An investor is suing the Salt Lake City company that makes the coronavirus test used by TestUtah, saying the company falsely claimed it was “100%” accurate.
Gelt Trading, Ltd., of the Cayman Islands, is seeking class-action status for a securities-fraud lawsuit against Co-Diagnostics, a Salt Lake City biotech firm. Co-Diagnostics' COVID-19 test is used by Utah tech companies that have received more than $60 million in no-bid contracts to run testing systems in Utah and two other states.
The lawsuit alleges that Co-Diagnostics’ stock prices rose due to the company’s claim that its coronavirus test showed 100% sensitivity in multiple evaluations — “a staggering claim that appeared to set Co-Diagnostics apart from other competitors developing COVID-19 tests,” the lawsuit states.
Co-Diagnostics did not immediately respond to The Tribune's request for comment.
The biotech company made the claims about its test accuracy in a news release May 1, the day after The Tribune reported data showing that TestUtah was producing positive results at less than half the rate of Utah’s other test sites, even when including only patients with symptoms.
As various investor publications repeated the company’s release claiming 100% accuracy, the company’s stock continued to rise, reaching an all-time high of $29.72 on May 14 — “an extraordinary climb from its $0.8952 year-end 2019 price,” the lawsuit states.
“As a result of this misrepresentation and the influx of taxpayer dollars to Co-Diagnostics, the company’s stock soared — until it crashed,” the lawsuit states.
On May 14, The Tribune reported that TestUtah had declined to join other Utah labs in an experiment to check the accuracy of one another’s coronavirus tests.
On the same day in Iowa, where the companies behind TestUtah are running a similar testing system, state officials announced that a public lab there had done its own experiment, finding "95% accuracy for determining positives and 99.7% accuracy for determining negatives."
The difference between 95 and 100% accuracy "can have momentous adverse consequences if Co-Diagnostics’ tests are used on a widespread basis, as intended," the lawsuit states.
During the day, Co-Diagnostics stock price dropped more than 38% within a few hours, according to the lawsuit. That afternoon, the company’s scheduled quarterly earnings call was flummoxed by an apparent technical glitch, leaving investors to listen to a cacophony of background noise, such as barking dogs, swearing and intermittent calliope music. The stock price had fallen again to $15.80 when the market opened the next day, the lawsuit states.
"Investors who believed Co-Diagnostics claims of 100% accuracy have lost hundreds of millions of dollars as a result of Co-Diagnostics’ blatantly fraudulent statements to the investing public," the lawsuit states.
Gelt and others bought shares “prior to May 14, when the truth about the tests’ accuracy began to be revealed, at a price much higher than the price at which the stock traded after the truth of the tests’ accuracy was publicly revealed,” according to the lawsuit.
“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 of the price of Co- Diagnostics’ stock while the officers and directors exercised low priced options and dumped their stock into the market,” the lawsuit states.
Gelt is seeking class-action status for the lawsuit, to include any investors who bought Co-Diagnostics stock between Feb. 25 and May 15 and lost money.