LINCOLN — The Utah company that provides the COVID-19 tests used by the TestNebraska and TestIowa programs has been sued in federal court, accused of pumping up its stock price through misleading claims about the “100%” accuracy of its test.

The alleged “pump and dump” scheme by Co-Diagnostics Inc. of Salt Lake City cost investors millions of dollars, according to the lawsuit, filed by Cayman Islands-based Gelt Trading Inc.

The investment firm alleged that Co-Diagnostics executives misrepresented their Logix COVID-19 test as being “100% accurate.” That claim, the lawsuit alleges, was later proven to be false but only after Co-Diagnostics stock rocketed to a high of $23.42 a share on May 13.

“This was quite an accomplishment for a company that was at risk of being delisted from the (stock) exchange on New Year’s Day 2020, when it was trading at $.91 and was worth less than $25 million,” the lawsuit stated.

Company directors, officers and scientists “made continual, knowing and willful misstatements” about their COVID-19 test to inflate the Co-Diagnostics’ stock price, with company officers and directors “poised to make a fortune,” read the complaint, filed in U.S. District Court in Utah.

“Their fraudulent misstatements, and disregard for the basic scientific principles that make their falsity of their statements clear in retrospect,” caused investors to lose millions of dollars, Gelt Trading Inc. alleged.

A spokeswoman for Co-Diagnostics said Thursday the company would vigorously defend itself in court.

“Co-Diagnostics stands behind the quality of our technology platform and performance of our testing products,” said the spokeswoman, Jennifer Webb.

A spokesman for Gov. Pete Ricketts said he does not comment on pending lawsuits.

The governor signed a $27 million, no-bid contract with Co-Diagnostics and three other Utah high-tech firms in late April to provide COVID-19 testing equipment and supplies for the State of Nebraska.

That came after Co-Diagnostics had won emergency approval from the FDA on April 6 for its COVID-19 test and launched a testing program called TestUtah in that state. Similar programs in Iowa and Nebraska then followed, and a TestTennessee program was launched later.

So far, TestNebraska has failed to meet its goal of providing 3,000 tests per day, logging about 1,600 a day in recent days. But Ricketts has steadfastly defended the program as accomplishing its main goal — to increase COVID-19 testing in the state — while stating that there were few other options to do that when he signed the contract.

Some state lawmakers expressed concern after The World-Herald reported that the Utah companies had filed Internet domain names in nearly every U.S. state and some Canadian provinces in order to market its tests. It appeared, they said, that the Utah group was seeking to cash in on a crisis, which was denied by the Utah companies.

The lawsuit claimed that Co-Diagnostics had a “market first” mentality in developing its COVID-19 test and used the “100%” accuracy claim to differentiate itself from rival firms whose tests might not be 100% accurate.

Nebraska officials have said the Nebraska Public Health Lab has validated the TestNebraska tests with a population-based sensitivity rate of 95% and a diagnostic specificity rate of 94%. On Monday, Ricketts again defended the reliability of TestNebraska testing amid questions raised by an article in the New Yorker magazine.

In the lawsuit, Gelt Trading says the accuracy claims by Co-Diagnostics were based on a small sample size, and even if the tests were 98% reliable, several people would test “negative” for COVID-19 when they are actually infected, and several others could test “positive” when they are not infected. The lawsuit maintains that the 100% claim has been refuted by both independent assessments and the U.S. Food and Drug Administration.

Gelt Trading alleges that falsehoods about test accuracy helped drive Co-Diagnostics’ stock value to record-high prices before a “momentous” drop in mid-May after the company became evasive about the accuracy of its tests.

Co-Diagnostics stock closed at $16.69 on Tuesday.

The lawsuit says Gelt Trading and other investors paid artificially inflated prices for Co-Diagnostics stock and might not have purchased if they had been aware that the stock price had been “artificially and falsely inflated” by the claims.

Our best staff images from June 2020