Case Overview

Defendant: Mark Schena, 60, President of Arrayit Corporation
Company: Arrayit Corporation, Los Altos, California
Fraud Period: 2018 - 2022 (4+ years)
Claimed Technology: Revolutionary single-drop blood testing for any disease
COVID-19 Exploitation: 2020 - 2022
Charges: Securities fraud, wire fraud, healthcare fraud, kickback scheme
Sentence: 8 years federal prison, $24 million restitution
Significance: First criminal securities fraud case related to COVID-19 pandemic

The Silicon Valley “Visionary” Fraud

The False Technology Claims

“Revolutionary” Medical Breakthrough:

  • Claimed to test for virtually any disease using single drop of blood
  • Positioned as “father of microarray technology”
  • Falsely claimed to be on Nobel Prize shortlist
  • Estimated company valuation at $4.5 billion

Technology Misrepresentations:

  • No actual revolutionary technology existed
  • Blood testing capabilities vastly overstated
  • Laboratory portrayed as high-tech when largely non-functional
  • Scientific claims completely fabricated

Silicon Valley Credibility Factors

Regional Advantage for Fraud

Location Benefits:

  1. Silicon Valley Mystique: Regional reputation for breakthrough technology
  2. Investor Appetite: High tolerance for “disruptive” technology claims
  3. Media Coverage: Technology press coverage without scientific scrutiny
  4. Network Effects: Tech industry connections and endorsements

Professional Presentation:

  • High-tech laboratory facade
  • Professional marketing materials and press releases
  • Television appearances and video documentation
  • Social media presence with fraudulent claims

The COVID-19 Exploitation

Pandemic Opportunism

False COVID-19 Testing Claims

March 2020 Announcement: “Arrayit had a test for COVID-19”
Schena’s Explanation: Switching from allergy testing to COVID-19 was like a pastry chef switching from “strawberry pies” to “rhubarb and strawberry pies”

Deceptive Marketing Strategy:

  • Falsely claimed Dr. Anthony Fauci mandated combined COVID-19 and allergy testing
  • Required patients to receive both tests simultaneously
  • Exploited national shortage of COVID-19 testing
  • Created false urgency around testing requirements

FDA Rejection Concealment

Critical Concealment:

  • FDA informed Schena that test was not accurate for Emergency Use Authorization
  • Schena hid FDA rejection from investors and patients
  • Continued marketing test despite regulatory rejection
  • Misled public about test’s regulatory status

Healthcare Fraud Mechanics

Medicare and Insurance Billing Fraud

Allergy Testing Scheme:

  • Ran 120 different allergen tests on every patient regardless of medical necessity
  • Billed Medicare and private insurance for unnecessary testing
  • Charged more per patient than any other U.S. laboratory
  • False claims about test accuracy and diagnostic capability

Kickback Operation:

  • Paid illegal kickbacks to marketers to obtain patient blood specimens
  • Violated Eliminating Kickbacks in Recovery Act
  • Deceptive marketing claiming high diagnostic accuracy
  • Test was not actually diagnostic despite marketing claims

Investor Fraud Components

False Valuation and Financial Claims

Investment Misrepresentations

Financial Deception:

  • Claimed company worth $4.5 billion with no supporting evidence
  • Concealed company was on verge of bankruptcy
  • Failed to release required SEC financial disclosures
  • Hid devastating financial condition from investors

False Partnership Claims:

  • Issued fake press releases about lucrative partnerships
  • Claimed agreements with children’s hospitals and major healthcare providers
  • Announced non-existent government agency contracts
  • Created entirely fictional business relationships

Sophisticated Deception Techniques

Media Manipulation

Professional Facade Creation:

  1. Television Appearances: Legitimate media coverage based on false claims
  2. Laboratory Videos: Staged footage showing busy, high-tech operations
  3. Press Release Campaign: Professional announcements of fake partnerships
  4. Social Media Presence: Ongoing false updates about company progress

Investor Reassurance:

  • When investors questioned whether company was a “scam,” Schena produced videos
  • Professional presentation materials and documentation
  • References to established medical and technology practices
  • Exploitation of investors’ limited technical knowledge

Federal Investigation and Prosecution

Multi-Agency Coordination

Law Enforcement Response

Investigating Agencies:

