By Reenat Sinay

Law360 (December 18, 2020, 9:28 PM EST) -- The CEO of Decision Diagnostics Inc. is facing a charge of criminal securities fraud for falsely telling investors the biotechnology company was developing a 15-second finger prick test for COVID-19, according to an indictment unsealed in D.C. federal court Friday.

Prosecutors say that Keith Berman, who is also facing a parallel U.S. Securities and Exchange Commission civil suit brought in New York on Thursday, misled investors from February to December of this year in an effort to prop up the California-based medical device manufacturer's failing financial health.

Berman had been misappropriating hundreds of thousands of dollars in company funds for his own personal use in recent years while falsely telling investors he had received no cash compensation, the government said.

By early March, Berman and Decision Diagnostics' financial condition were in a precarious position, so he hatched a scheme to raise investor funds by touting the development of a COVID-19 test that could detect the virus through a finger-prick blood sample, according to the indictment.

Up until that point, Decision Diagnostics had developed and distributed glucose test strips and meters using a process known as "impedance technology." Berman told investors that similar technology could be used to develop an accurate coronavirus test that would provide near-instant results, prosecutors said.

Berman made misleading statements on investor message boards, in press releases and in financial filings, claiming that Decision Diagnostics had actually developed such a product and had applied to the U.S. Food and Drug Administration for its emergency use. Berman also claimed that the test kit would be commercially available by this summer, the government said.

In reality no such prototype was ever developed, and Berman did not know whether the idea for such a COVID test would work or if it could accurately test for the virus in as quickly as 15 seconds, the indictment says.

Berman's actions artificially inflated the price of his company's stock and led to millions in investor losses, prosecutors said.

The SEC claims in its parallel suit that in the three months before March 3, 2020, Decision Diagnostics' share price fluctuated between $0.01 and $0.02 per share with an average daily trading volume of 237,701 shares. But after the company's first press release about the blood test on March 3, its stock price and trading volume shot up, with the price rising by nearly 1,200%, the SEC said.

After press releases in early April publicizing the company's supposed emergency use authorization application to the FDA, investor interest in Decision Diagnostics' stock spiked, doubling the share price two days in a row, according to the regulator.

The SEC suspended trading in Decision Diagnostics securities on April 23, prompting Berman to send the agency a purported shareholder letter accusing it of unethical conduct towards the company, prosecutors said Friday. Berman continued to deny his involvement in the so-called shareholder letter up until at least late October, according to the government.

Counsel for Berman and representatives for the government did not immediately respond Friday to requests for comment.

Berman is represented in the SEC case by Ronald S. Herzog of Goldberg Segalla LLP, and Walter Loughlin. It was not immediately clear whether Herzog and Loughlin also represent Berman in the criminal case.

The government is represented by Christopher R. Fenton of the U.S. Department of Justice's Criminal Division.

The case is U.S. v. Berman, case number 1:20-cr-00278, in the U.S. District Court for the District of Columbia.

--Additional reporting by Lauren Berg. Editing by Adam LoBelia.

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