Shares of Co-Diagnostics Inc. (Nasdaq: CODX) have risen tenfold since January, when the company announced it had completed preliminary design work on a new Covid-19 test.
Co-Diagnostics, which has only a modest lab and headquarters building in Salt Lake City, said last month it was capable of producing as many as 50,000 tests a day, at a cost of just $10 per patient.
Although it has not publicized its participation, the company is part of a consortium that won $53 million in controversial no-bid testing contracts from the states of Iowa and Nebraska, as well as a $5 million deal from the state of Utah.
But a Sharesleuth investigation found that Co-Diagnostics has extensive ties to a group that once peddled shares of dubious public companies through boiler room-style brokerages overseas.
In fact, it appears that a newer boiler room sold interests in Co-Diagnostics before it went public. We discovered that MB Financial Advisory AG, which cold-called people in Europe with stock pitches, billed the testing company as an “investment capital client.”
Our investigation also found that three of Co-Diagnostics’ early funders have been the subject of Securities and Exchange Commission actions — one for his alleged role in a pump-and-dump scheme and another for violating touting rules.
In addition, some epidemiologists and public health experts in Utah are now raising questions about the accuracy of Co-Diagnostics’ test kits, or the manner in which the testing is conducted, according to a story in the Salt Lake Tribune.
At Wednesday’s closing price of $12.37 a share, Co-Diagnostics had a market capitalization of almost $340 million, not bad for a company that had less than $300,000 in sales over the past three years, and upwards of $20 million in losses.
BOILER ROOM TIES
Co-Diagnostics’ chief financial officer, Reed L. Benson, previously was vice president and general counsel at Broadcast International Inc. (formerly Nasdaq: BCST). It offered video-communications software and services.
Broadcast International was one of the companies whose shares were marketed to foreign investors by the boiler rooms, some of which were linked to a former Utah stockbroker named Bryant L. Cragun, and one of his close associates, Lynn W. Briggs.
SEC filings show that Broadcast International gave Briggs a consulting contract just before it went public through a reverse merger in 2004. Foreign investors who got burned buying shares from the boiler rooms said Briggs pitched them in person, in Europe and Australia.
Broadcast International terminated Benson in 2008 after learning that Spanish regulators had charged him in a case against one of the boiler rooms that had been selling Broadcast International’s shares.
The regulators said Benson was a director of that firm, Carlton Birtal Financial Advisory SL, when it was selling securities without a proper license. They levied a fine of roughly $360,000 against Benson, Carlton Birtal and a second director.
Benson also played a pivotal role in the creation of another Salt Lake City company called Xvariant Inc. (formerly OTC: XVNT). It marketed video technology that let prospective home buyers take virtual tours of properties.
Its shares were pushed by Carlton Birtal and another boiler room, First Swiss Financial Management AG, which was the subject of regulatory warnings. SEC filings showed that a consulting company formed by Cragun and Briggs got some of Xvariant’s initial shares. The stock peaked at $5 in mid-2002 but was down to 30 cents by the end of 2003.
We found that MB Financial Advisory, which claimed to be based in Switzerland, pitched investments in five businesses connected to Benson between 2013 and 2018.
Xvariant is no longer in business. Neither is Broadcast International.
A COLD STOCK CATCHES FIRE
Until a few months ago, Co-Diagnostics was looking like a bust, too. Its stock was off nearly 80 percent from its July 2017 initial public offering price of $6 a share, and it had been warned twice by the Nasdaq exchange that it was in danger of losing its listing.
Then came the coronavirus pandemic. Co-Diagnostics’ stock went from under $1 in early January to $3 at the start of February – after the announcement of the Covid-19 test — and hit a high of a $21.75 at the end of February.
The company has taken advantage of the increased investor interest by raising more than $19 million, through three share placements. The surge in its share price has produced small fortunes – on paper at least – for company insiders and some funders.