Case 2:20-cv-00368-CMR Document 2 Filed 06/15/20 Page 1 of 23

D. Loren Washburn (#10993)
lwashburn@smithwashburn.com
SMITH WASHBURN, LLP
8 East Broadway, Suite 320
Salt Lake City, UT 84111
Telephone: (801) 584-1800
Facsimile: (801) 584-1820
Michael A. Pineiro (pro hac vice application forthcoming)
MARCUS NEIMAN RASHBAUM & PINEIRO LLP
2 South Biscayne Blvd., Suite 1750
Miami, FL 33131
Telephone: (305) 400-4268
mpineiro@mnrlawfirm.com
Michael C. Fasano (pro hac vice application forthcoming)
FASANO LAW FIRM, PLLC
2 S. Biscayne Blvd., Suite 1750
Miami, FL 33131
Telephone: (786) 530-5239
mfasano@fasanolaw.com
Attorneys for Gelt Trading, Ltd. and Proposed Class
IN THE UNITED STATES DISTRICT COURT
DISTRICT OF UTAH, CENTRAL DIVISION
GELT TRADING, LTD., a Cayman Islands Case No. ___________________
limited company,
Plaintiff,
v.
CO-DIAGNOSTICS, INC., a Utah
Corporation, DWIGHT EGAN, JAMES
NELSON, EUGENE DURENARD,
EDWARD MURPHY, RICHARD SERBIN,
REED BENSEN, BRENT SATTERFIELD,

CLASS ACTION COMPLAINT
(PROPOSED CLASS ACTION)
JURY DEMANDED

Defendants.
GELT TRADING, LTD. (“Gelt” or “Lead Plaintiff”), by and through its undersigned
counsel, and on behalf of itself and all similarly situated plaintiffs, and for its Class Action
Complaint against the Defendants CO-DIAGNOSTICS, INC. (“Co-Diagnostics” or “Company”),
CLASS ACTION COMPLAINT
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DWIGHT EGAN, JAMES NELSON, EUGENE DURENARD, EDWARD MURPHY,
RICHARD SERBIN, REED BENSEN, and BRENT SATTERFIELD, hereby states as follows:
INTRODUCTION
1.

As the Covid-19 global pandemic began to spread to the United States, government

and public health officials on the state and federal levels moved quickly to establish strategies to
prevent the disease from devastating the country. Universally, those government strategies were
predicated on establishing effective systems for mass testing of the U.S. population for the Covid19 virus.
2.

Fast, accurate, and readily accessible testing for Covid-19 provides government

officials with crucial health information and data needed to combat the pandemic. It allows them
to assess, in real-time, outbreaks of the virus and to take appropriate policy actions—such as
quarantining and social distancing measures intended to prevent further mass transmission. And it
allows them to allocate and, if necessary, seek resources to ensure that our public and private health
systems can appropriately provide care for Covid-19 patients who require medical intervention
and treatment.
3.

To be sure, the ingenuity and industriousness of American enterprise has been

integral to country’s response to the Covid-19 pandemic. Health officials have worked closely with
U.S. and international medical and pharmaceutical companies to develop Covid-19 tests, to seek
potential therapeutics for the virus, and to ultimately obtain a vaccine. And many American
companies have stepped up to this tremendous challenge, working with government counterparts
to mitigate and hopefully end this pandemic.
4.

There are, however, some companies and corporate executives who have sought to

unfairly exploit this novel pandemic for their financial gain—including by, among other things,
misleading the public about the efficacy of their products in combatting the pandemic. Defendant
Co-Diagnostics is one of those companies.
5.

As explained in greater detail below, Co-Diagnostics, its directors and officers—

including PhD-level scientists who should know better—made continual, knowing and willful
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misstatements about their main product, a Covid-19 diagnostic test, to pump of the price of CoDiagnostics’ stock while the officers and directors exercised low priced options and dumped their
stock into the market. Their fraudulent misstatements, and disregard for the basic scientific
principles that make their falsity of their statements clear in retrospect, cost investors to lose
millions of dollars.
6.

Unlike many securities fraud cases, the Co-Diagnostics fraud is blunt and simple to

understand. Early in the Covid-19 pandemic, drug companies were racing to create an accurate
diagnostic test for the virus that had quick response times. Co-Diagnostics seemingly won that
race. Co-Diagnostics announced that it had received regulatory clearance to sell its tests in the
European Community on February 24, 2020—the first company in the world to receive this
clearance. Then, on April 6, 2020 the company announced that it had received emergency use
authorization for its tests from the U.S. Food and Drug Administration.
7.

Throughout this time and thereafter, Co-Diagnostics, its Chief Technology Officer,

and its other officers and directors made unequivocal statements to the market that its Covid-19
tests were 100% accurate—a staggering claim that appeared to set Co-Diagnostics apart from
other competitors developing Covid-19 tests. As was later revealed, however, this was not true:
Co-Diagnostics’ Covid-19 tests are materially less than 100% accurate – a discrepancy that can
have momentous adverse consequences if Co-Diagnostics’ tests are used on a widespread basis,
as intended. 1 Nonetheless, Co-Diagnostics’ market-first test, together with its claims that its tests
were perfectly accurate, allowed Co-Diagnostics to sign lucrative contracts with state governments
in the U.S. and governments around the world.
8.

