Case 2:22-cv-03287 Document 1 Filed 05/31/22 Page 1 of 26 PageID: 1
`
`Michael J. Brennan
`James P. Connor
`Kevin Guerrero
`U.S. Securities and Exchange Commission
`100 F Street, NE
`Washington, DC 20549
`202-551-8394 (Connor)
`connorja@sec.gov (Connor)
`Counsel for Plaintiff
`
`UNITED STATES DISTRICT COURT
`DISTRICT OF NEW JERSEY
`
`U.S. SECURITIES AND EXCHANGE
`COMMISSION,
`
`2:22-cv-03287 (____)
`
`Plaintiff,
`
`v.
`
`COMPLAINT
`
`MARC S. SCHESSEL and
`SCWORX CORP.,
`
`Defendants.
`
` JURY TRIAL DEMANDED
`
`Plaintiff Securities and Exchange Commission (the “Commission”) [100 F
`
`Street, N.E., Washington, DC 20549] for its Complaint against Defendants
`
`SCWorx Corporation (“SCWorx” or the “Company”) [590 Madison Avenue New
`
`York, NY 10022] and Marc S. Schessel (“Schessel”) [4 Jacobs Lane, New Paltz,
`
`NY 12561], alleges as follows:
`
`SUMMARY
`
`1.
`
`In April 2020, during the outbreak of the coronavirus disease 2019
`
`(“COVID-19”) pandemic, NASDAQ-listed securities issuer SCWorx Corp. (ticker:
`
`
`
`Michael J. Brennan
`James P. Connor
`Kevin Guerrero
`U.S. Securities and Exchange Commission
`100 F Street, NE
`Washington, DC 20549
`202-551-8394 (Connor)
`connorja@sec.gov (Connor)
`Counsel for Plaintiff
`
`UNITED STATES DISTRICT COURT
`DISTRICT OF NEW JERSEY
`
`U.S. SECURITIES AND EXCHANGE
`COMMISSION,
`
`2:22-cv-03287 (____)
`
`Plaintiff,
`
`v.
`
`COMPLAINT
`
`MARC S. SCHESSEL and
`SCWORX CORP.,
`
`Defendants.
`
` JURY TRIAL DEMANDED
`
`Plaintiff Securities and Exchange Commission (the “Commission”) [100 F
`
`Street, N.E., Washington, DC 20549] for its Complaint against Defendants
`
`SCWorx Corporation (“SCWorx” or the “Company”) [590 Madison Avenue New
`
`York, NY 10022] and Marc S. Schessel (“Schessel”) [4 Jacobs Lane, New Paltz,
`
`NY 12561], alleges as follows:
`
`SUMMARY
`
`1.
`
`In April 2020, during the outbreak of the coronavirus disease 2019
`
`(“COVID-19”) pandemic, NASDAQ-listed securities issuer SCWorx Corp. (ticker:
`
`
`
`Case 2:22-cv-03287 Document 1 Filed 05/31/22 Page 2 of 26 PageID: 2
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`WORX) and its Chief Executive Officer, Schessel, issued false and misleading
`
`press releases and other statements claiming that SCWorx would supply millions
`
`of COVID-19 test kits to an online healthcare company based in Fairfield, New
`
`Jersey (“Telehealth Company”), in exchange for hundreds of millions of dollars.
`
`In reality, not only was there was no agreement for SCWorx to provide COVID-19
`
`test kits to Telehealth Company, SCWorx did not even have a legitimate supplier
`
`for the COVID-19 test kits.
`
`2.
`
`Defendants’ false and misleading statements to investors began on
`
`April 13, 2020, when SCWorx issued a press release falsely stating that it had a
`
`“committed purchase order” from Telehealth Company to provide two million
`
`COVID-19 test kits “with provision for additional weekly orders of two million
`
`units for 23 weeks, valued at $35 million per week” – totaling $840 million.
`
`Following the press release, SCWorx’s stock price surged more than 425 percent to
`
`close at $12.02, up from $2.25 at the close of the prior trading day, on volume of
`
`approximately 96.2 million shares, more than 900 times the stock’s prior three-
`
`month average daily volume.
`
`3.
