Rapid Therapeutic Science Laboratories Faces SEC Lawsuit Over Alleged Fraudulent Activities

LOS ANGELES- In a significant development in the business world, the U.S. Securities and Exchange Commission (SEC) has brought charges against Texas-based Rapid Therapeutic Science Laboratories Inc. and its founder, Donal Schmidt Jr., accusing them of orchestrating a multi-faceted fraud scheme that sought to deceive investors and inflate stock prices.

According to a lawsuit filed by the SEC on September 18 in the U.S. District Court for the Northern District of Texas, both the company and Schmidt are accused of engaging in numerous securities violations and fraudulent activities that spanned several years. The SEC alleges that the firm and its founder illegally sold unregistered securities amounting to at least $2.1 million to 51 investors across 15 states, and that Schmidt personally sold $1.15 million in Rapid stock, described as “ill-gotten gains”, in late 2020.

The complaint delineates a series of deceptive actions purportedly undertaken by Schmidt from April 2020 to May 2023 to bolster the company’s products and stock, which is traded over-the-counter under the ticker symbol RTSL. These actions allegedly involved spreading misinformation regarding various aspects of the company’s operations and prospects, including:

• Fabricating an industrywide certification for the company’s CBD inhalers.
• Falsely claiming to have secured substantial sales contracts for the inhalers.
• Misrepresenting the standards met by the company’s laboratory.
• Falsely stating the educational qualifications of the company’s chief science officer.
• Misrepresenting the safety of the company’s inhalers for public use.
• Claiming to have obtained permission from Nasdaq to list on the exchange, despite not having such approval.

The origins of the scheme reportedly trace back to 2019 when Schmidt established Rapid through a reverse-merger transaction, positioning it as a new player in the hemp CBD manufacturing sector. The SEC alleges that falsehoods were propagated shortly after the inception of the venture, including a claim that the company had received certification from a non-existent organization, the “Cannabinoid MDI Certification Board (CMDICB)”, which was allegedly fabricated by a business associate of Schmidt.

This alleged series of deceit reportedly continued unabated through 2020, with Schmidt being accused of disseminating false information about substantial sales orders for Rapid, influencing a significant surge in the penny stock from 40 cents to $1.25. Further, the lawsuit mentions a false claim made in August 2020 about acquiring ISO certification for a laboratory purportedly owned by the company, a statement Schmidt later admitted was false during a testimony to the SEC.

The SEC’s complaint also draws attention to the failure of Schmidt to inform investors about a warning letter issued by the U.S. Food and Drug Administration in December 2020. This letter highlighted the potential toxic risk posed by Rapid’s inhalers to users’ upper or lower airways, a crucial detail omitted in a corporate overview released in September 2021.

Furthermore, the SEC contends that Schmidt falsely claimed in a March 2022 correspondence with investors that the company had received approval to list its stock on the Nasdaq, despite no such authorization being granted.

In light of these allegations, the SEC is seeking several legal recourses, including barring Schmidt from selling securities for life, compelling both the company and Schmidt to relinquish all profits derived from the scheme, and imposing unspecified civil penalties.

This lawsuit underscores the vigilance maintained by regulatory agencies in overseeing market practices and safeguarding investor interests, emphasizing the critical role of factual transparency and ethical conduct in the business domain. As the case unfolds, the investment community will be keenly watching to see how it might influence standards and expectations for corporate transparency and governance in the evolving business landscape.