In a sweeping final judgement issued on February 20, 2025, the SEC brought a complex, multimillion-dollar medical device fraud to its legal conclusion.

The ruling mandates over $17m in financial penalties and disgorgement from four individuals, Zachari and Susann Cargnino of Michigan and Gary and Julie Youssef of California, along with six Michigan-based corporate entities used to deceive at least 55 investors.

The scheme, which spanned more than three years, promised high returns from cutting-edge diagnostic technology that never existed. Ultimately, the court ordered the defendants to forfeit nearly $8.7m in illicit proceeds and interest, and to pay an additional $8.3m in civil penalties.

The operation’s structure was layered and deliberately opaque. The Cargninos and Youssefs peddled investment contracts via six interrelated Michigan-registered companies, Biogenic, Vital Systems, Diagnostic Link, Biotek, Tek Wellness, and Capital Care Management, often using aliases to conceal their connections and past misconduct.

These entities, fronted with scientific-sounding names and supported by aggressive sales pitches, promised access to revolutionary medical testing equipment. Yet, investor funds were instead used to enrich the operators, finance personal purchases, and lauder ownership ties behind layers of pseudonyms and corporate shells.

With a final ruling now in place, the case marks one of the SEC’s most intricate recent enforcement actions, both in its corporate sprawl and in the audacity of its deception.

Deceptive sophistication

From mid-2017 onward, the Cargnino-Youssef enterprise presented hundreds of Americans with what appeared to be an irresistible offer: invest in state-of-the-art diagnostic technology and earn passive income as a “Diagnostic Partner.”

No SEC registration ever supported these offerings, which were heavily marketed via phone calls, emails, websites, and investor brochures.

At the center of the pitch were grandiose claims about revolutionary, FRA-approved devices manufactured by the Biogenic Entities, boasting 1,400 installations and reliable returns of $10,000 per month.

The reality was far more modest, and far more malicious.

Fewer than 70 devices were ever purchased, and none were manufactured by the defendants. The promised income, investor support, and diagnostic network simply did not exist.

The illusion was engineered with the polish of a seasoned con. Prospective investors were flooded with professionally branded business plans drafted under the direction of Zach Cargnino and Gary and Julie Youssef, which guaranteed nearly hands-free income thanks to a full-service operation that included software management, clinic placement, and monthly accounting reports.

In truth, no reports were ever generated, no dedicated accounts were created, and no clinics paid out the returns described. Fake invoices and usage data were created to deceive. Even more brazenly, the Youssefs staged endorsements by actors posing as satisfied clients, none of whom had paid for or profited from any device.

As red flags mounted, state lawsuits, internet exposes, and investor complaints, the perpetrators responded not by retreating but by rebranding. Aliases proliferated, company names and email addresses were swapped out to evade scrutiny, a digital game of whack-a-mole designed to outrun the truth.

Bank records show that investor money was shuffled among various entities, with more than $2m funneled to the Youssefs as a reward for their front-line role in the scheme.

What appeared to be a passive-income opportunity turned out to be an elaborate shell game, leaving dozens of investors and millions of dollars defrauded in its wake.

Fabricated returns, lavish rewards

Behind the glossy façade of medical innovation and passive income lay a classic bait-and-switch operation. Once investors wired their funds, Zach Cargnino and Capital Care purchased third-party diagnostic machines, at a fraction of the investment cost, and placed them in doctors’ offices without disclosing the investor connection.

To cover the resulting silence from clinics, Cargnino fabricated usage reports and billing statements, then routed these false documents to investors. Monthly “returns” were, in fact, nothing more than money recycled from newer investors, totaling over half a million dollars in Ponzi-style disbursements.

These payments were misrepresented as clinic-generated revenue, even as physicians abandoned the devices due to poor training provided, lack of billing guidance, or simply not knowing what they had agreed to.

The money trail soon led to a lifestyle more befitting a tech mogul than a fraudster. Susann and Zach Cargnino used investor funds to quietly amass prime real estate in Michigan, purchasing at least three waterfront homes worth over $2m combined, one re-titled in Zach’s name after SEC scrutiny began. Properties were acquired through shell companies tied to Susann’s alias.

SEC’s five claims for relief

In its enforcement action, the SEC brought five distinct claims for relief against the defendants. These claims reflect a range of alleged misconduct, from the unlawful sale of unregistered securities to wide-reaching fraud and control person liability.

The SEC alleges that all defendants violated Sections 5(a) and 5(c) of the Securities Act by offering and selling investment contracts without filing a registration statement or qualifying for an exemption. The defendants used interstate communications and the mail to solicit investments, despite no registration being in effect.

The second claim targets the Biogenic Entities, Capital Care, the Youssefs, and Zach Cargnino for violating Section 10(b) of the Securities Exchange Act and Rule 10b-5. This provision prohibits deceptive practices in the purchase or sale of securities. The SEC contends these defendants engaged in a fraudulent scheme by making materially false statements and misleading investors.

Under Section 17(a) of the Securities Act, the Sec brings a third claim against the same group, Biogenic Entities, Capital Care, Julie and Gary Youssef, and Zach Cargnino, alleging they made false or misleading statements during the offer and sale of securities. These acts, the SEC says, were designed to deceive investors and obtain money unlawfully.

The fourth claim, brought solely against Susann Cargnino, asserts a violation of Section 17(a)(3) of the Securities Act. The SEC alleges that she engaged in deceptive practices as part of the broader fraudulent scheme, including misusing investor funds and participating in conduct that operated as fraud on purchasers of the securities.

Finally, the SEC alleges that both Susann and Zach Cargnino are liable under Section 20(a) of the Exchange Act as control persons. As the sole officers and owners of the Biogenic Entities and Capital Care, they exercised authority over the entities’ actions and failed to act in good faith, making them legally responsible for the violations committed by those under their control.

Broader lessons

When fraudulent schemes target investors in tech or crypto, the consequences are serious. But when such schemes infect the healthcare sector, the stakes become more profound: they erode trust not only in markets, but in medicine itself.

The Biogenic case is a sobering example.

Promises of life-saving devices and effortless income disguised a web of false documentation, Ponzi-style payouts, and luxury spending. This was not merely about violating securities laws, it was about using the veneer of healthcare to manipulate hope and financial vulnerability.

In contrast to cases like PGI Global’s crypto fraud, where returns were touted via AI fantasy, here the deception went further, entangling real patients, real doctors, and real public health claims.

In the shadow of legitimate medical breakthroughs, fraudulent medical ventures risk contaminating public faith in innovation. They also attract heightened regulatory attention, as made clear by parallel enforcement trends discussed during this year’s Pharmaceutical Compliance Congress.

At this spring 2025 gathering, leaders from the DOJ, CMS, and major pharma firms echoed a common theme: now is the time for compliance officers to proactively monitor, detect, and intervene.

From qui tam suits against digital health platforms to criminal charges tied to opioids and controlled substances, the message is unambiguous: healthcare fraud is not only under scrutiny, but increasingly punished.

For industry leaders, the takeaway is clear: compliance isn’t a defensive shield, it’s an operational imperative. As the Biogenic fallout reminds us, integrity failures disguised as medical advancement are not just financial crimes – they are public health risks.