`
`The press release did not state who would supply SCWorx with the
`
`test kits, but included a link to the website of the supposed supplier of test kits,
`
`Supplier Company, an Australia-based entity that purportedly sold “advanced
`
`sports and aesthetic medical equipment.”
`
`
`
`2
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`4.
`
`Schessel and SCWorx knew or were reckless in not knowing two
`
`critical facts: (1) there was no “committed purchase order” or purchase agreement
`
`between SCWorx and Telehealth Company; and (2) Supplier Company was not a
`
`legitimate supplier for the COVID-19 test kits that SCWorx would supposedly
`
`provide to Telehealth Company.
`
`5.
`
`On April 14, 2020, the day after the press release was issued, counsel
`
`for Telehealth Company notified Schessel and SCWorx in writing that the
`
`“committed purchase order” that Defendants had touted in the press release was
`
`actually a “preliminary summary draft” and that the “parties have not yet agreed
`
`upon and reduced to writing numerous material terms[.]” In fact, SCWorx and
`
`Telehealth Company had not even executed a purchase agreement, under which
`
`any binding purchase order would then be issued.
`
`6.
`
`Nonetheless, Schessel repeated the false and misleading statements
`
`from the press release – and made additional false and misleading statements – on
`
`a call with SCWorx investors on April 15, 2020, in a report filed with the
`
`Commission on April 16, 2020, and in a SCWorx press release issued on April 17,
`
`2020. Schessel’s additional false and misleading statements included telling
`
`investors that Supplier Company’s supposed COVID-19 test kit “had the proper
`
`F[ood] [and] D[rug] A[dministration] authorizations under the emergency
`
`authorization act,” despite the fact that he knew or was reckless in not knowing
`
`
`
`3
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`Case 2:22-cv-03287 Document 1 Filed 05/31/22 Page 4 of 26 PageID: 4
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`that the Supplier Company’s COVID-19 test kits did not have the proper U.S. Food
`
`and Drug Administration (“FDA”) emergency use authorization (“EUA”).1
`
`7.
`
`SCWorx and Schessel benefitted from the massive surge in SCWorx’s
`
`stock price. For example, SCWorx issued shares to satisfy a large debt to an
`
`SCWorx vendor while the stock price was inflated due to the false and misleading
`
`statements by SCWorx and Schessel. As Schessel explained in an April 14, 2020
`
`email to SCWorx’s Board of Directors, “now that the stock has increased in
`
`value[,] we can actually pay the entire [vendor debt] with the stock,” which was a
`
`“homerun for the company” and an “amazing development that we have worked
`
`on getting [i]n position for.”
`
`8.
`
`On April 30, 2020, before delivering a single COVID-19 test kit,
`
`SCWorx reported in a public SEC filing that the “committed” purchase order
`
`touted in its press releases had been “terminated” and that its agreement with
`
`Supplier Company, the supposed COVID-19 test kit supplier, was also
`
`“terminated.”
`
`
`1 An EUA is a mechanism the FDA uses to facilitate the availability and use
`
`of medical countermeasures, including test kits, during public health emergencies,
`such as the current COVID-19 pandemic. Emergency Use Authorization, U.S.
`Food and Drug Administration, https://www.fda.gov/emergency-preparedness-and-
`response/mcm-legal-regulatory-and-policy-framework/emergency-use-
`authorization (last visited May 30, 2022).
`4
`
`
`
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`9.
`
`Through their conduct, SCWorx and Schessel violated Section 17(a)
`
`of the Securities Act of 1933 (“Securities Act”) [15 U.S.C. § 77q(a)], as well as
`
`Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) [15 U.S.C.
`
`§ 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. § 240.10b-5]. Unless restrained
`
`and enjoined, Defendants will continue to violate these provisions and are likely to
`
`engage in future violations of the federal securities laws.
`
`JURISDICTION AND VENUE
`
`10.
`
` The Commission brings this action pursuant to Sections 20 and 22 of
`
`the Securities Act [15 U.S.C. §§ 77t and 77v] and Sections 21(d) and 21(e) of the
`
`Exchange Act [15 U.S.C. §§ 78u(d) and 78u(e)].