As a result of this misrepresentation and the influx of taxpayer dollars to Co-

Diagnostics, the company’s stock soared—until it crashed. The crash came when Co-Diagnostics
1

As stated herein, diagnostics tests that are even slightly less than 100% accurate in clinical testing can
have extraordinary public health consequences when it comes to practical testing accuracy in a field setting.
For example, if a diagnostics test has a 98% “specificity” and “sensitivity” rate (two metrics that factor into
a test’s accuracy), the practical effect is that 1 in 3 tests will return false positive results for Covid-19. For
this reason, it is critical that market leaders in this area have nearly perfect accuracy metrics in clinical
settings.
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began acting evasively about its Covid-19 tests’ true accuracy and regulatory authorities
contradicted claims made by Co-Diagnostics about the accuracy of diagnostic tests.
9.

Prior to the release of the news undermining Co-Diagnostics’ false claims of 100%

accuracy, Co-Diagnostics’ stock enjoyed an all-time high stock price of $29.72 per share and a
market capitalization of over $800 million. This was quite an accomplishment for a company that
was at risk of being delisted from the exchange on New Year’s Day, 2020, when it was trading at
$.91 and was worth less than $25 million. Just a year ago Co-Diagnostics was in danger of being
delisted from NASDAQ on July 2, 2019 because it was consistently trading under a dollar; now it
was trading at thirty times that. Co-Diagnostics officers and directors were poised to make a
fortune on the inflated stock price.
10.

On May 14, 2020, Co-Diagnostics was set to announce its first quarter earnings

after markets closed. Before the markets closed and before the earnings call, however, news outlets
reported that Co-Diagnostics was reticent to participate in U.S.-based testing to verify its accuracy
claims.
11.

As public reports casting doubt on Co-Diagnostics claims of 100% accuracy began

to circulate, the stock declined rapidly. After negative information about the Co-diagnostics’ tests
began to be reported, the stock went from its daily high of $29.52, down to $20, and hit an intraday low of $18.35 before closing at $22.13. The losses on May 14, 2020, were so sudden that the
stock stopped trading at one or two periods during the day, and its losses may have been higher
but for NASDAQ’s intervention.
12.

After markets closed and with this information in hand, Co-Diagnostics issued an

earnings report for the first quarter of 2020 and held a call that commented on the company’s future
prospects. On the call, CEO Dwight Egan offered a glowing report explaining that the company
had sold 6 million tests, and had already purchased components to manufacture an additional 20
million tests that were already ordered by customers.
13.

On the call, neither Egan nor its Chief Financial Officer, Reed Benson, made

mention of the public statements made by third parties relating to the tests’ accuracy. Notably,
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Chief Science Officer, and inventor of Co-Diagnostics’ technology, Brent Satterfield, Ph. D., was
absent from the call and did not address the allegations after boasting to the market about CoDiagnostics’ Covid-19 testing accuracy in press releases in the weeks leading to the company’s
earnings announcement.
14.

That evening, in response to other drug companies’ widely-reported test accuracy

struggles, financial news services began reporting that the U.S. Food and Drug Administration
announced publicly that no Covid-19 test is 100% accurate. Of course, this announcement by the
FDA undermined Co-Diagnostics’ claims about its tests’ perfect accuracy.
15.

When markets opened on May 15, 2020, the stock slid to $15.80 per share. The

stock never rebounded, and today trades at severely reduced volume for between $15 and $16 per
share, with expectations that the stock will trend lower due to the company’s product not being
what it promised, public skepticism, and the realization by investors that Co-Diagnostics was a
flash-in-the-pan company that achieved astronomical gains by deceiving the public while it was
wrestling with an unprecedented global pandemic.
16.

During this time, and with a cloud of doubt hanging over the company’s claims of

accuracy, Co-Diagnostics’ directors and officers have been rapidly exercising stock options for
pennies per share and immediately selling their shares into the market reaping millions of dollars
from the fraud-inflated price of the stock. The Officers and Directors, knowing the truth of the
company’s products and its future prospects, are taking their profits at cost to the public markets
before the company inevitably becomes a penny stock once more. The investing public at large
does not have the luxury of purchasing its shares at pennies on the dollar. 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.
17.

This class action, therefore, seeks to hold Co-Diagnostics and its executives to

account for their misrepresentations on behalf of defrauded investors.
JURISDICTION AND VENUE
18.

The Court has subject-matter jurisdiction pursuant to 28 U.S.C. § 1332 because the
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claims asserted are between citizens of a foreign nation and citizens of this state. The Court also
has original jurisdiction pursuant to 28 U.S.C. § 1331, because questions of federal securities law
predominate the asserted claims.
19.

The Court has personal jurisdiction because the Defendants committed tortious acts

within this judicial district and Defendants reside in Utah.
20.

Pursuant to 28 U.S.C. § 1391, venue is proper in this Judicial District because a

substantial part of the events or omissions giving rise to the claim occurred in this Judicial District.
21.

All conditions precedent have occurred, been performed or have otherwise been

waived.
22.

Gelt has retained the undersigned law firms to prosecute this action and has agreed

to pay the law firm a reasonable fee for its services, plus out of pocket expenses.
PARTIES
23.

The Plaintiff, Gelt, is a Cayman Islands limited company.

24.

Defendant, Co-Diagnostics, Inc. is a Utah Corporation with offices in Salt Lake

City, Utah.
25.

Defendants, Dwight Egan, James Nelson, Eugene Durenard, Edward Murphy,

Richard Serbin, Reed Bensen, and Brent Satterfield are directors and/or officers of Co-Diagnostics.
Upon information and belief, each individual defendant resides and conducts business in the State
of Utah.
26.

