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COVID Frauds of the Week: Unproven Tests, Nonexistent Equipment, Price Gouging, and $10 Million in SBA Loans

Posted  May 15, 2020

Fraudsters continue to attempt to capitalize on anxiety and uncertainty during the pandemic by marketing unproven products and services for the prevention, treatment, or cure of COVID-19.

This week, we highlight the massive FTC efforts to identify and shut down illegal activities via Warning Letters (around 100 issued to date); two new SEC actions; as well other government actions to quash sales of unproven or nonexistent test kits and therapies, including a fingerstick test and an unverified claim of a 99.9% effective thermo temperature device “ready” for distribution; and to put an end to price gouging during a state of emergency.

The FTC announced in a press release that they have sent 45 more warning letters to marketers of unproven products and therapies to prevent or treat COVID-19. The FTC has sent around 100 such letters since the start of the pandemic. The marketing of products not supported by scientific evidence violates the FTC act. Recipients of the letters were given 48 hours to notify the Commission of the specific actions they have taken to address the agency’s concern. In the mix now, along with the retailers of products, is VoIP service providers who are charged with aiding or facilitating the sale of unproven products via the transmission of pre-recorded telemarketing robocalls. If the companies do not take the necessary steps to end the illegal activity, the Commission may seek a federal court injunction and an order requiring money to be refunded to customers.

The SEC charged two companies and a CEO with fraud: Applied BioSciences and Turbo Global Partners, Inc., and its CEO Robert W. Singerman. Applied BioSciences was offering and shipping finger-prick COVID-19 tests that could be used for “anyone wanting immediate and private results.” There was no valid basis for the Applied BioScience’s claims, as the tests were not intended for home use by the general public and could be administered only in consultation with a medical professional. Further, as of March 31st, no tests had been shipped, and the tests were not authorized by the FDA. Turbo Global and its CEO were touting a purported “multi-national public-private-partnership” to sell thermal scanning equipment to detect individuals with fevers. They falsely claimed 99.9% accuracy and was ready for immediate deployment in each State via a corporate partner. There was, in fact, no agreement to distribute the equipment, and the statements were not verified. The SEC’s complaint against Turbo Global and Singerman charges them with violating antifraud provisions of the federal securities laws and seeks permanent injunctive relief and civil penalties, and an officer and director bar against Singerman.

On the testing front, a New York man was arrested and criminally charged for advertising and selling stolen COVID-19 testing services for $135 to $200. Henry Sylvain Gindt II, 34, of Queens, New York has been charged by criminal complaint with committing mail fraud and wire fraud, and conspiring to commit mail fraud and wire fraud, via his website YouHealth, Inc. He procured stolen COVID-19 test kits from a laboratory employee, and then advertised testing kit services on his website. According to the DOJ press release, the government was tipped off by a western Pennsylvania resident who received an email advertising the sale of at-home COVID-19 testing services. Tim Burke, Special Agent in Charge, United States Secret Service, Pittsburgh Field Office, stated:  “This case should serve as a strong deterrent for criminal actors considering taking part in related fraud schemes. The Secret Service along with our Western Pennsylvania COVID-19 Fraud Task Force partners will continue to investigate and arrest criminals who attempt to defraud citizens and businesses related to the COVID-19 pandemic.”

As for “treatments,” Oklahoma company Xephyr LLC, doing business as N-Ergetics, and its owners Brad Brand, Derill J. Fussell, and Linda Fussell, entered into a temporary restraining order for selling and distributing a colloidal silver product, claiming that COVID-19–and other diseases–could be mitigated or cured by it. According to the DOJ press release, the complaint alleges that defendants are introducing unapproved new drugs into interstate commerce and that their disease-related treatment claims are unsupported by any well-controlled clinical studies or other credible scientific substantiation. The company received a March 6, 2020, Warning Letter notifying them that they are violating federal law by, among other things, distributing unapproved new drugs and misbranded drugs in interstate commerce. After receipt of this warning, the complaint alleges, the defendants attempted to cloak their claims to prevent liability, while continuing to make the same substantive claims and to sell colloidal silver as a cure, mitigation, or treatment for coronavirus and COVID-19. The company has since taken down their sales website, and are offering a refund to anyone who has ordered their product within the last 90 days.

California and Pennsylvania authorities responded to reports of price gouging this past week.

A Pleasanton, California grocery store and its owner were charged with misdemeanor price gouging, because he raised the prices of essential food items over the allowed 10 percent threshold. In fact, Apna Bazar, and owner, Rajvinder Singh, were charging as much as 200 percent more than what was previously charged on essential food items. The price gouging law prevents businesses from profiteering when the County is in a state of emergency. The violation could result in a misdemeanor offense, including imprisonment in county jail for not more than one year and/or a fine of not more than $10,000.

The Pennsylvania Attorney General shut down price gouging efforts by the Fresh & Easy Convenience Store in Boothwyn, Pennsylvania. The AG received a tip that the store was selling Lysol cleaning wipes for $25, as opposed to the usual $8.99 and $14.99 charged, depending on the size. The store was required to pay $600 in civil penalties, in addition to restitution of $119.88 for customers who purchased the Lysol wipes at the inflated price. Consumers who present a receipt showing they were overcharged may be eligible for restitution.

And finally, a Texas engineer has been charged with filing fraudulent SBA loan applications requesting more than $10 million in forgivable loans. Shashank Rai, 30, of Beaumont, Texas, allegedly sought loans from two banks by falsely stating he had 250 employees earning wages when, in fact, there were no employees. The Texas Workforce Commission and the Texas Comptroller’s Office of Public Accounts provided information that showed the absence of employee wage records or revenues. Rai is charged with violations of wire fraud, bank fraud, false statements to a financial institution, and false statements to the SBA.

The above-detailed enforcement actions illustrate the government’s zealous efforts—at local, state, and federal levels—to protect consumers from companies and individuals intent on selling unproven products to unwary consumers during the COVID-19 pandemic.


Tagged in: Catch of the Week, COVID-19, FCA Federal, Financial and Investment Fraud, Healthcare Fraud,