`
`11. The Court has jurisdiction over this action pursuant to Section 22 of
`
`the Securities Act [15 U.S.C. § 77v] and Sections 21(d), 21(e), and 27 of the
`
`Exchange Act [15 U.S.C. §§ 78u(d), 78u(e), and 78aa].
`
`12. Defendants, directly or indirectly, made use of the means and
`
`instrumentalities of interstate commerce, or of the mails, or of the facilities of a
`
`national securities exchange, in connection with the acts, transactions, practices,
`
`and courses of business alleged in this complaint.
`
`13. Venue is proper in this Court pursuant to Section 22(a) of the
`
`Securities Act [15 U.S.C. § 77v] and Section 27(a) of the Exchange Act [15 U.S.C.
`
`§ 78a(a)] because certain of the offers and sales of securities and certain of the
`
`
`
`5
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`acts, practices, transactions, and courses of business constituting the violations
`
`alleged in this Complaint occurred within this District. Specifically, venue is
`
`proper because (1) investors within this District purchased SCWorx stock during
`
`the period of April 13, 2020 through April 20, 2020; (2) Defendants’ false and
`
`misleading press releases and other misstatements were available to investors
`
`within this District; (3) Telehealth Company, the supposed counterparty to the
`
`multi-million dollar “committed purchase order” referenced in SCWorx’s false and
`
`misleading press releases and other statements, is based in Fairfield, New Jersey.
`
`DEFENDANTS
`
`14.
`
` Marc S. Schessel, age 62, resides in New Paltz, New York. In
`
`February 2019, Schessel became the Chief Executive Officer of SCWorx and the
`
`Chairman of SCWorx’s Board of Directors. He resigned as CEO in January 2021
`
`and was removed from the Board of Directors in May 2021. Schessel continues to
`
`work for SCWorx in a consulting role. In August 2003, Defendant Schessel pled
`
`guilty to felony tax evasion in New York State Court.
`
`15. SCWorx Corp. is a Delaware corporation with a principal office in
`
`New York, New York. SCWorx describes itself as a software-as-a-service
`
`provider for those in the healthcare industry. On February 1, 2019, SCWorx
`
`reverse merged into Alliance MMA Inc., an operator of a regional mixed martial
`
`arts production business. Shares of SCWorx common stock are registered with the
`
`
`
`6
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`Case 2:22-cv-03287 Document 1 Filed 05/31/22 Page 7 of 26 PageID: 7
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`Commission pursuant to Section 12(b) of the Exchange Act and trade on the
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`Nasdaq Capital Market under the symbol “WORX.” The Commission temporarily
`
`suspended trading in the securities of SCWorx from April 22, 2020 until May 5,
`
`2020, due to concerns about “the adequacy and accuracy of publicly available
`
`information in the marketplace.” The Nasdaq Capital Market halted trading in
`
`SCWorx’s common stock from May 5, 2020, until August 10, 2020.
`
`FACTUAL ALLEGATIONS
`
`I.
`
`
`
`SCWorx’s Perilous Financial Condition Leading Up To Defendants’
`False And Misleading Press Releases
`
`16. Since its inception in February 2019, SCWorx has struggled to turn a
`
`profit. For the year ended December 31, 2019, the Company reported a net loss of
`
`$11,312,500, on revenues of $5,548,119, and had less than $500,000 in cash.
`
`17. By March 2020, SCWorx’s financial situation was getting worse. In
`
`its report for the first quarterly period of 2020, SCWorx disclosed that it “has
`
`suffered recurring losses from operations and incurred a net loss of $1,149,651 for
`
`the three months ended March 31, 2020.” The Company reported that, as of March
`
`31, 2020, it had cash of $201,092, a working deficit of $2,521,580, and an
`
`accumulated deficit of $13,944,124. SCWorx also disclosed “substantial doubt
`
`about the Company’s ability to continue as a going concern within one year[.]”
`
`
`
`
`
`
`
`7
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`II.
`
`SCWorx And Schessel Seized Upon the COVID-19 Pandemic
`
`18.
`
`In March 2020, the same month the World Health Organization
`
`declared the Covid-19 outbreak a global pandemic, Schessel came under increasing
`
`pressure from large SCWorx shareholders to raise the stock price and improve
`
`SCWorx’s financial condition. On March 15, 2020, one of SCWorx’s largest
`
`shareholders, and an informal advisor to Schessel, emailed Schessel, stating that
`
`the Company could not carry monthly losses of $200,000 for very long and
`
`suggesting that staff furloughs might be necessary.
