Medstone Settles Suit by Investors for $5.5 Million
Medstone International Inc. said Friday it has agreed to pay $5.5 million to settle a 1989 lawsuit alleging that the company misled investors about the prospects of one of its experimental products before going public.
The suit also alleged that two Medstone executives used insider knowledge to avoid losses by selling stock just before an adverse announcement in 1989 that drove the price of Medstone shares down by more than 50%.
An additional $500,000 settlement is to be paid by one of the former Medstone directors named in the suit. Other terms of the out-of-court settlement, including the name of the former director, were not disclosed. The settlement is subject to court approval.
The Aliso Viejo company makes ultrasound devices, called lithotripters, that are used to pulverize kidney stones without invasive surgery. The company had hoped in 1989 to receive federal approval to use the same technology for treatment of gallstones.
Stockholders filed the suit in October 1989, five days after the U.S. Food and Drug Administration said it wouldn’t approve the device for gallstone treatment.
David V. Radlinski, Medstone’s chief executive and the company’s vice president and chief financial officer when the suit was filed nearly seven years ago, declined comment on the matter Friday.
Radlinski, who was a defendant in the suit, did say, however, that the Securities and Exchange Commission has never investigated the company for stock manipulation or other trading improprieties such as were alleged in the suit.
In a prepared statement, Medstone said it agreed to settle the suit to avoid the costs of ongoing litigation and the “uncertainties of going to trial.” The company said the settlement will allow Medstone “to focus its energy on aggressively expanding” through internal growth and acquisitions.
Medstone’s stock closed at $9.375 in light Nasdaq trading Friday, up 75 cents for the day.
The stock closed at $18.25 the day Medstone went public and climbed to a high of $39.75 in August 1988. After the FDA announcement the price began a steep decline, falling to below $1 a share at the end of 1990. Since then it has climbed slowly, peaking at $12.50 a share in December.
