On March 6, 2015, the United States District Court for the Southern District of New York denied in substantial part the defendants' motion to dismiss the plaintiff's complaint in the securities class action litigation against Orthofix International N.V. The Court ruled that the lead plaintiff, Plumbers and Pipefitters National Pension Fund, had adequately pled claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 based on alleged conduct that precipitated the Company’s multi-year restatement of its financial reports filed with the Securities and Exchange Commission (SEC).
In particular, the Court found that the lead plaintiff’s allegations, based on confidential witness reports, sufficiently alleged that Orthofix’s former CEO Robert Vaters and former President of the Global Spine unit, Brian McCollum, “acted deliberately or recklessly in promoting” a U.S. sales program to “boost revenue artificially at the end of quarters in order to present a false and misleading picture of Orthofix’s actual revenue.” The Court also held that lead plaintiff’s allegations raised an inference that Orthofix’s former CFO Emily Buxton “either knew or had access to information” that was “contrary to her public statements” in Orthofix’s SEC filings which described the adequacy of revenue recognition practices at Orthofix’s Brazilian subsidiary, Orthofix do Brasil.
In sum, the Court concluded that the lead plaintiff had adequately alleged an inference of defendants’ actual knowledge or reckless disregard for the truth. The Court held that “[a]s shown by Orthofix’s Restatement, Orthofix undisputedly has made material misstatements and admitted to violations of GAAP” and, “[i]n this case, the plaintiff has paired Orthofix’s admissions in the Restatement with sufficient factual allegations to create a strong inference of scienter for Vaters, McCollum, and Buxton,” and ultimately, the Court concluded, the Company itself.
Orthofix, a medical device company headquartered in Curacao, Netherlands Antilles, designs, develops, manufactures, markets, and distributes medical equipment used principally by musculoskeletal medical specialists for spine and orthopedic applications. The Company operates through two segments, Spine and Orthopedics. Cohen Milstein serves as the lead counsel.
Opinion & Order - March 6, 2015