`
`19. On March 17, 2020, that same shareholder emailed Schessel: “maybe
`
`we need something in the market?? a must … the stock needs a boost for sure …
`
`it[’]s a real issue now.”
`
`20.
`
`Just three days later, on March 20, 2020, SCWorx issued a press
`
`release announcing that it had formed a wholly-owned subsidiary, Direct-Worx,
`
`LLC, to sell urgently needed personal protective equipment to the healthcare
`
`industry, claiming that the Company’s access to supply chain data made it uniquely
`
`capable of meeting such demands. The press release quoted Schessel as saying:
`
`“SCWorx is experiencing a strong influx of recurring revenue streams, which
`
`should drive improved results during these difficult times.” The press release also
`
`stated that Direct-Worx “is now working with more than 1,000 hospitals, state
`
`
`
`8
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`municipalities, and foreign governments in the sourcing and delivery of these
`
`incredibly hard to find items.”
`
`21. One week later, Defendants announced Direct-Worx’s first purported
`
`deal in a March 27, 2020 press release entitled: “SCWorx Subsidiary Direct Worx
`
`Sources One Million Surgical Masks for Existing Large Hospital Customer to Help
`
`Maintain Safety for Healthcare Providers Treating Patients Affected By COVID-
`
`19 Pandemic.” The announcement did not identify the hospital customer, but
`
`stated that it had an agreement to supply one million surgical masks for $390,000.
`
`The release again touted the Company’s ability to rapidly secure the urgently
`
`needed hospital supplies, “positioning us for accelerated growth as a leader in this
`
`space,” and indicating that the Company expected to announce “similar agreements
`
`as the pandemic spreads.”
`
`22. Within days, Defendants began making announcements about the
`
`supposed COVID-19 test kit deal giving rise to the present action.
`
`III. Defendants Issued Multiple False and Misleading Press Releases And
`Made Other Misstatements And Omissions Touting A Massive COVID-
`19 Test Kit Deal
`
`
`
`23. On or around April 3, 2020, an individual with whom SCWorx was
`
`working to find suppliers of protective equipment for the healthcare industry (the
`
`“Consultant”) first emailed Supplier Company about a potential order for COVID-
`
`19 test kits. The Consultant wrote:
`
`
`
`9
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`Case 2:22-cv-03287 Document 1 Filed 05/31/22 Page 10 of 26 PageID: 10
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`We [SCWorx] are placing an order with a distributor for
`your test kits. We represent 400 Hospitals and several
`State purchasers. The order is for over 25MM [million]
`units. Could you please confirm who your licensed
`representatives are. As part of our order, we are
`proposing to have a government plane pick up the kits in
`Australia.
`
` On April 9, 2020, before entering into any agreement with Supplier
`
`
`24.
`
`Company, Schessel received an unsigned one-page purchase order, purportedly
`
`from Telehealth Company, for 2 million COVID-19 rapid test kits at $17.50, for a
`
`total of $35,000,000, with a “revolving order for the next 6 months,” and “weekly
`
`delivery of 2MM pieces,” for a total of “48MM pieces.” Schessel received the
`
`purchase order through an online invoice software program, with a transmittal
`
`email which stated that, “You have received a purchase order from [Telehealth
`
`Company] for $35,000,000.” The purchase order transmittal listed an email
`
`address for the Consultant, who also had a familial relationship with a senior
`
`executive at Telehealth Company.
`
`25. The following day, April 10, 2020, SCWorx entered into a three-page
`
`agreement with Supplier Company – a company with no experience in diagnostic
`
`testing – under which SCWorx agreed to purchase 52 million COVID-19 rapid test
`
`kits from Supplier Company for $676 million. SCWorx had never entered into a
`
`transaction near this size; the largest announced deal it had ever entered into before
`
`
`
`10
`
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`was valued at $4.6 million. SCWorx did not have the funds to pay for even the
`
`first installment of test kits.
`
`26.
