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SURGICAL IMPLANT CO. SETTLES SECURITIES SUIT FOR $10.5M
August 16, 2022
Law360 (September 1, 2021, 6:53 PM EDT) — A surgical implant company has agreed to pay $10.5 million to end a class action accusing it of manipulating revenue reports by regularly shipping products to customers ahead of schedule to make it appear as if quarterly revenue targets were being met.
Lead plaintiff Rosy Yeretsian asked an Illinois federal court Tuesday to grant preliminary approval to the “extraordinary” agreement reached with RTI Surgical Inc. The proposed deal seeks to certify a nationwide settlement class of all investors who purchased RTI common stock from March 7, 2016, through March 27, 2020. The arrangement would resolve claims that RTI made false and misleading statements about company finances in violation of the Securities Exchange Act of 1934 and that RTI stock prices suffered as a result. RTI, along with former executives that signed off on the settlement, didn’t admit any wrongdoing or liability in connection with the deal, according to the settlement documents filed in court. “The proposed settlement in this case is extraordinary, and well ‘within the range of possible approval,'” Yeretsian told the court. “The $10,500,000 cash benefit conferred by the settlement represents approximately 30% of the $30-37 million that class plaintiff’s experts have estimated would be the maximum likely recovery if class plaintiff prevailed on all of her claims.” Since the typical settlement in comparable cases usually involves recovering about 8% of total damages, the deal represents an exceptional recovery for investors, Yeretsian said. RTI was hit with the proposed shareholder class action in March 2020 by investor Patricia Lowry. Yeretsian was appointed lead plaintiff in May 2020. The shareholders alleged that the company and former officers misled the investing public about the company’s financial performance through the practice of “revenue smoothing,” which involved manipulating when customers received orders “so that management could hit quarterly revenue targets,” according to the most recently amended complaint. The investors alleged the company fraudulently misrepresented how RTI recognized revenue and the revenue numbers recorded. According to the motion for preliminary approval, shortly after the complaint was filed, the company filed a report with the U.S. Securities and Exchange Commission announcing an ongoing internal audit that was looking into the company’s financial reporting for multiple years. The audit committee’s findings were made public in June 2020 and found “goods were shipped and received by the customers before requested delivery dates and agreed-upon delivery windows,” according to the investors’ complaint. After U.S. District Judge Matthew F. Kennelly refused to let RTI escape any of the class claims in April, the parties began discussing negotiating a settlement, according to the motion. Eventually, their talks resulted in the $10.5 million cash deal put before the court Tuesday. According to the motion, as of February 2019, there were more than 62 million shares of RTI common stock outstanding. Representatives for the parties didn’t immediately return requests for comment Monday. The proposed class is represented by Patrick V. Dahlstrom and Louis C. Ludwig of Pomerantz LLP, Velvel Freedman, Kyle W. Roche, Ivy T. Ngo and Constantine P. Economides of Roche Freedman LLP, Phillip Kim and Laurence M. Rosen of the Rosen Law Firm PA, and Brian Schall of The Schall Law Firm RTI is represented by Martin G. Durkin, Louise McAlpin, Stephen P. Warren and Allison Kernisky of Holland & Knight LLP. The suit is Lowry et al. v. RTI Surgical Holdings, Inc. et al., case number 1:20-cv-01939, in the U.S. District Court for the Northern District of Illinois. –Editing by Kelly Duncan.