The Defendants named above, other than Co-Diagnostics, are referred to herein as

the “Individual Defendants.” During the Class Period, the Individual Defendants, as senior
executive officers and/or directors of Co-Diagnostics, were privy to confidential and proprietary
information concerning Co-Diagnostics, its operations, finances, financial condition and present
and future business prospects. The Individual Defendants also had access to material adverse nonpublic information concerning Co-Diagnostics, as discussed in detail below. Because of their
positions with Co-Diagnostics, the Individual Defendants had access to non-public information
about its business, finances, products, markets and present and future business prospects via access
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to internal corporate documents, conversations and connections with other corporate officers and
employees, attendance at management and/or board of directors meetings and committees thereof,
and via reports and other information provided to them in connection therewith. Because of their
possession of such information, the Individual Defendants knew or recklessly disregarded that the
adverse facts specified herein had not been disclosed to, and were being concealed from, the
investing public.
27.

The Individual Defendants are liable as direct participants in the wrongs

complained of herein. In addition, the Individual Defendants, by reason of their status as senior
executive officers and/or directors, were “controlling persons” within the meaning of Section 20(a)
of the Exchange Act and had the power and influence to cause the Company to engage in the
unlawful conduct complained of herein. Because of their positions of control, the Individual
Defendants were able to and did, directly or indirectly, control the conduct of Co-Diagnostics’s
business and participated in the conduct alleged below.
28.

The Individual Defendants, because of their positions with Co-Diagnostics,

controlled and/or possessed the authority to control the contents of its reports, press releases and
presentations to securities analysts and through them, to the investing public. The Individual
Defendants were provided with copies of the Company’s reports and press releases alleged herein
to be misleading prior to or shortly after their issuance and had the ability and opportunity to
prevent their issuance or cause them to be corrected. Thus, the Individual Defendants had the
opportunity to commit the fraudulent acts alleged herein.
29.

As senior executive officers and/or directors and as controlling persons of a

publicly traded company whose common stock was, and is, registered with the SEC pursuant to
the Exchange Act, and was, and is, traded on the NASDAQ Exchange and governed by the federal
securities laws, the Individual Defendants had a duty to disseminate promptly accurate and truthful
information with respect to Co-Diagnostics’ financial condition and performance, growth,
operations, financial statements, business, products, markets, management, earnings and present
and future business prospects, to correct any previously issued statements that had become
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materially misleading or untrue, so that the market price of Co-Diagnostics’ securities would be
based upon truthful and accurate information. The Individual Defendants’ misrepresentations and
omissions during the Class Period violated these specific requirements and obligations.
30.

The Individual Defendants are liable as participants in a fraudulent scheme and

course of conduct which operated as a fraud or deceit on purchasers of Co-Diagnostics publicly
traded securities by disseminating materially false and misleading statements and/or concealing
material adverse facts. The scheme: (i) deceived the investing public regarding Co-Diagnostics’s
business, operations and management and the intrinsic value of Co-Diagnostics securities; and (ii)
caused Lead Plaintiff and members of the Class to purchase Co-Diagnostics publicly traded
securities at artificially inflated prices.
LEAD PLAINTIFF’S CLASS ACTION ALLEGATIONS
31.

Lead Plaintiff brings this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a class consisting of all those who purchased the securities
of Co-Diagnostics between February 25, 2020 and May 15, 2020, (the “Class Period”) inclusive,
and who were damaged thereby (the “Class”). Excluded from the Class are Defendants, the officers
and directors of the Company, at all relevant times, members of their immediate families and their
legal representatives, heirs, successors or assigns and any entity in which Defendants have or had
a controlling interest.
32.

The members of the Class are so numerous that joinder of all members is

impracticable. Throughout the Class Period, Co-Diagnostics stock was actively traded on the
NASDAQ Exchange. While the exact number of Class members is unknown to Lead Plaintiff at
this time and can only be ascertained through appropriate discovery, Lead Plaintiff believe that
there are hundreds or thousands of members in the proposed Class. For example, on the last two
days of the class period alone almost 75 million shares of Co-Diagnostics were bought and sold,
meaning that each issued and outstanding share of stock changed hands an average of three times
on those days alone. Record owners and other members of the Class may be identified from records
maintained by Co-Diagnostics or its transfer agent and may be notified of the pendency of this
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action by mail, using the form of notice similar to that customarily used in securities class actions.
33.

Lead Plaintiff’s claims are typical of the claims of the members of the Class as all

members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law complained of herein. Lead Plaintiff purchased 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.
34.

Lead Plaintiff will fairly and adequately protect the interests of the members of the

Class and has retained counsel competent and experienced in class and securities litigation.
35.

Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a)
whether the federal securities laws were violated by Defendants’
acts as alleged herein;
(b)
whether statements made by Defendants to the investing public
during the Class Period misrepresented material facts about the
business and operations of Co-Diagnostics;
(c)
whether the prices of Co-Diagnostics’s publicly traded securities
were artificially inflated during the Class Period; and
(d)
to what extent the members of the Class have sustained damages
and the proper measure of damages.
36.

A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the
damages suffered by individual Class members may be relatively small, the expense and burden
of individual litigation make it impossible for members of the Class to individually redress the
wrongs done to them. There will be no difficulty in the management of this action as a class action.
FACTUAL ALLEGATIONS COMMON TO ALL COUNTS
I.

History of Co-Diagnostics and Historical Market Performance
37.