`
` To make matters worse, Supplier Company was not a legitimate
`
`supplier of the COVID-19 rapid test kits that SCWorx claimed Supplier Company
`
`would provide.
`
`27.
`
` On February 29, 2020, FDA publicly issued on its website
`
`(www.fda.gov) its “Policy for Diagnostics Testing in Laboratories Certified to
`
`Perform High-Complexity Testing under Clinical Laboratory Improvement
`
`Amendments prior to Emergency Use Authorization for Coronavirus Disease-2019
`
`during the Public Health Emergency,” which was later revised on March 16, 2020
`
`(then titled “Policy for Diagnostic Tests for Coronavirus Disease-2019 during the
`
`Public Health Emergency: Guidance for Clinical Laboratories, Commercial
`
`Manufacturers, and Food and Drug Administration Staff”) (referred to as the “FDA
`
`Guidance”).
`
`28. The FDA Guidance included a section (section IV.D) that detailed
`
`“Commercial Manufacturer Development and Distribution and Laboratory
`
`Development and Use of Serology Tests2 Without an EUA.” The FDA Guidance
`
`
`2 Serology tests, or antibody tests, look for antibodies in a patient’s immune
`system produced in response to SARS-CoV-2, the virus that causes COVID-19.
`Coronavirus Disease 2019 Testing Basics, U.S. Food and Drug Administration
`https://www.fda.gov/consumers/consumer-updates/coronavirus-disease-2019-
`testing-basics (last visited May 30, 2022).
`11
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`stated that the FDA “does not intend to object to the development and distribution
`
`by commercial manufacturers or development and use by laboratories of serology
`
`tests to identify antibodies to SARS-CoV-2, where the test has been validated,
`
`notification is provided to FDA,” and certain information was provided in the test
`
`reports. The FDA maintained a list on its public website that included commercial
`
`manufacturers that had provided notification of this test validation to the FDA.
`
`29. The FDA’s website initially listed “[Supplier Company] COVID-19
`
`Rapid Test [Chinese manufacturer] SARS-CoV-2 Antibody Test (Lateral Flow
`
`Method)” – i.e., the test that Defendants claimed SCWorx would provide to
`
`Telehealth Company – as one of the tests for which notification and test validation
`
`was submitted to the FDA. But on April 11, 2020, two days before Defendants’
`
`issued their first press release, the FDA rescinded that notification and removed the
`
`test from its site. The FDA rescinded the notification and removed the COVID-19
`
`test kit from its website because the Chinese manufacturer of the test kit had not
`
`authorized Supplier Company to promote, sell, or distribute the test kit that
`
`Supplier Company had submitted to the FDA for notification.3
`
`
`3 In May 2020, the Australian Government’s Therapeutic Goods Administration
`(“TGA”) fined Supplier Company for “claim[ing] or impl[ying] on its website and
`via social media that the TGA and the United States Food and Drug Administration
`(FDA) had endorsed or approved a COVID-19 Rapid Test kit.” The Australian
`Government further concluded that Supplier Company “does not have a COVID-
`19 Rapid test kit” and ordered it to “immediately remove all advertising it is
`
`
`
`12
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`30.
`
`In fact, the Chinese manufacturer issued a public statement on April 5,
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`2020 – more than a week before SCWorx’s press release was issued – stating that
`
`“[Supplier Company] is NOT an authorized representative nor distributor” of the
`
`COVID-19 test kits “in Australia, America, or any other countries[.]” The FDA
`
`also notified Supplier Company on April 12, 2020 that it was not “allowed to
`
`distribute the [COVID-19 test kit] in the U.S[.]”
`
`A. The April 13, 2020 False And Misleading SCWorx Press Release
`
`31.
`
` Before the market opened on April 13, 2020, SCWorx issued a press
`
`release announcing that it had received a “committed purchase order” from
`
`Telehealth Company for two million COVID-19 test kits, with “provision for
`
`additional weekly orders of 2 million units for 23 weeks, valued at $35M per
`
`week,” for a total of $840 million.
`
`32. The April 13 press release stated that SCWorx would supply
`
`Telehealth Company with COVID-19 rapid detection kits, which test for the
`
`presence of antibodies that can be detected in samples from patients infected with
`
`the coronavirus (SARS-CoV-2) that causes COVID-19. According to Schessel,
`
`who was quoted in the release, the committed purchase order would “significantly
`
`increase the availability of rapid-test kits in the United States.”
