The plaintiffs in a securities class action against Ra Medical Systems Inc. and company officials filed a second amended complaint on Monday in the Southern District of California.
Lead plaintiffs and shareholders Ervin Derr and Peter Shoemaker and the class members are pursuing claims against medical device manufacturer Ra Medical and its top executives under the Securities Act of 1933 and the Securities Exchange Act of 1934, stemming from allegedly false representations Ra Medical made about its DABRA laser system and catheter that artificially inflated its stock price.
The alleged falsehoods began in March 2019 when Ra Medical disclosed some manufacturing problems with its product — but then claimed that the company had resolved the issues. It was not until August 2019 when Ra Medical “was forced to disclose the real manufacturing issues and to acknowledge that they had not been resolved.” At this time, Dean Irwin, a defendant in the lawsuit, was terminated from his CEO, co-president, chief technology officer, and board of directors chairman positions.
“On this news, Ra Medical’s share price tanked — it fell $1.61, or nearly 57.09%, to close at $1.21 per share on August 13, 2019, on unusually heavy trading volume,” the complaint reported.
According to the plaintiffs, however, this did not stop Ra Medical from continuing to mislead investors and withhold the extent to which the company had been recalling the catheter products after the manufacturing problems. The Department of Justice sent a civil investigative demand “concerning whether Ra Medical fraudulently obtained marketing clearance for DABRA,” the complaint said, and Ra Medical eventually disclosed on Nov. 29, 2019, that the civil inquiry had turned into a criminal investigation. The same day, the company’s stock price closed at $1.27 per share, “a decline of approximately 92.53% from the (initial public offering) price of $17.00.”
The plaintiffs argued that the defendants made such representations about their product through the means of interstate commerce, such as through the mail, telephone communications, and national securities exchange.
As a result of the defendants alleged conduct, the plaintiffs, who are Ra Medical shareholders, said they have sustained damages due to the decline of the stock price.
The proposed class includes individuals who bought Ra Medical stock related to the registration statement issued in connection with the company’s September 2018 IPO or who purchased stock between Sept. 27, 2018, and Nov. 27, 2019.