Medical Necessity or Rip U Off But Good?

Arthocare, a provider of “internationally patented Coblation® technology” allegedly decided to use physicians and personal injury attorneys in a scam to over prescribed their medical products according to a complaint filed in Travis County Texas.  Tricky business this.  Arthocare allegedly created a company, Discocare that fraudently would purchase product from Arthocare.  Allegedly when news of the scheme came to light, Arthocare purchased Discocare for $25 million to hide the scam.

But the claims in the suit are actually about the company directors and executives filing false and misleading financial statements which had artificially boosted the stock price but when the alleged claim was discovered, the stock price sank and ultimately NASDAQ delisted Arthocare. 

All of that is juicy but there is also a tip here as well.  If you look at the disclosure about the lawsuit in the most recent 10-Q, its buried in a footnote and while the information about the filing is accurate, it omitts the actual claim regarding the fraud and only discloses that “financial results were materially overstated during this time period.”  Now that may not technically be misleading but it certainly doesn’t capture the true significance of the claims.  Frequently litigation mentioned n SEC disclosures are sugar-coated and prove meaningless to investors.  Perhaps the lesson here is make sure you independently review a company’s litigation record before proceeding.

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2 Responses to “Medical Necessity or Rip U Off But Good?”

  1. Disclosing Litigation to the SEC « Reading Tea Leaves by Randy Wilson Says:

    […] still other companies spin the nature of the litigation to make them appear in a good light: (see previous post on Arthocare)  Since litigation is public information, fairly easy to verify, does the SEC do that?  And why […]

  2. Articure accused of securities fraud « Reading Tea Leaves by Randy Wilson Says:

    […] back I blogged about a company called “Arthocare” that was sued for securities fraud for creating a […]

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