`
`
`responsible for in relation to COVID-19 Rapid test kits” from Supplier Company’s
`website and social media accounts.
`
`
`13
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`33. Schessel made the sole and ultimate decision to issue the April 13
`
`press release, had final editorial control and ultimate authority over the content of
`
`the press release, assisted in drafting the press release, quoted himself in the
`
`release, authorized its issuance, and is listed as the SCWorx contact for the release.
`
`34. The April 13 press release issued by SCWorx and Schessel was false
`
`and misleading in several material ways:
`
`• First, Schessel knew, or was reckless in not knowing, that there was no
`“committed purchase order” between Telehealth Company and
`SCWorx. The parties never entered into a purchase agreement under
`which any binding purchase order would be issued. In fact,
`Telehealth’s Chief Executive Officer testified that the purchase order
`was merely a preliminary summary draft.
`
`• Second, Schessel knew, or was reckless in not knowing, that the April
`13 press release was misleading by omission, because it failed to
`disclose that SCWorx did not have an executed purchase agreement
`with Telehealth Company, and several material terms – including
`provisions addressing scheduling, shipping, delivery, payment, default,
`and termination – had not been negotiated between the parties. By not
`disclosing those material facts, Schessel’s statements in the press
`release were rendered materially misleading.
`
`• Third, Schessel knew, or was reckless in not knowing, that Supplier
`Company was not a legitimate supplier of COVID-19 test kits, could
`not import their purported COVID-19 test kits to the United States, and
`certainly could not provide two million tests per week for 23 weeks, as
`the press release falsely stated.
`
`
`
`35. On April 14, 2020, the day after the press release was issued, counsel
`
`
`
`for Telehealth Company notified Schessel and SCWorx in writing that the
`
`“committed purchase order” that Defendants had touted in the press release was
`
`
`
`14
`
`
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`Case 2:22-cv-03287 Document 1 Filed 05/31/22 Page 15 of 26 PageID: 15
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`actually a “preliminary summary draft” and that the “parties have not yet agreed
`
`upon and reduced to writing numerous material terms, including, but not limited to,
`
`commencement date, scheduling, delivery instructions, payment terms, default
`
`provisions, and termination provisions.” Telehealth’s counsel made clear that “as
`
`of April 9, 2020 – the Purchase Order date – neither SCWorx nor [Telehealth
`
`Company] had completed due diligence related to the contemplated series of
`
`complex and sophisticated future transactions.” Telehealth’s counsel even notified
`
`Defendants that, “[h]ad [Telehealth Company] been consulted, it would not have
`
`approved of the SCWorx Press Release,” and that it “expressly requests that
`
`SCWorx omit from mentioning [Telehealth Company] in any future press releases
`
`or other public communications without obtaining [Telehealth Company’s]
`
`consent.”
`
`36. On April 14, 2020, a day after SCWorx had issued a press release
`
`indicating that Supplier Company would imminently provide millions of COVID-
`
`19 tests for distribution in the United States, Supplier Company submitted
`
`notification to the FDA that Supplier Company would distribute a different
`
`COVID-19 test kit than the test that had previously appeared on the FDA’s
`
`website. Supplier Company did not complete the notification process for the new
`
`COVID-19 test kit under the FDA Guidance until April 28, 2020, weeks after
`
`SCWorx’s false and misleading press releases.
`
`
`
`15
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`
`B.
`
`Schessel’s False And Misleading Statements To Investors on April
`15, 2020
`
`37. Despite the fact that they knew or were reckless in not knowing that
`
`SCWorx had no agreement to provide COVID-19 test kits to Telehealth Company
`
`and no means to obtain COVID-19 test kits, SCWorx and Schessel convened a
`
`“business update” call with investors on April 15, 2020 to repeat the same false
`
`and misleading statements from the April 13 press release.
`
`38.
`
` On that April 15 call, Schessel again falsely stated that SCWorx had a
`
`“committed purchase order from [Telehealth Company], a U.S.-based telemedicine
`
`healthcare network, for two million COVID-19 Rapid Testing Units, with
`
`provision for additional weekly orders of 2 million units for 23 weeks, valued at
`
`$35 million per week.”
