Shareholders Sue Irvine’s Medstone Inc.

Medstone Inc., an Irvine manufacturer of machines that destroy kidney stones, has been hit by a shareholder lawsuit alleging the company concealed adverse information about its prospects.

Also named as defendants in a federal class-action suit alleging violation of securities laws are Freeman Rose, the company chairman, chief executive officer and acting president; Richard Penfil, former president and director; Errol Payne, former chairman and chief executive officer and now a director, and David Radlinski, the executive vice president and chief financial officer.

The lawsuit contends that the company and its officers “concealed adverse facts concerning the company’s operations and prospects so that they could inflate the price of the company’s common stock” to their own advantage. Among other things, the suit alleges that some company officers sold shares of their personal Medstone stock holdings at inflated prices.

Medstone’s stock sold for $13 a share when the company went public in June, 1988. The stock soared to a high of $42 a share in August of that year and then dropped back to about the $13 range.

Industry analysts blame the roller-coaster ride on lower than expected sales due to difficulties in obtaining approval from the Food and Drug Administration to market the Medstone technology for treatment of gallstones. The technology is approved only for the non-surgical treatment of kidney stones.

Medstone attorney R.C. Shepard said the company believes the lawsuit is “without merit.”