Federal prosecutors and the U.S. Securities and Exchange Commission have charged area businessman Marc S. Schessel with criminal and civil securities fraud for allegedly cheating investors of $116 million by tricking them into thinking the company had procured millions of Covid-19 rapid test kits in the early days of the pandemic.
Schessel “engaged in an age-old fraud — lying about their business prospects — to capitalize opportunistically on the Covid pandemic,” the SEC stated in a press release.
Both cases were filed May 31 in U.S. District Court in Newark, New Jersey.
Schessel, 62, the former CEO of SCWorx Corp. lives in New Paltz, Ulster County, according to the SEC, or Greenwich, Connecticut, according to the U.S. Department of Justice.
The gist of the allegations is that SCWorx was struggling financially at the beginning of the pandemic when Schessel issued press releases and held a conference call with investors touting an $840 million deal to acquire and sell 48 million Covid-19 test kits.
The company’s stock price surged by 425%, from $2.25 to $12.02 per share after the first press release on April 13, 2020, on trading volume more than 900 times greater than the 3-month average daily volume.
Schessel and an investor with ties to him took advantage of the stock surge, according to the SEC, and the company paid off a large vendor debt with inflated stock.
But Schessel knew, according to the feds, that he did not have access to legitimate test kits and did not have a buyer for the kits.
Schessel claimed that Rethink My Healthcare, a small Fairfield, New Jersey telehealth company, had committed to buying the test kits, and that SCWorx would procure the kits from ProMedical Equipment Pty Ltd., Australia, a supplier approved by the U.S. Food and Drug Administration.
ProMedical was not approved by the FDA, according to the government, and Rethink My Healthcare never made a firm commitment and had quickly issued a cease and desist letter. But Schessel continued to tout the purported deal.
Stock analysts Utopia Capital Research and Hidenburg Research quickly cast doubts on the deal, citing Schessel’s checkered past and other squirrelly aspects of the players.
In 2002 the New York attorney general charged Schessel and others in a $2 million bribery case and $2 million fraudulent invoices case when he was employed by Continuum Health Partners and Beth Israel Medical Center. Schessel was not charged in the underlying schemes but pleaded guilty to felony tax evasion.
In 2012, an analyst reported, Deman Data Systems accused Schessel of misappropriating trade secrets and failure to disclose his criminal record. The case was settled.
The stock analysts also wondered how SCWorx and the purported buyer and seller could handle such a massive deal.
Schessel founded SCWorx in 2013, originally as Primrose LLC, and merged it in 2019 with Alliance MMA Inc., a mixed martial arts promoter. The company supplies healthcare management software.
Rethink My Healthcare was only two years old, was founded by a 25-year-old, and employed only 3 people.
The CEO of Promedical, according to the Hindenburg report, was a convicted rapist, had allegedly falsified his medical credentials, and formerly ran another business that was accused of defrauding investors and customers.
Promedical, according to the Schessel indictment, was known for selling health and fitness equipment, such as massage and erectile dysfunction devices.
Manhattan-based SCWorx has agreed to a settlement that includes more than $1.2 million in penalties and payments and contributed stock.
Efforts to contact Schessel for his side of the story were unsuccessful.
If he is convicted on the criminal charges, according to the Department of Justice, he could be sentenced to up to 45 years in prison.