Co-Diagnostics, Inc. was formed on April 18, 2013, as a Utah corporation. Upon
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information and belief, the company was formed to monetize the DNA-testing technology
developed by Biomedical Engineering Ph.D. Brent Satterfield.
38.

Defendant Egan, Co-Diagnostics’ current CEO, joined the company as an officer

and director in April 2013.
39.

Defendant Benson has served as the company’s CFO, board secretary, and as a

director of Co-Diagnostics since 2014.
40.

After several years of operating as a “start-up” in the private sector, Co-Diagnostics

filed an SEC Form S-1 Registration Statement on April 28, 2017, with an attached prospectus.
41.

The prospectus described that the company owned proprietary technology that

enabled it to do DNA testing for diagnostic purposes.
42.

For example, the prospectus stated that, as of 2017, Co-Diagnostics’ primary source

of revenue was from selling diagnostics tests for Zika Virus, Tuberculosis, Hepatitis B, Hepatitis
C, Malaria, Dengue Fever, and HIV. Its customers were primarily located in the Caribbean, in
Central and South America, in North America, and in India.
43.

The company forecasted that it would be authorized to sell Tuberculosis, Hepatitis

B, and Hepatitis C tests in the European Union in 2018 and 2019.
44.

The prospectus admits that beyond 2019, the company did not have a plan for

further research and development or any target diseases that it was aiming to create diagnostic tests
for, but anticipated to selling tests “based on need and regulatory barriers” in the United States.
45.

The stock first listed on the NASDAQ exchange on July 12, 2017 and opened at

$6. The stock slowly slid down in price to become a “penny stock” trading at less than $1 per
share for extended periods. The stock closed on December 31, 2019 at $0.8952 per share.
46.

Co-Diagnostics was in danger of being delisted from the NASDAQ, which requires

that companies not trade below $1.00 per share to continue being listed on the exchange.
II.

Co-Diagnostics, Without Direction or Strategy, Stumbles Into Its Best Possible
Opportunity as the World Begins to Reel from the Covid-19 Pandemic
47.

As is now common knowledge, in late 2019, a new virus began to spread rapidly
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through the population in Wuhan, China. That virus, which has become known as Covid-19, has
ravaged the world’s economies and healthcare systems, and has resulted in millions of infections
and hundreds of thousands of deaths. Covid-19 is a virus and it can be detected by DNA-based
testing. Because Co-Diagnostics expertise is DNA-based testing, the world’s need for accurate
Covid-19 testing—to help control the spread of the virus—presented a unique opportunity to CoDiagnostics to use its technology and expertise to earn money.
48.

According to Co-Diagnostics, it began developing Covid-19 tests rapidly using a

technology called CoPrimer, which was developed and patented by Satterfield before the outbreak.
Based on public reports, Co-Diagnostics used the CoPrimer technology to develop a Covid-19
diagnostics test within one week.
49.

CoPrimer allegedly worked so well that Co-Diagnostics, despite its relatively small

size, became the first company in the world to obtain the prestigious CE marking for its Covid-19
tests. The CE certification mark indicates conformity with health, safety, and environmental
protection standards for products sold within the European Economic Area.
50.

Co-Diagnostics announced on February 24, 2020, that it had received regulatory

approval to sell in the European Community. It was the first U.S. company to receive approval
for the export to Europe of Covid-19 test kits.
51.

Co-diagnostics’ stock began to rise on the news. The stock traded at over $15 per

share at the end of February 2020, and at over $17 per share in early March.
52.

On April 6, 2020, Co-Diagnostics became the first company to receive approval

from the U.S. FDA for its Covid-19 tests under an Emergency Use Authorization, which permitted
Co-Diagnostics’ tests to be used by certified clinical laboratories in the U.S. for the diagnosis of
Covid-19.
53.

The stock, which in the weeks after the CE announcement had settled to $8 per

share, began to climb again.
54.

Co-Diagnostics rushed its product to market because it had many larger competitors

who were also hurrying to get an accurate diagnostic test to market.
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III.

Co-Diagnostics Makes Material Misrepresentations About Its Covid-19 Tests,
Sending Its Stock Soaring—And Then Crashing
55.

After Co-Diagnostics obtained its certifications, it began selling millions of dollars’

worth of Covid-19 tests to 50 countries and more than 12 states in the U.S. The stock continued
to climb.
56.

During this time Co-Diagnostics was able to obtain lucrative contracts to provide

testing to states and foreign countries. For example, Co-Diagnostics was going to provide the
majority of the tests for a $5 million contract with the state of Utah that ran from March 31, 2020
through May 30, 2020. Co-Diagnostics was also to provide tests for a contract with Iowa totaling
$26 million for approximately 540,000 testing kits.
57.

Not all news was good, however. On April 30, 2020, The Salt Lake Tribune

published an article titled “‘This is a Potential Public Health Disaster’: COVID-19 results from
TestUtah.com are raising questions.” The article questioned the accuracy of Co-Diagnostics tests
being used at sites run by TestUtah.com.
58.

Satterfield was quoted in the article, reassuring the public that the alleged

inaccuracies were due to “population differences”.
59.

In response to the Tribune’s questions, Satterfield reassured the market that Co-

Diagnostics’ tests were between 99.52% and 100% accurate in unspecified FDA and European
studies. Satterfield also said the company had received no complaints from anyone Co-Diagnostics
supplied tests to in 50 countries.
60.

