Shareholders of the medical device manufacturing company Medtronic Inc. have reached a securities fraud settlement worth $43 million in a lawsuit in Minnesota federal court.
The class action lawsuit was brought on behalf of shareholders against the company, which they accused of lying about the risk of a product in an effort to increase sales. When evidence of the product’s potential side-effects came out, the company’s value went down dramatically, costing investors millions.
South Carolina-based Motley Rice served as co-lead counsel in the Minnesota suit.
“The plaintiffs alleged that defendants weren’t truthful to the market because they were paying physicians to write articles and promote [a product] without including the bad information,” said Jim Hughes of the firm’s Mount Pleasant office.
The agreement has been submitted to the judge in Minnesota and is currently awaiting preliminary approval.
The lawsuit was originally filed in 2013 and Motley Rice became co-lead counsel later that year, signing on to represent plaintiffs West Virginia Pipe Trades Health & Welfare Fund, Union Asset Management Holding AG and Employee’s Retirement System of the State of Hawaii.
The class is made up of anyone who purchased Medtronic’s common stock between Sept. 8, 2010, and June 28, 2011, and suffered losses.
In the complaint, the plaintiffs said that Medtronic and its executives paid physicians to publish research articles downplaying the adverse side effects of a bone graft technique called INFUSE.
According to the complaint, they did this in an attempt to generate more interest in the product, resulting in higher sales.
As a result, company profits increased until the summer of 2011 when allegations of the company’s misinformation were reported in medical journals. Shortly thereafter, company stock prices dropped by about 24 percent, costing investors millions.
The 2013 complaint was initially dismissed, before being appealed and reversed over the course of the next five years.
“They claimed there was a statute of limitations to the activities we complained of, and that none of it happened within the statute of limitations, while we argued that some of it did,” Hughes said. “The court granted summary judgment to one or two defendants, but not to the company.”
As a result, both parties returned to mediation before former federal Judge Layn Phillips of Corona del Mar, California. Hughes said the settlement offer came shortly after because the risk of going to trial was too high for the defense.
“If a jury hears that doctors were being paid this much money, and they’re writing articles favorable to the product their endorsing … it looks really bad,” Hughes said.
Defense attorneys Theresa Bevilacqua of Dorsey & Whitney, Steven Farina of Williams & Connolly and Christopher Wasson did not respond to requests for comment.
Follow Matthew Chaney on Twitter @SCLWChaney