`
`39. Schessel also falsely told investors that he “spent weeks researching
`
`over 30 product different lines, distributors, intermediaries until I found an actual
`
`manufacturer that had a kit that appeared to me at least to have all the attributes I
`
`was looking for – which were a very high sensitivity rating to blood samples, had
`
`the proper FDA authorizations under the emergency authorization act, was not a
`
`Chinese or South Korean manufacturer, was well on its way towards getting full
`
`FDA clearance and had enough capacity on his line where I could purchase 25% of
`
`his capacity with options to grow that over time.”
`
`
`
`16
`
`
`
`Case 2:22-cv-03287 Document 1 Filed 05/31/22 Page 17 of 26 PageID: 17
`
`40. Schessel knew, or was reckless in not knowing, that Supplier
`
`Company’s test kits did not have “the proper FDA authorizations” and had no
`
`EUA. He also knew, or was reckless in not knowing, that Supplier Company was
`
`not “well on its way towards getting full FDA clearance,” given that (1) Supplier
`
`Company’s COVID-19 test kit had no EUA, (2) Supplier Company had been
`
`marketing a COVID-19 test kit without the manufacturer’s consent, (3) the test kit
`
`had been removed from the FDA’s website four days earlier; and (4) Supplier
`
`Company had submitted a different COVID-19 test kit to the FDA for notification
`
`under the FDA Guidance just a day prior. And the actual manufacturer of the test
`
`kit that once appeared on FDA’s website (and that Supplier Company was
`
`previously marketing without authorization) was a Chinese manufacturer, contrary
`
`to what Schessel told investors.
`
`41. Schessel then falsely told investors that SCWorx would be “splitting
`
`up [the SCWorx—Telehealth Company] contract” due to the “incredible demand
`
`for these kits.” When he made these statements, Schessel knew or was reckless in
`
`not knowing that there was no “contract” between SCWorx and Telehealth
`
`Company.
`
`C. Schessel’s False And Misleading Statements In An April 16, 2020
`SEC Filing
`
` On April 16, 2020, Defendants continued to tout their deal to sell
`
`
`42.
`
`COVID-19 test kits, filing a report on Form 8-K with the SEC for “Entry into A
`17
`
`
`
`
`
`Case 2:22-cv-03287 Document 1 Filed 05/31/22 Page 18 of 26 PageID: 18
`
`Material Definitive Agreement,” which stated for the first time that the purported
`
`supplier of the COVID-19 test kits was Supplier Company.4
`
`43. The Form 8-K, which was signed by Schessel, again stated that
`
`SCWorx had accepted a purchase order from Telehealth Company, under which it
`
`had ordered, and SCWorx was “required to deliver,” two million test kits, “with
`
`provision for additional weekly orders of two million units for 23 weeks (a total of
`
`48 million units).”
`
`44. These statements were false and misleading, because as Schessel
`
`knew or was reckless in not knowing, SCWorx did not have an agreement with
`
`Telehealth Company, and Supplier Company was not a legitimate supplier of
`
`COVID-19 test kits to SCWorx.
`
`D. Market Participants Raise Questions And Defendants Double
`Down With Another False and Misleading Press Release
`
` On April 17, 2020, a research firm that engages in short selling of
`
`45.
`
`stocks published an online report characterizing the “committed purchase order”
`
`announced in SCWorx’s April 13, 2020 press release as “completely bogus.” The
`
`report pointed out that Supplier Company was marketing a Chinese company’s test
`
`kit without authorization (a fact Defendants already knew or were reckless in not
`
`knowing) and that Schessel had been convicted of felony tax evasion in the United
`
`
` 4 The April 13, 2020 press release linked to the website of Supplier Company
`but did not state that it was the COVID-19 test kit supplier.
`18
`
`
`
`
`
`Case 2:22-cv-03287 Document 1 Filed 05/31/22 Page 19 of 26 PageID: 19
`
`States, and further raised questions about the ability of Telehealth Company, which
`
`had three employees, to purchase hundreds of millions of COVID-19 test kits. The
`
`research report prompted additional questions to Schessel, SCWorx, and its
`
`investor relations firm regarding the veracity of the claims in the April 13, 2020
`
`press release.