  • Health and Human Services Office of Inspector General (HHS-OIG)
  • Federal Bureau of Investigation (FBI)
  • U.S. Postal Inspection Service (USPIS)
  • Veterans Affairs Office of Inspector General (VA-OIG)
  • Department of Defense Criminal Investigative Service (DCIS)

Evidence Collection:

  • Financial records showing fund misappropriation
  • Laboratory analysis proving technology claims false
  • Patient records demonstrating unnecessary testing
  • Communication records revealing deceptive marketing

Criminal Charges and Conviction

Federal Prosecution

September 6, 2022: Federal jury conviction on all charges
October 18, 2023: Sentencing to 8 years federal prison

Charges Proven:

  • Securities fraud for investor deception
  • Wire fraud for electronic communications in furtherance of scheme
  • Healthcare fraud for Medicare and insurance billing fraud
  • Kickback violations for illegal payments to marketers

Financial Penalties:

  • $24 million restitution ordered
  • Asset forfeiture of remaining company assets
  • Professional license revocations

Victim Impact Analysis

Healthcare System Damage

Patient Harm

Medical Consequences:

  • Patients received inaccurate test results
  • Unnecessary medical procedures based on false tests
  • Delayed or inappropriate treatment decisions
  • Public health risk from inaccurate COVID-19 testing

Financial Impact on Patients:

  • Unnecessary medical costs
  • Insurance complications
  • Follow-up treatment costs
  • Lost time and productivity

Investor Losses

Financial Devastation

Investment Losses:

  • Millions in direct investment losses
  • Retirement account depletion
  • Small business capital destruction
  • Family financial disruption

Trust and Confidence Damage:

  • Reduced confidence in medical technology investments
  • Skepticism toward Silicon Valley startup claims
  • Damage to legitimate medical technology companies
  • Reduced investor appetite for healthcare innovation

Silicon Valley Technology Fraud Patterns

Industry Vulnerability Factors

“Fake It Till You Make It” Culture

Cultural Enabling Factors:

  1. Hyperbolic Claims: Industry tolerance for exaggerated technology claims
  2. Investor FOMO: Fear of missing the next breakthrough technology
  3. Limited Technical Verification: Insufficient scientific scrutiny of claims
  4. Media Amplification: Technology press coverage without verification

Due Diligence Gaps

Verification Failures:

  • Lack of independent scientific verification
  • Insufficient regulatory compliance checking
  • Over-reliance on founder credentials and presentations
  • Inadequate financial auditing and oversight

Regulatory Response and Reforms

Enhanced Oversight Measures

FDA Actions:

  • Increased scrutiny of COVID-19 testing claims
  • Enhanced Emergency Use Authorization processes
  • Improved coordination with law enforcement
  • Public warnings about fraudulent testing

SEC Enforcement:

  • Heightened oversight of medical technology companies
  • Enhanced scrutiny of Silicon Valley startup claims
  • Improved coordination with healthcare regulators
  • Stronger penalties for fraudulent disclosure violations

Lessons for Investors and Stakeholders

Red Flags in Medical Technology Investments

Scientific Claim Verification

Critical Verification Steps:

  1. Independent Scientific Review: Require peer-reviewed validation of technology claims
  2. Regulatory Status Confirmation: Verify FDA approval or authorization status
  3. Financial Audit Requirements: Demand independently audited financial statements
  4. Reference Verification: Confirm claimed partnerships and contracts independently

Investment Protection Strategies

Due Diligence Essentials:

  • Require demonstration of actual technology functionality
  • Verify claimed scientific credentials and achievements
  • Confirm regulatory compliance and approvals
  • Seek independent technical assessment of claimed breakthroughs

Healthcare Fraud Prevention

Patient Protection Measures

Medical Testing Verification:

  1. Doctor Confirmation: Ensure medical necessity of all tests
  2. Regulatory Verification: Confirm FDA approval of testing methods
  3. Insurance Review: Understand what tests are covered and necessary
  4. Second Opinions: Seek independent medical advice for major test results

Broader Implications and Industry Impact

Medical Technology Sector Response

Industry Reforms

Enhanced Standards:

  • Improved scientific validation requirements
  • Enhanced regulatory compliance verification
  • Stronger investor protection measures
  • Better coordination between regulators and law enforcement

Professional Accountability:

  • Enhanced licensing and oversight of medical technology executives
  • Stronger penalties for fraudulent medical claims
  • Improved education about regulatory requirements
  • Professional ethics training and certification

COVID-19 Fraud Enforcement Precedent

Pandemic Fraud Deterrence

Legal Precedent Setting:

  • First criminal securities fraud case related to COVID-19
  • Demonstration of swift law enforcement response to pandemic exploitation
  • Clear message about consequences of exploiting public health emergencies
  • Template for future pandemic-related fraud prosecutions

Current Status and Ongoing Impact

Enforcement and Recovery

Case Resolution:

  • Schena serving 8-year federal prison sentence
  • $24 million restitution order being enforced
  • Asset recovery efforts continuing
  • Additional civil litigation pending

Victim Support:

  • Federal victim notification system active
  • Restitution distribution process underway
  • Legal assistance available for affected patients
  • Support for ongoing medical care needs

Industry-Wide Changes

Technology Sector Evolution:

  • Enhanced due diligence standards for medical technology investments
  • Improved scientific verification requirements
  • Stronger regulatory oversight of breakthrough claims
  • Better coordination between technology and healthcare regulators

Prevention and Protection Resources

For Investors

Verification Resources

Investment Protection:

  • SEC investor education materials
  • FDA device approval databases
  • Professional medical technology evaluation services
  • Independent scientific review organizations

For Patients

Healthcare Protection

Medical Testing Safety:

  • Doctor consultation for test necessity
  • FDA device approval verification
  • Insurance coverage confirmation
  • Independent medical opinion resources

For Healthcare Professionals

Professional Guidance

Regulatory Compliance:

  • FDA guidance for medical device evaluation
  • CMS billing compliance requirements
  • Professional medical organization resources
  • Continuing education on fraud prevention

Conclusion

The Arrayit case demonstrates how Silicon Valley’s “innovation culture” can be exploited to commit sophisticated fraud targeting both investors and the healthcare system. Schena’s exploitation of the COVID-19 pandemic for personal profit while endangering public health represents a particularly egregious abuse of public trust during a national emergency.

Critical Lessons:

For the Technology Sector:

  1. Scientific Verification: Breakthrough medical claims require rigorous independent validation
  2. Regulatory Compliance: FDA approval is essential, not optional, for medical devices
  3. Financial Transparency: Regular audited financial statements are crucial for investor protection
  4. Media Responsibility: Technology press must verify scientific claims before publication

For Healthcare System:

  1. Medical Necessity: All testing must be medically necessary and appropriate
  2. Regulatory Verification: Confirm FDA approval for all medical devices and tests
  3. Kickback Prevention: Strict enforcement of anti-kickback laws
  4. Patient Education: Better education about medical testing rights and protections

For Investors:

  1. Due Diligence: Independent verification of all technology and financial claims
  2. Regulatory Status: Confirm regulatory approvals before investing
  3. Scientific Validation: Require peer-reviewed evidence of breakthrough claims
  4. Professional Guidance: Consult with medical professionals for healthcare investments

For Law Enforcement:

  1. Rapid Response: Quick action essential for pandemic-related fraud
  2. Multi-Agency Coordination: Complex fraud requires coordinated investigation
  3. Victim Protection: Comprehensive support for both investors and patients
  4. Deterrent Effect: Strong penalties necessary to deter exploitation of public health emergencies

The Arrayit case serves as a watershed moment demonstrating that exploitation of public health emergencies will be met with swift and severe consequences. The 8-year sentence and $24 million restitution order send a clear message that pandemic profiteering will not be tolerated.

For individuals concerned about medical technology fraud or investment scams:

  • FBI: Report fraud at IC3.gov or 1-800-CALL-FBI
  • FDA: Report fraudulent medical devices at FDA.gov
  • SEC: Report investment fraud at SEC.gov
  • HHS-OIG: Report healthcare fraud at OIG.HHS.gov

This analysis is based on federal court documents, DOJ press releases, and regulatory filings. Individuals affected by medical technology fraud should consult with qualified legal and medical professionals for specific guidance.