Leaders of TestIowa Startup Sold Stock for Big Profits Amid Scrutiny of COVID-19 Test Accuracy

As the Utah company producing coronavirus tests rolls out a related joint venture in India, it now also faces four proposed class-action lawsuits alleging that investors lost millions over its false claims

Screenshot via TestIowa.com

Board members and executives at Co-Diagnostics, one of the Utah startups administering the controversial TestIowa COVID-19 program, profited handsomely by selling shares of the company’s stock earlier this year after it soared in value, according to an NPR investigation published Wednesday.

In May — around the time that journalists began raising questions over disputed claims made by Co-Diagnostics about the accuracy of its coronavirus tests — two members of the company’s board of directors each sold nearly $1 million worth of stock when it was worth about $18 a share. Despite the scrutiny, the stock’s value continued to rise to more than $30 a share when it peaked in early August as tests became increasingly available in Iowa.

By November, stock shares had fallen to below half their peak value but remained far higher than before the pandemic, when they were worth less than a dollar. According to NPR, Co-Diagnostics’ CEO and chief financial officer sold all of their direct stock holdings in the company in late November. They did so almost immediately before the company’s announcement of a new joint venture to market coronavirus tests in India with CoSara Diagnostics, a company based in the country — the second-largest in the world by population with nearly 1.4 billion people.

The news raises further questions about potential legal issues TestIowa faces, as well as Iowa Governor Kim Reynolds’ wisdom in signing a $26 million no-bid contract in April with Nomi Health, the company leading the TestIowa program with the help of Co-Diagnostics and two other startups based in Silicon Slopes, Utah’s version of Silicon Valley. Although the TestIowa website continues to promote the initiative as part of a “nationwide” effort, the companies have similar programs in just two other states, Utah and Iowa’s pandemic-complacent neighbor to the west, Nebraska.

Reynolds solicited the help of Nomi Health on the advice of Cedar Rapids-born actor and venture capitalist Ashton Kutcher, who is friends with Ryan Smith, the CEO of Qualtrics, one of the other startups involved. Qualtrics set up a questionnaire on the TestIowa website to screen residents for testing. One of the questions asked about allergies to medications including hydroxychloroquine, an anti-malaria drug falsely touted by President Trump as a miracle cure for COVID-19.

In April, the Informer was the first news outlet in Iowa to draw attention to reporting by The Salt Lake Tribune revealing that Nomi Health’s founder and CEO, Mark Newman, sat on the board of a pharmacy company called Meds in Motion that had recently won an $800,000 contract with the state of Utah for 20,000 doses of hydroxychloroquine. (Utah’s Republican Governor, Gary Herbert, canceled the contract in late April after it was criticized by health experts, state lawmakers, and the Tribune‘s editorial board.)

In a public Zoom call on April 1, NPR noted, Newman explained why Nomi Health partnered with Co-Diagnostics, which had previous experience producing malaria tests, by saying that “three weeks ago, none of us knew anything about lab testing.” (But Co-Diagnostics was not a major player in the industry; the NPR report leads, “Early on in the coronavirus pandemic, as governments scrambled to find rapid and reliable coronavirus tests, three states ended up turning to a small public company that just months earlier had no major customers and was losing millions of dollars.”)

A couple hours after the Informer reported on Newman and Kutcher’s role in TestIowa, Cedar Rapids newspaper The Gazette published a deeper expose by then-columnist Lyz Lenz on the leaders behind the TestIowa startups. Among other details, Lenz wrote about a previous company founded by Newman called HireVue, which developed job interview software using artificial intelligence criticized as “profoundly disturbing … pseudoscience” that provided “a license to discriminate.” Domo, the other startup partnered with Nomi Health for TestIowa, she added, was led by a man named Josh James, who faced allegations of bias against women and people of color — and cashed in on his own company’s skyrocketing stock value before it plummeted after Domo went public.

On May 20, Lenz followed up with a report on how investors were getting nervous about Co-Diagnostics amid the scrutiny over its claims about the reliability of its coronavirus tests. “Beyond the data and slow implementation, investors are worried,” Lenz wrote. “Co-Diagnostics stock began to decline last week after an earnings call that sounded more like Thanksgiving with drunk uncles — dogs were barking, people were swearing, and someone was moaning.”

(TestIowa leaders maintain that their claims were true and supported by the findings of an initial study funded with a grant from the Utah Journalism Foundation in which data scientist Meghan Lockard used Co-Diagnostics tests on inactive samples of the coronavirus. Lockard told The Salt Lake Tribune that she planned to conduct a more rigorous follow-up phase of the study but was denied funding. Mike Pentella, director of the Iowa State Hygienic Lab that processes coronavirus tests, told the newspaper that early problems with the Co-Diagnostics tests were resolved by adjusting the testing procedure.)

The May article was published at roughly the same time that Co-Diagnostics board directors Richard Serbin — who was fined $50,000 and had his law license suspended for six months in 2006 for insurance fraud — and Eugene Durenard each sold their company stock for nearly $1 million, as reported by NPR. In the article, Lenz also linked to an investigative report noting that Co-Diagnostics CFO Reed Benson previously served as a director of a firm named Carlton Birtal Financial Advisory SL, where he and another director were fined $360,000 by Spanish regulators for unlicensed securities sales. According to the NPR report, both Benson and Co-Diagnostics CEO Dwight Egan sold all of their direct stock holdings — worth hundreds of thousands of dollars — before the end of November.

Reacting yesterday to the NPR investigation into Co-Diagnostics published this week, Lenz tweeted, “I got actual threats when I reported about the shadiness of this company and one of my former bosses told me there would be blood on my hands [if] I continued.”

Lenz was fired from The Gazette in early October when her bosses apparently bowed to partisan political pressure from Iowa GOP Chairman Jeff Kaufmann, among others, who had pointed to her columns to bolster their dishonest justifications for why Republican candidates refused to meet with the paper’s editorial board.

Months before that happened, she also reported in depth on the dubious claims from Co-Diagnostics about the accuracy of its coronavirus tests.

Democratic State Auditor Rob Sand in July accused TestIowa of “illegal and unbusinesslike practices, inefficiencies, and apparently pointless risks” relating to how the startups processed test results. In our coverage of this, the Informer noted that Co-Diagnostics was facing a proposed class-action lawsuit filed in federal court alleging the company artificially inflated its stock value by making false claims about the “100% sensitivity and 100% specificity” of its coronavirus tests. According to NPR, the filing is now one of four proposed class-action suits against the company, which stands accused of costing investors millions of dollars.

The two board directors — Serbin and Durenard — who each sold 50,000 shares of Co-Diagnostics stock in May could be in legal trouble themselves, NPR added: “Investors often see major stock sales by company leaders as a warning sign. So federal law requires company executives and directors to disclose stock transactions within two business days. But Co-Diagnostics’ directors did not publicly disclose some of those sales for two weeks.”

A spokesperson with the Utah Department of Public Health told NPR that the state no longer uses Co-Diagnostics for testing services. But Iowa and Nebraska still do, and their governors continue to speak positively of the company’s work.

Gavin Aronsen
Gavin Aronsen is an editor and reporter for and founding member of the Iowa Informer. He previously worked as a city reporter for the Ames Tribune, research assistant to investigative journalist Wayne Barrett at the Village Voice, and in various roles at Mother Jones, where his work contributed to a National Magazine Award nomination for the magazine's digital media coverage of the Occupy Wall Street movement. Email: garonsen [at] iowainformer [dot] com.