On May 1, 2020, to allay public health and investor concerns, Co-Diagnostics

issued a press release titled: “Co-Diagnostics, Inc. Releases COVID-19 Test Performance Data:
Consistently Demonstrates 100% Sensitivity and 100% Specificity Across Independent
Evaluations”. The press release unequivocally stated that Co-Diagnostics Covid-19 tests were
100% accurate based on data gathered from across the world:
Co-Diagnostics, Inc. (Nasdaq:CODX) (the Company), a molecular
diagnostics company with a unique, patented platform for the
development of diagnostic tests, today released COVID-19 test
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performance data demonstrating 100% sensitivity and 100%
specificity, the metrics used to determine accuracy in molecular
diagnostics testing.
The data being released comes from independent evaluations of the
performance of the Company’s COVID-19 test in the field. These
evaluations were conducted in Mexico by the Mexican Department
of Epidemiology (“InDRE”), India, and elsewhere in the US and
abroad. Each study concluded 100% concordance for both
specificity and sensitivity.
61.

In the press release, Satterfield did not mention that the tests might be less than

100% accurate—abandoning his recognition that the tests were between 99.52% and 100%
accurate. Instead, Satterfield insisted that Co-Diagnostics’ tests were 100% accurate based on the
experimental data:
In remarking on the test’s favorable limit of detection (LOD) results
in the evaluations, Brent Satterfield, PhD said, “In diagnostics, the
limit of detection or LOD is a single metric that helps inform the key
metrics of sensitivity and specificity but is not relevant as a standalone data point. Other metrics that are important are availability,
ease of use and throughput. In countries where we have been
evaluated against other tests, we have consistently and repeatedly
achieved 100% clinical sensitivity and specificity and you can’t do
better than that.”
(emphasis added).
62.

While in most situations, 99.5% accuracy and 100% accuracy are functionally

equivalent, in diagnostic testing of diseases with a low population saturation, the difference can
dramatically affect whether a test has any value to public health officials.
63.

For example, in Utah Covid-19 testing has fairly consistently resulted in only 5%

of apparently-symptomatic test subjects testing positive for Covid-19. In other words, for every
1,000 tests, only about 50 people test positive. However, even if Co-Diagnostics tests were 99.5%
accurate—and it appears they are much less accurate than that—as described in greater detail
below, there would be five people who did not have the test but who tested positive. In other words,
one in ten people who tested positive would not have the disease. At only slightly lower accuracy
rates, the test becomes essentially worthless for public health testing and tracing.
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64.

In practice, Co-Diagnostics results seemed to be even worse than these result rates

would suggest. For example, the April 30th Tribune article reported that Co-Diagnostics tests
being used by TestUtah.com resulted in only a 1% to 2% positive test rate even in symptomatic
patients, suggesting that Co-Diagnostics tests were only accurately reporting half of the Covid-19
infections, suggesting an accuracy rate even worse than the 99.5% that Co-Diagnostics initially
claimed and infinitely worse than the 100% accuracy rate Co-Diagnostics began to tout in early
May.
65.

The market, however, accepted Co-Diagnostics false claims of 100% accuracy --

resulting in a boon to the company’s share price. For example, the following publications repeated
Co-Diagnostics claims, amplifying their effect on the market:
•

•

•

66.

“Co-Diagnostics (CODX) said Friday its coronavirus test has proven
100% accurate in field testing — leading CODX stock to rocket.” Allison
Gatlin, Investor’s Business Daily, “Coronavirus Test Maker Soars As Its
Diagnostic Proves 100% Accurate.”
1.
“Co-Diagnostics says coronavirus test shows spotless sensitivity data in
independent evaluations” Proactiveinvestors.com
“Co-Diagnostics Is a Smart Way to Play Coronavirus Testing: The company's tests are
reportedly 100% accurate in at least three countries” Louis Navellier,
Investorplace.com
Co-Diagnostics did not release any clarifying statement about the accuracy of its

test and has not addressed the allegations in public filings or press releases.
67.

Co-Diagnostics’ stock continued to rise in May, as investors anticipated an earnings

announcement and financial report for the first quarter of 2020 on May 14, 2020 after markets
closed.
68.

Co-Diagnostics’ plan to repress negative reports about its tests seemed to work. On

May 14, 2020, the stock reached an all-time high of $29.72, an extraordinary climb from its
$0.8952 year-end 2019 price.
69.

However, around that same time, Co-Diagnostics’ claims of test accuracy became
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unsustainable.
70.

In the late morning and early afternoon of May 14, 2020, third parties revealed

startling information about Co-Diagnostics’ allegedly 100% accurate test.
71.

The Salt Lake Tribune reported that TestUtah.com, which used tests developed by

Co-Diagnostics, “declined to join other major Utah labs in a joint experiment to confirm one
another’s quality.” Moreover, The Salt Lake Tribune revealed that TestUtah’s tests [by CoDiagnostics] “have a higher ‘limit of detection’ — that is, they require more of the virus to trigger
a positive result — than most other coronavirus tests approved for sale in the U.S., according to
an analysis by the life sciences publication BioCentury.” This meant that Co-Diagnostics tests
were likely to have a much higher false negative reporting rate, meaning that potentially thousands
of infected people were inaccurately told that they did not have the disease, an observation that
was consistent with earlier concerns about TestUtah’s lower rate of positive test results.
72.

The Tribune article also expressed concern relating to TestNebraska.com and

TestIowa.com, testing services that also used Co-Diagnostics tests.
73.

Also on May 14th, Iowa Governor Kim Reynolds issued a public statement saying,

“I’m pleased to announce that the State Hygienic Lab completed the Test Iowa validation process
yesterday, achieving high ratings of 95 percent accuracy for determining positives and 99.7 percent
accuracy for determining negatives.” These results did not comport with statements previously
made by Co-Diagnostics on May 1, 2020.
74.

In fact, Satterfield himself has recently confessed that the lower positive rates for

Co-Diagnostic’s tests “has certainly got all of us scratching our heads a bit,” and that the tests will
correctly identify 95% of true positive results—a massive discrepancy from Co-Diagnostics’s
representations of 100% accuracy given that the tests are intended to be administered among
hundreds of thousands or even millions of people
75.

Based on the release of third party information casting serious doubt as to Co-

Diagnostics’ bold claims of 100% accuracy, the stock price began to fall, closing the day at $22.13
after hitting an intra-day low of $18.35, a greater than 38% decrease in price within hours.
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76.

At that point, Co-Diagnostics could have, but did not, revise its claims of 100% test

accuracy, given that Co-Diagnostics released earnings and first quarter 2020 financials to the
public after hours and had a scheduled investor call for the same evening.
77.

Co-Diagnostics did report that it achieved record sales and that the start-up had

finally, after nearly 7 years, reached profitability; however, it did not address the testing accuracy
or sensitivity allegations or correct Satterfield’s prior statements about tests being 100% accurate.
78.

Rather, the call was described by The Gazette, a Cedar Rapids, Iowa publication

covering TestIowa.com as sounding “more like Thanksgiving with drunk uncles — dogs were
barking, people were swearing, and someone was moaning.” The Gazette also accurately noted
that “[n]one of Co-Diagnostics or Nomi Health’s news releases about the Logix Smart tests have
revealed how many tests have been sold, for how much, and so far all three testing initiatives in
Iowa, Nebraska and Utah have been secretive about the tests and the results.”
79.

The same day, the United States FDA issued a press release about testing accuracy.

Another, much larger drug company had created a diagnostic test for Covid-19 that was under
increasing public scrutiny for apparent inaccuracy. The FDA announced to the public that “[t]he
FDA looks at a variety of sources to identify and understand potential patterns or significant issues
with the use of the Abbott test. No diagnostic test will be 100% accurate due to performance
characteristics, specimen handling, or user error, which is why it is important to study patterns and
identify the cause of suspected false results so any significant issues can be addressed quickly.”
(emphasis added).
80.

Based on the multiple third party sources revealing serious problems that were

known, or should have been known, in advance of May 14, 2020, the stock price further fell to just
over $15 per share when markets opened on May 15, 2020.
81.

By May 20, 2020, a statistician, Zhiyuan Sun, wrote an article specifically about

Co-Diagnostics’ allegedly 100% accurate Covid-19 test. Sun explained:
In May, Co-Diagnostics announced its COVID-19 in vitro test had been found to
have 100% accuracy, 100% specificity (likelihood of preventing a false-negative
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error), and 100% sensitivity (likelihood of preventing a false-positive error), as per
independent verification in laboratories across the world
....
The devil is in the details
To start off, Co-Diagnostics came to the conclusion that its test was 100% effective
on all three diagnostic dimensions (specificity, accuracy, and sensitivity) based on
studies with small sample sizes. For example, laboratory testing of the Logix test
kit conducted in Australia involved about 100 COVID-19-positive patients and 100
COVID-19-negative patients. With a sample size that small, a low error rate, say
1% to 2%, could be really hard to detect. In fact, the study itself explicitly stated
that the test could in fact be between 96% to 98% effective, rather than 100%.
In addition, the testing environment is by no means indicative of the actual
prevalence of COVID-19 in the population at this point in the pandemic. Among
the test samples, 50% contained SARS-CoV-2, and obviously, at this point,
nowhere near half the people in the world have been exposed to the coronavirus.
"But wait a minute!" the intelligent reader might say. "Nothing in the world is
perfect, so who cares if a test's results are off by 1% or 3%? Effectiveness of 97%
is still nothing short of an A-plus. You're just being a devil's advocate, Zhiyuan!"
Unfortunately, this is one of the cases where it is critical to pay attention to the devil
in the details. In fact, a 1% or 3% error rate can render a in vitro test almost useless.
Here's why.
Let us assume, for the sake of argument, the true sensitivity of Logix is 98%, and
its true specificity is also 98%. In other words, the probability of the test delivering
a false positive is 2%, and the probability of the test returning a false negative is
also 2%. Both of these values are directly stated as being probable in studies citing
Logix's range of effectiveness, and they are valid assumptions given that the test
has not been fully vetted by the FDA or other regulators. It is also common
knowledge that because there are not enough viral tests for the COVID-19, the
number of people who have the virus is likely to be significantly higher than official
figures. For example, it is estimated that up to 4.1% of the residents of Los Angeles
County have COVID-19 antibodies. Let's use that 4.1% figure in our calculations
as a measure of prevalence of COVID-19 (a lower prevalence would hurt the test
even more). Assuming 1 million people are given the Logix test, 41,000 should test
positive for an ongoing SARS-CoV-2 infection. However, if the test provides a
false negative 2% of the time, only 98% of those 41,000 -- 40,180 -- would show
up as positives.
On the other hand, out of the 959,000 people who were actually negative for the
virus, a 2% error rate would yield 19,180 cases of false positives -- individuals who
don't have the disease despite the test saying they do. All told, that makes 59,360
people getting positive results, but only 40,180 of them would actually be positive.
That yields a predictive value of 67.7%.
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In other words, if the Logix test only works as well as it does in this scenario -- and
it's right 98% of the time -- there's still a 1-in-3 chance that the test will indicate
you have COVID-19 even though you don't! As one can see, a 32.3% false-positive
error rate isn't very good at all. This problem gets worse if we assume the same
prevalence, but lower Logix's potential sensitivity and specificity estimates to 95%
for both. In this scenario, the probability of getting a false positive increases to
55.2%! While the results are surprising, they nonetheless use the basics of
conditional probability; here is a calculator in case you want to try it out for
yourself. Furthermore, a recent New York University study on COVID-19 in vitro
tests developed by Abbott Laboratories (NYSE:ABT) found them to be widely
inaccurate and unacceptable for use in patients. Keep in mind, those tests were also
promoted as having 100% sensitivity and 99.9% specificity in earlier
investigations. Unfortunately, this just serves to highlight how difficult it is to
develop an accurate test for diseases with a low rate of prevalence like COVID-19.
82.

Co-Diagnostics knew that even a highly accurate test—such as 96%, 98%, or even

99%—was not the same, and not remotely as valuable, as a 100% accurate test. That is because
having a 100% accurate test would have significantly distinguished Co-Diagnostics from other
larger, more reputable competitors introducing Covid-19 tests into the marketplace. And also
because the widespread administration of a Covid-19 test that is even minimally inaccurate can
have highly adverse public health consequences.

Co-Diagnostics knew this—and so it

intentionally issued statements to the public to fend off truthful analysis and scientific skepticism
about its supposed miracle test.
IV.

Additional Scienter Allegations
83.

As alleged herein, Defendants acted with scienter in that Defendants: knew that the

public documents and statements issued or disseminated in the name of the Company were
materially false and misleading; knew that such statements or documents would be issued or
disseminated to the investing public; and knowingly and substantially participated or acquiesced
in the issuance or dissemination of such statements or documents as primary violations of the
federal securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their receipt
of information reflecting the true facts regarding Co-Diagnostics, their control over, and/or receipt
and/or modification of Co-Diagnostics’ allegedly materially misleading misstatements and/or their
associations with the Company which made them privy to confidential proprietary information

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concerning Co-Diagnostics, participated in the fraudulent scheme alleged herein.
84.

Each of the Individual Defendants directly benefited from the fraudulent

overstatement of the Company’s technological capabilities in the form of at least the false inflation
of their own stock and stock options, which Co-Diagnostics insiders have been cashing in on since
the onset of the pandemic.
V.

Loss Causation/Economic Loss
85.

During the Class Period, as detailed herein, Defendants engaged in a scheme to

deceive the market and a course of conduct which artificially inflated Co-Diagnostics’s stock price
and operated as a fraud or deceit on Class Period purchasers of Co-Diagnostics stock by
misrepresenting the Company’s business success and future business prospects. Defendants
achieved this façade of success, growth and strong future business prospects by misrepresenting
the Company’s financial statements, earnings and prospects. Later, however, when Defendants’
prior misrepresentations and fraudulent conduct were disclosed and became apparent to the
market, Co-Diagnostics stock fell precipitously as the prior artificial inflation came out of CoDiagnostics’ stock price. As a result of their purchases of Co-Diagnostics stock during the Class
Period, Lead Plaintiff and other members of the Class suffered economic loss, i.e., damages, under
the federal securities laws.
86.

The economic loss, i.e., damages, suffered by Lead Plaintiff and other members of

the Class was a direct result of Defendants’ fraudulent scheme to artificially inflate CoDiagnostics’ stock price and the subsequent significant decline in the value of Co-Diagnostics’s
stock when Defendants’ prior misrepresentations and other fraudulent conduct was revealed.
VI.

Applicability of Presumption of Reliance Fraud on the Market Doctrine
87.

The markets for Co-Diagnostics’ common stock were open, well-developed and

efficient at all relevant times. As a result of these materially false and misleading statements and
omissions of material fact, Co-Diagnostics’ publicly traded securities traded at inflated prices
during the Class Period. Lead Plaintiff and other members of the Class purchased or otherwise

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acquired Co-Diagnostics publicly traded securities relying upon the integrity of the market price
of Co-Diagnostics publicly traded securities and market information relating to Co-Diagnostics
and have been damaged thereby.
88.

During the Class Period, Defendants materially misled the investing public, thereby

inflating the price of Co-Diagnostics’ common stock, by publicly issuing false and misleading
statements and omitting disclosure of material facts necessary to make Defendants’ statements, as
set forth herein, not false and misleading. Said statements and omissions were materially false and
misleading in that they failed to disclose material adverse information and misrepresented the truth
about the Company, its business and operations, as alleged herein.
89.

At all relevant times, the material misrepresentations and omissions particularized

in this Complaint directly or proximately caused, or were a substantial contributing cause of, the
damages sustained by Lead Plaintiff and other members of the Class. As described herein, during
the Class Period, Defendants made or caused to be made a series of materially false or misleading
statements about Co-Diagnostics’ business, prospects and operations. These material
misstatements and omissions had the cause and effect of creating in the market an unrealistically
positive assessment of Co-Diagnostics and its business, prospects and operations, thus causing the
Company’s common stock to be overvalued and artificially inflated at all relevant times.
Defendants’ materially false and misleading statements during the Class Period resulted in Lead
Plaintiff and other members of the Class purchasing the Company’s common stock at artificially
inflated prices, thus causing the damages complained of herein.
90.

