID-19 pandemic.”

During this time, Nielsen “posted numerous messages on Investors Hub that promoted Arrayit stock claiming that Arrayit had a COVID-19 test; that Arrayit’s COVID-19 test was pending Emergency Use Authorization from the FDA; and that Arrayit had received approval for its COVID-19 test,” the complaint states.

Nielsen also allegedly created the false impression of high demand for Arrayit stock by placing and subsequently canceling several large orders to purchase shares in a tactic known as “spoofing,” the SEC said.

Nielsen made approximately $137,000 in six weeks, but based on questions regarding the accuracy and adequacy of publicly available information concerning Arrayit, the SEC states that it temporarily suspended trading in Arrayit securities on April 13, before Nielsen was able to profit further from the scheme.

“We allege that Nielsen engaged in multiple forms of deception to exploit investors amidst the COVID-19 pandemic,” said Erin Schneider, director of the SEC’s San Francisco Regional Office. “Investors should be aware of the potential for stock manipulation, including through claims regarding products or services related to COVID-19.”

The SEC’s complaint, filed in the U.S. District Court for the Northern District of California, charges Nielsen with violating the antifraud provisions of the federal securities laws, and seeks permanent injunctions, civil money penalties, a penny stock bar, and disgorgement with prejudgment interest.

— Related on ThinkAdvisor: