Recidivist securities offender Joshua Yafa was behind a promotional campaign that helped lift the share price of Co-Diagnostics Inc. (Nasdaq: CODX) from less than $1 a share to nearly $30 a share in the first eight months of 2020, according to filings in a criminal case involving two other public companies.
Co-Diagnostics was the subject of a Sharesleuth investigation in April 2020. At the time, the company was producing Covid-19 diagnostic kits that were used by government-sponsored testing facilities in several states, including Utah, Iowa and Nebraska.
The Justice Department announced charges last year against Yafa; his brother, Jamie Yafa; and three other defendants in connection with pump-and-dump schemes at Global Wholehealth Partners Corp. (OTC: GWHP) and Nunzia Pharmaceutical Corp. (OTCBB: NUNZ).
Co-Diagnostics did not figure into that case. However, according to DOJ filings in April and May, Joshua Yafa said in a conversation with a confidential FBI source and an undercover FBI agent that he helped orchestrate a successful Co-Diagnostics touting campaign. Those assertions were part of his pitch for the promotion of Global Wholehealth Partners, another Covid test company.
Two of the other defendants in the Global Wholehealth Partners case also were quoted in the court documents as offering details of the Co-Diagnostics campaign, with one saying the budget for the touting hit seven figures a month at its peak.
PRICE JUMP LEADS TO SHARE SALES
After its stock price took off, Co-Diagnostics raised nearly $19.5 million from investors through share placements. When the stock reached its highest point in August 2020, the company had a market capitalization of around $860 million.
The court filings identified Penny Stock Prophet and OTC Tip Reporter as two promotional outlets Yafa used to tout Co-Diagnostics. Both also touted Global Wholehealth Partners.
Officers, directors and other key players at Co-Diagnostics sold several million dollars of stock in 2020.
The Securities and Exchange Commission is known to have investigated some of the claims that Co-Diagnostics made about its Covid tests, including its production capacity in the early days of the pandemic. But there have been no reports that the SEC or the DOJ looked into the promotion or manipulation of the company’s shares, which are down 95 percent from their highs.
COLD-CALLING INVESTORS
The DOJ filings quoted one of the defendants as saying that, in addition to putting out tout reports, Yafa used a small telemarketing team to call investors and try to persuade them to buy shares of Co-Diagnostics and other companies he was pushing.
Our investigation in 2020 noted that Co-Diagnostics itself had ties to overseas boiler rooms that peddled its shares to foreign investors before the company went public. We also reported that one of Co-Diagnostics’ top executives, Chief Financial Officer Reed L. Benson, had been a director of a firm accused of boiler-room type activities by Spain’s financial regulatory agency more than a decade earlier. That agency levied a fine of 300,000 Euros against Benson; the firm, Carlton Birtal Financial Advisory SL; and another American who was a director.
The recent DOJ filings offered no details about who might have financed the Co-Diagnostics promotional campaign.
Our original investigation found that 2.4 million Co-Diagnostics shares held by an entity in Turks and Caicos essentially disappeared around the time the company went public in 2017, and never were mentioned in SEC filings again.
Certain other investors, including two Canadian financiers named Robert Salna and Ted Murphy, converted preferred stock or exercised warrants in late 2019 and early 2020, receiving more than 2.8 million common shares.
We also found that Benson was a member of a limited liability company that had just under 1.3 million shares as of late 2019, before Covid hit. His partner in that LLC was the son of Lynn W. Briggs, another Utah resident with a history of involvement in offshore boiler rooms that sold shares of dubious U.S. companies to foreign investors.
Benson had played a key role in two of the U.S. companies whose shares were peddled overseas – Broadcast International Inc. (formerly Nasdaq: BCST) and Xvariant Inc. (formerly OTC: XVNT). Both ended up as failures.
SET FOR TRIAL
The trial for the Yafa brothers is scheduled to begin Monday in U.S. District Court in San Diego. Charles Strongo, who had been chief executive of Global Wholehealth Partners and Nunzia Pharmaceutical, pleaded guilty in April to conspiracy to commit securities fraud. The other two defendants — Brian Volmer and Carl Marciniak — pleaded guilty this week to the same charge.
The SEC brought a parallel civil case against the group, calling the touting of Global Wholehealth Partners a “$1.95 million fraudulent pump-and-dump scheme.” That has been stayed pending resolution of the criminal case.
The DOJ said in a pre-trial submission that the Yafas did not intend to dispute evidence of other promotion schemes, and that prosecutors would not try to prove those promotions were fraudulent – only that the share prices of some stocks of the stocks rose while they were being touted.
One of the documents in the Yafa case file includes a snippet of a conversation between defendant Carl Marciniak and the confidential FBI source and undercover FBI agent, regarding the cost and execution of tout campaigns.
Marciniak used the Co-Diagnostics promotion as a reference, saying that it fell toward the higher end of the cost spectrum. According to the DOJ, he was recorded saying this:
“On CODX, when it was humming they were – they were kicking over about a million bucks a month. And, you know, it just depends on the deal. Every deal is different, every budget is going to be different.”
TWO GOOD YEARS
Part of the surge in Co-Diagnostics’ share price in 2020 could be attributed to the company’s actual performance, rather than mere promotion. It had $74.6 million in revenue and $42.5 million in profit for that year, with the bulk of that coming in the final two quarters.
Co-Diagnostics had $97.9 million in revenue and $36.6 million in profits in 2021, but sales fell by two-thirds last year and the company wound up with a $14.2 million loss.
The company’s stock price and sales have continued to decline as the pandemic has faded. It reported just $602,000 in revenue for the first quarter of this year, compared with $22.7 million in the same period of 2022. It had a loss of $5.7 million for the latest quarter.
Co-Diagnostics’ shares closed Wednesday at $1.07, down almost 80 percent over the past year.
(Editor’s note: Mark Cuban, owner of Sharesleuth.com LLC, has no position, long or short, in the shares of Co-Diagnostics. Chris Carey, editor of Sharesleuth and the author of this report, does not invest in individual stocks and also has no position.)
CHECKERED PASTS
According to the indictment, Marciniak’s role in the Global Wholehealth Partners scheme was to hold large amounts of stock via offshore entities, so that he could unload it when the others were touting. He pleaded guilty in 2017 to criminal charges stemming from a similar pump-and-dump, and was on supervised release at the time he got involved with Global Wholehealth Partners.
Volmer also has a history of participating in fraudulent promotions. The SEC charged him in the late 1990s with touting the stock of two companies without disclosing that he was compensated to do so. The SEC said he also knowingly and recklessly made false representations, including a claim that a prominent New York-based investment management firm had issued a “buy” recommendation on one of the stocks. A judge found him liable and ordered him to pay almost $300,000 in disgorgement.
The DOJ said in a proposed jury-instruction document for next week’s trial that Jamie Yafa is likely to argue he was unaware of certain incriminating facts about the Global WholeHealth Partners pump-and-dump. Prosecutors said he might assert that he and his brother set up a so-called “Chinese Wall” that protected him by separating the creation and distribution of the promotional material from the details of how, and how much, the conspirators and their affiliates paid for the touting that fueled the scheme.
The DOJ wants the jury instructions to say that Jamie Yafa could still be found guilty if he was aware there was a “high probability that a conspiracy to pump and dump GWHP and NUNZ stock was underway” and that he deliberately avoided learning the truth.
The DOJ and SEC previously charged Joshua Yafa in 2005 in connection with a promotion scheme that involved a fax blast disguised as a misdirected “buy” message from a broker to a client. He pleaded guilty to criminal charges in 2006 in connection with the manipulation effort, which involved AVL Global Inc. (formerly OTC: AVLL). He was sentenced to five years of probation.
Yafa, who lives in Boca Raton, Fla., agreed in that SEC case to a permanent injunction that included disgorgement, a financial penalty and a lifetime penny-stock ban. The DOJ filings in the new case say he got around the ban by making sure his brother’s name was on the corporation filings for Empire Associates Inc., the promotion firm that oversaw the touting activities.
Although the DOJ filings did not mention it, Sharesleuth found that Joshua Yafa’s wife, Jacqueline Yafa, lists herself on LinkedIn.com as chief technology officer of another stock promotion firm, TD Media LLC, which does business as Life Water Media.
By our count, the firm has touted, or paid for the touting, of more than 30 stocks over the past three years. That list includes several companies that figured into previous Sharesleuth investigations.
Jacqueline Yafa’s brother, Enrique D. Pena , who also goes by David Pena, was one of the co-founders of TD Media. Corporation filings show that Pena also is a member of SWN Media LLC, which operates additional promotion sites.
We also noted that Wyoming corporation records list Jacqueline Yafa — under the name Jacqueline Pena — as the organizer of Picks Penny Stock LLC. That entity was created in 2010 and operated a tout service called Penny Stock Bull Reports.
It appears to have focused primarily on a single stock, Seven Arts Entertainment Inc. (OTC: SAPX).