`
`46.
`
`Instead of admitting that its prior press release was false and
`
`misleading, Defendants doubled down by issuing another false and misleading
`
`press release to the investing public.
`
`47. Specifically, on April 17, 2020, Defendants issued a second press
`
`release “announcing today that it confirms previously disclosed plans to distribute
`
`COVID-19 Rapid Testing Units,” again falsely stating that it had a “committed
`
`purchase order” with Telehealth Company to provide “two million COVID-19
`
`Rapid Testing Units, with provision for additional weekly orders of 2 million units
`
`for 23 weeks, valued at $35M per week.”
`
`48. Schessel made the sole and ultimate decision to issue the April 17,
`
`2020 press release, had final editorial control and ultimate authority over the
`
`content of the press release, assisted in drafting the press release, authorized its
`
`issuance, and is listed as the SCWorx contact for the release.
`
`49. Three days later, on April 20, 2020, Telehealth Company again
`
`notified SCWorx and Schessel that there was “no committed purchase order” and
`
`
`
`19
`
`
`
`Case 2:22-cv-03287 Document 1 Filed 05/31/22 Page 20 of 26 PageID: 20
`
`demanded that SCWorx stop “using [Telehealth Company’s] name in public filings
`
`and [SCWorx]-issued press releases relating to any such potential transactions.”
`
`E.
`
`
`50.
`
`The Commission Suspends Trading In SCWorx, And SCWorx
`Abandons Its Supposed Test Kit Deal
`
` On April 21, 2020, the Commission ordered the suspension of trading
`
`in SCWorx securities effective April 22 due to “questions and concerns regarding
`
`the adequacy and accuracy of publicly available information in the marketplace
`
`concerning SCWorx including (1) press releases and other publicly disseminated
`
`statements, since at least April 13, 2020, about SCWorx’s agreement to sell
`
`COVID-19 tests, and (2) SCWorx’s current report on Form 8-K filed on April 16,
`
`2020, concerning SCWorx’s agreement to sell COVID-19 tests.”
`
`51.
`
` On April 29, 2020, SCWorx terminated its agreement with Supplier
`
`Company, without purchasing any test kits.
`
`52. The next day, SCWorx filed a report on Form 8-K with the
`
`Commission stating that “substantial concerns” arose pertaining to Supplier
`
`Company’s ability to supply test kits under their agreement. Specifically, SCWorx
`
`expressed concern about Supplier Company’s ability to “secure the requisite FDA
`
`approvals to permit the sale of its test kits in the US.” SCWorx also stated that
`
`Telehealth Company had terminated the purported “committed” purchase order.
`
`
`
`20
`
`
`
`Case 2:22-cv-03287 Document 1 Filed 05/31/22 Page 21 of 26 PageID: 21
`
`53. SCWorx never purchased any test kits from Supplier Company and
`
`never sold test kits to Telehealth Company, as it claimed it would in the April 13
`
`and April 17, 2020 press releases.
`
`IV. Defendants’ False And Misleading Press Releases And Statements
`Dramatically Increased SCWorx’s Stock Price And Volume
`
`
`
`54. Defendants’ false and misleading statements related to the purported
`
`COVID-19 “committed purchase order” were material and greatly affected
`
`SCWorx’s stock price and volume.
`
`55. For example, on the day of the misleading April 13, 2020 press
`
`release, SCWorx’s stock price surged to $14.88 from a previous close of $2.25,
`
`before ending the day’s trading up 425% at $12.02 on volume of 96.2 million
`
`shares, more than 900 times the prior three-month average daily volume.
`
`V. Defendants Cashed In On The False And Misleading Press Releases
`And Other False and Misleading Statements
`
`56. SCWorx, Schessel, and a large SCWorx shareholder with ties to
`
`
`
`Schessel took quick advantage of the massive surge in SCWorx’s stock price
`
`caused by Defendants’ false and misleading statements. In particular, on April 16,
`
`2020, while the stock price was inflated due to Defendants’ false and misleading
`
`statements, SCWorx issued 100,000 shares to satisfy a large debt to an SCWorx
`
`vendor. As Schessel explained in an
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