SEC investigating stock sale by Hauppauge manufacturer

Securities regulators are investigating a Hauppauge manufacturer of diagnostic tests about a stock offering that took place shortly before one of its COVID-19 antibody tests lost preliminary federal approval.

The U.S. Securities and Exchange Commission has issued subpoenas to Chembio Diagnostics Inc. and six of its current and former executives, the company said in a securities filing this month.

The SEC "is conducting a non-public, fact-finding investigation" of Chembio’s stock offering in May 2020, states the filing. The proceeds — about $31 million — were to be used for the production of a new COVID antibody test that had received Emergency Use Authorization, or EUA, from the U.S. Food and Drug Administration in April 2020.

But a couple of weeks after the offering closed, the FDA on June 16, 2020, announced it was revoking the EUA. The agency said the test was found to produce inaccurate results in some cases.

Chembio’s stock price plummeted on that news, closing down $6.04 per share, or nearly 61%, to $3.89 on the Nasdaq Stock Market. Shares in the May offering at been priced at $11.75, according to a securities filing at the time.

Chembio shares closed up 10 cents, or about 4%, to $2.65 on Tuesday.

Company CEO Richard L. Eberly declined to comment on the SEC probe.

"Chembio and the six individuals are cooperating fully in the SEC’s investigation and expect to continue to do so," states the Aug. 9 filing. "The SEC’s letters transmitting the subpoenas expressly provide that the inquiry does not mean that the SEC or its staff have concluded that anyone has violated the federal securities laws or have a negative opinion of any person, entity or security."

Separately, the company faces multiple lawsuits from investors who allege the FDA had expressed concerns over the antibody test’s reliability and that was not disclosed before the stock offering closed in May 2020.

Antibody tests check patients’ blood for antibodies, which can show if they had a past infection with the virus that causes COVID.

For the past year, Chembio has sought a new EUA for a revised version if its COVID-19 antibody test, but the FDA has so far said there is no urgency, given that similar tests are in use in the United States. The company also is seeking FDA approval for a COVID antigen test and recently won a large order for that test from the Brazilian government.

Chembio reported a loss of $13.6 million for the first six months of this year on revenue of $15 million. Last year, it lost $25.5 million on revenue of $32.5 million.

By James T. Madore

james.madore@newsday.comJamesTMadore

James T. Madore writes about Long Island business news including the economy, development, and the relationship between government and business. He previously served as Albany bureau chief.