The SEC Halted a Stock Over Virus Claims. Then the  Company Got a PPP Loan

(Bloomberg) -- A penny stock company received federal relief money to weather the pandemic two weeks after its shares were suspended by regulators who said it made misleading statements about its ability to distribute coronavirus antibody tests.

The U.S. Securities and Exchange Commission suspended trading in the shares of Predictive Technology Group on April 21 after questioning whether the company could, as it claimed, “immediately distribute large quantities of serology tests to detect the presence of Covid-19 antibodies,” according to the order.

On May 6, the Salt Lake City-based company received a $1.7 million loan as part of the Small Business Administration’s Paycheck Protection Program, according to a regulatory filing.

The company’s shares resumed trading that same day after a two-week suspension. It didn’t respond to multiple requests for comment.

There’s nothing in the PPP relief law that prevents a company whose shares were suspended from receiving loans from the program.

What’s more, Predictive Technology isn’t the only publicly traded company that’s had run-ins with the SEC and also received PPP funding that’s remained out of reach for many small businesses.

Cool Holdings Inc., which sells electronics equipment, received a loan despite being under investigation for securities fraud. MiMedx Group Inc. was awarded a $10 million PPP loan after paying a $6.5 million penalty in April to end a Justice Department probe into claims it defrauded the federal government. MiMedx, which didn’t admit wrongdoing as part of the settlement, has since returned its loan for reasons unrelated to the Justice Department probe.

Predictive Technology, whose board includes Republican former Senator Orrin Hatch of Utah, is a biotechnology company that’s run by Chief Executive Officer Bradley Robinson and has about 110 employees. In a previous venture, Robinson was accused in a 2013 lawsuit of making false claims tied to a cholesterol-lowering algae water product that he said would be pitched to the television personality Dr. Oz, the Gates Foundation and Walgreen executives. The suit was settled out of court, a lawyer for the complainants said.

Hatch and Robinson didn’t respond to requests for comment.

The SEC, in suspending Predictive Technology’s shares, cited three news releases published by the company in March and early April. In one, on March 25, the company stated it planned to distribute a finger-prick test that screens for coronavirus antibodies, delivering results within 15 minutes. In another news release on April 8, the company said it had a million initial orders.

According to Hindenburg Research, which has shorted Predictive Technology shares, said the company falsely claimed that a Chinese manufacturing partner received Chinese government approval to distribute the antibody tests. The tests were still being marketed on Predictive Technology’s website on Tuesday.

In response, Predictive Technology called the firm’s claims “misleading” and said that “the company will not dignify the opinion piece with a point-by-point response.”

Federal securities law allows the SEC to suspend trading in the shares of public companies for as many as 10 days if it deems that doing so is in the public interest, according to the regulator. After the period lapses, shares can trade on the over-the-counter market but generally at lower prices.

The agency warns investors to be “very skeptical” when investing after the period ends. Shares of Predictive Technology have fallen 57% since the trading halt was lifted, to 35 cents. They have declined 92% in the last year.

Congress passed the PPP legislation in March to help companies meet expenses such as payroll after the coronavirus pandemic all but shut down businesses all across the U.S. The Trump administration’s rollout of the program has been criticized by Democratic lawmakers for allowing publicly traded companies, which can raise money from capital markets, to receive the loans at the expense of smaller mom and pop businesses.

After the criticism, the Treasury Department and SBA have since issued new guidance, warning companies with large valuations and access to capital markets that it’s unlikely they could certify in good faith that a PPP loan is “necessary to support the ongoing operations of the applicant.”

More than 60 out of the roughly 400 public companies that received the loans have returned them, according to data from FactSquared.

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