Eargo, Inc. faces a proposed class action over an apparent stock-price drop an investor alleges was linked to the news of a U.S. Department of Justice criminal probe into insurance reimbursement claims allegedly submitted by the hearing aid company.
The 22-page lawsuit alleges San Jose, California’s Eargo and its top execs, from February 25 to September 22, 2021, made materially false and misleading statements and/or failed to disclose to investors that the company improperly sought reimbursements from certain third-party payors and that such would “likely lead to regulatory scrutiny.” The case moreover alleges investors were not told that because Eargo’s requests for reimbursement involved its largest third-party payor, the company’s financial results would be adversely impacted.
“As a result of the Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages,” the suit alleges.
Eargo represents that its hearing aids are “the first and only virtually invisible, rechargeable, completely-in-canal, FDA-regulated, exempt Class I and Class II devices” to treat hearing loss, the lawsuit states. According to the complaint, Eargo revealed in a financial results press release on August 12, 2021 that claims submitted to the company’s largest third-party payor, who reportedly accounted for 80 percent of Eargo’s accounts, had not been paid since March 1 due to an ongoing audit.
With the release of this news came an $8 dip in Eargo’s share price on unusually heavy trading volume, the lawsuit says.
The filing states that Eargo, after the market closed on September 22, revealed in a Securities and Exchange Commission filing that it was the target of a U.S. Department of Justice criminal investigation related to insurance reimbursement claims the company had submitted on behalf of customers covered by federal employee health plans.
Eargo moreover disclosed that the DOJ is the “principal contact related to the subject matter of the [ongoing] audit” of the hearing aid company by Eargo’s largest third-party payor. As a result, Eargo pulled its full-year financial guidance, the lawsuit says. According to the complaint, Eargo’s SEC filing stated specifically, in relevant part:
“On September 21, 2021, Eargo, Inc. (the ‘Company’) was informed that it is the target of a criminal investigation by the U.S. Department of Justice (the ‘DOJ’) related to insurance reimbursement claims the Company has submitted on behalf of its customers covered by federal employee health plans. The Company is cooperating with the investigation. In addition, the Company intends to work with the government with the objective of validating the process to support any future claims that the Company may submit for reimbursement.
As previously disclosed, the Company has been the subject of an ongoing claims audit by an insurance company that is the Company’s largest third-party payor. The Company has been informed by the insurance company that the DOJ is now the principal contact related to the subject matter of the audit.”
With the release of this news came a $14.81 drop in Eargo’s share price, a dip of more than 68 percent, on unusually heavy trading volume, the case relays.
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