At all relevant times, the market for Co-Diagnostics securities was an efficient

market for the following reasons, among others:
(a) Co-Diagnostics common stock met the requirements for listing, and was listed and
actively traded on the NASDAQ, a highly efficient and automated market;
(b) as a regulated issuer, Co-Diagnostics filed periodic public reports with the SEC and
NASDAQ;
(c) Co-Diagnostics regularly communicated with public investors via established market
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communication mechanisms, including regular disseminations of press releases on the national
circuits of major newswire services and other wide-ranging public disclosures, such as
communications with the financial press and other similar reporting services; and
(d) Co-Diagnostics was followed by several securities analysts employed by major
brokerage firms who wrote reports which were distributed to the sales force and certain customers
of their respective brokerage firms. Each of these reports was publicly available and entered the
public marketplace.
91.

As a result of the foregoing, the market for Co-Diagnostics common stock promptly

digested current information regarding Co-Diagnostics from all publicly available sources and
reflected such information in the prices of the stock. Under these circumstances, all purchasers of
Co-Diagnostics common stock during the Class Period suffered similar injury through their
purchase of Co-Diagnostics common stock at artificially inflated prices and a presumption of
reliance applies.
VII.

No Safe Harbor
92.

The statutory safe harbor provided for forward-looking statements under certain

circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
Many of the specific statements pleaded herein were not identified as “forward-looking
statements” when made. To the extent there were any forward-looking statements, there were no
meaningful cautionary statements identifying important factors which could cause actual results
to differ materially from those in the purportedly forward-looking statements. Alternatively, to the
extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein,
Defendants are liable for those false forward-looking statements because at the time each of those
forward-looking statements were made, the particular speaker knew that the particular forwardlooking statement was false, and/or the forward-looking statement was authorized and/or approved
by an executive officer of Co-Diagnostics who knew that those statements were false when made.
COUNT I
Violation of Section 10(b) of the Exchange Act
and Rule 10b-5 Promulgated Thereunder
Against All Defendants
93.

Lead Plaintiff repeats and reallege each and every allegation contained above as if
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fully set forth herein.
94.

During the Class Period, Defendants disseminated or approved the materially false

and misleading statements specified above, which they knew or deliberately disregarded were
misleading in that they contained misrepresentations and failed to disclose material facts necessary
in order to make the statements made, in light of the circumstances under which they were made,
not misleading.
95.

Defendants: (a) employed devices, schemes, and artifices to defraud; (b) made

untrue statements of material fact and/or omitted to state material facts necessary to make the
statements not misleading; and (c) engaged in acts, practices, and a course of business which
operated as a fraud and deceit upon the purchasers of the Company’s common stock during the
Class Period.
96.

Lead Plaintiff and the Class have suffered damages in that, in reliance on the

integrity of the market, they paid artificially inflated prices for Co-Diagnostics common stock.
Lead Plaintiff and the Class would not have purchased Co-Diagnostics common stock at the prices
they paid, or at all, if they had been aware that the market prices had been artificially and falsely
inflated by Defendants’ misleading statements.
97.

As a direct and proximate result of Defendants’ wrongful conduct, Lead Plaintiff

and the other members of the Class suffered damages in connection with their purchases of CoDiagnostics common stock during the Class Period.
COUNT II
Violation of Section 20(a) of the Exchange Act
Against the Individual Defendants
98.

Lead Plaintiff repeats and reallege each and every allegation contained above as if

fully set forth herein.
99.

The Individual Defendants acted as controlling persons of Co-Diagnostics within

the meaning of Section 20(a) of the Exchange Act as alleged herein. By reason of their positions
as officers and/or directors of Co-Diagnostics, and their ownership of Co-Diagnostics stock, the

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Individual Defendants had the power and authority to cause Co-Diagnostics to engage in the
wrongful conduct complained of herein. By reason of such conduct, the Individual Defendants are
liable pursuant to Section 20(a) of the Exchange Act.
WHEREFORE, Lead Plaintiff prays for relief and judgment, as follows:
A.

Determining that this action is a proper class action and certifying Lead Plaintiff as

Class representatives under Rule 23 of the Federal Rules of Civil Procedure and Lead Plaintiff’s
counsel as Lead Counsel;
B.

Awarding compensatory damages in favor of Lead Plaintiff and the other Class

members against all Defendants, jointly and severally, for all damages sustained as a result of
Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
C.

Awarding Lead Plaintiff and the Class their reasonable costs and expenses incurred

in this action, including counsel fees and expert fees; and
D.

Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMAND

Lead Plaintiff hereby demands a trial by jury.
DATED: June 15, 2020

SMITH WASHBURN, LLP
/s/ D. Loren Washburn
D. Loren Washburn
Michael A. Pineiro (pro hac vice application forthcoming)
MARCUS NEIMAN RASHBAUM & PINEIRO LLP
2 South Biscayne Blvd., Suite 1750
Miami, FL 33131
Michael C. Fasano (pro hac vice application forthcoming)
FASANO LAW FIRM, PLLC
2 S. Biscayne Blvd., Suite 1750
Miami, FL 33131
Attorneys for Gelt Trading, Ltd. and Proposed Class

CLASS ACTION COMPLAINT
CASE NO. ______________, PAGE 23

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