Overview
Cohen Milstein, as Lead Counsel, represents Southeastern Pennsylvania Transportation Authority (SEPTA) and other investors who purchased or held shares of Orthofix between October 11, 2022 and September 12, 2023, inclusive in this securities fraud class action against Orthofix Medical Inc. and SeaSpine Holdings Corporation and certain of their senior executives
Investors claim that Orthofix entered into a merger agreement with SeaSpine without conducting a thorough due diligence. After the merger, it was discovered that the newly appointed CEO, CFO, and CLO, formerly with SeaSpine, had allegedly fostered a hostile and misogynistic workplace at SeaSpine that was so egregious that a former employee brought a class action in California state court against the company alleging gender discrimination, which settled in 2021 — information which would have been readily available to Orthofix had it properly conducted pre-merger due diligence. On September 12, 2023, after the market learned that Orthofix had terminated the executives for cause, the stock plummeted by 30%.
The plaintiffs also bring non-fraud claims sounding in negligence and strict liability on behalf of all former SeaSpine shareholders who acquired newly issued Orthofix common stock pursuant to the January 2023 stock-for-stock merger transaction.
Case Background
Orthofix is a global spine and orthopedics company that offers biologics, spinal hardware, bone growth therapies, and specialized orthopedic solutions, among other things, to healthcare professionals throughout the world.
On October 11, 2022, Orthofix announced it was entering into a definitive merger agreement to combine in an all-stock merger of equals with SeaSpine, a California-based global medical technology company focused on surgical solutions for the treatment of spinal disorders.
On January 4, 2023, Orthofix and SeaSpine announced the successful completion of the Merger, which became effective as of 12:01 AM EST on January 5, 2023. To effectuate the merger, Orthofix solicited and exchanged 16 million new shares of Orthofix common stock directly to former shareholders of SeaSpine.
Plaintiffs claim that beginning on the day that the merger agreement was announced, defendants made statements to investors that were knowingly or recklessly false and/or failed to disclose adverse facts relating to the extent of discrimination and misconduct that had been occurring at SeaSpine for years and the role that SeaSpine’s executives played in fostering such a hostile and misogynistic workplace—information which would have been readily available to Orthofix during the due diligence process, especially when Orthofix was vetting these very same executives to lead Orthofix post-merger.
Furthermore, the plaintiffs claim that defendants made materially false and misleading statements about the robustness of Orthofix’s ethics and compliance program, which, in reality, was grossly deficient.
Plaintiffs also claim that, separately, the merger offering documents contained untrue statements of material fact and omitted material facts, both required by governing regulations, necessary to make the statements made not misleading. Certain defendants made a series of representations touting SeaSpine’s and Orthofix’s complementary cultures of integrity as a basis for the Merger and attesting to the absence of workplace misconduct at SeaSpine.
In truth, SeaSpine had a long-standing history of workplace discrimination and other forms of misconduct that belied defendants’ representations during the class period and in the offering documents. For years, the SeaSpine’s CEO, as their ringleader, CFO and General Counsel engendered a “good old boys’ club” culture at SeaSpine in which female employees were the targets of harassment, were paid less for equal work, and were silenced—and sometimes fired—when they tried to raise concerns. The situation at SeaSpine was so egregious that a former SeaSpine employee filed a class action lawsuit in California state court against SeaSpine alleging systemic gender discrimination. This lawsui was settled on July 2021, resulting in settlement funds being dispersed to more 270 class members and requiring SeaSpine to overhaul its compensation and job titling structures.
All this information would have been readily available to Orthofix during due diligence, had it put in the effort to investigate.
When SeaSpine’s executives were selected to lead Orthofix, they carried with them their problematic management style. Eventually, Orthofix’s Board of Directors could not turn a blind eye. On September 12, 2023, Orthofix publicly disclosed that it had terminated “for cause” Keith Valentine, CEO, John Bostjancic, CFO, Patrick Keran, SeaSpine’s General Counsel, who later served as Orthofix’s CLO.
When the “for cause” terminations were disclosed to the market on September 12, 2023, the price of Orthofix common stock plummeted by more than 30% on unusually high trading volume, wiping out $206.5 million of market capitalization.