A federal appeals court last week tossed a shareholders’ lawsuit filed against Boston Scientific (NYSE:BSX), accusing the medical device maker and its management team of misleading investors over the state of its cardiac rhythm management business.
The securities class action suit, filed in the U.S. District Court for Massachusetts in 2010, accused Boston Scientific, former CEO James Tobin, his replacement Ray Elliott, and then-COO Sam Leno of hiding Guidant’s problems between April 20, 2009, and March 12, 2010. Citing SEC filings and statements the executives made in press releases and during conference calls with analysts, the suit accused the company and its executives of making calculated, falsely rosy statements about the CRM division designed to artificially boost Boston Scientific’s share prices.
The suit also cites the November 2009 departure of the CRM division’s senior sales and marketing executive, William McConnell Jr., and Elliott’s move to cashier several BoSci sales staff and managers from its CRM division in Minnesota.
The U.S. Court of Appeals for the 1st Circuit affirmed a lower court’s decision to dismiss the case on the grounds that the plaintiffs failed to prove either that the allegedley misleading statements had a material effect on Boston Scientific’s share price and that the statements were intended to deceive investors.
"Thus, when Elliott spoke blandly but favorably in January 2010 of the strength of the company’s sales force, the facts pled had to provide a clear indication that he was either dishonest or reckless in not mentioning the defection of up to 10 salespeople to a competitor," the appeals court ruled. "In cases where we have found the pleading standard satisfied, the complaint often contains clear allegations of admissions, internal records or witnessed discussions suggesting that at the time they made the statements claimed to be misleading, the defendant officers were aware that they were withholding vital information or at least were warned by others that this was so. No such direct evidence is pled in the complaint here. The plaintiffs do not identify any other basis for imputing such wrongful intent, nor was the omitted information of such powerful importance that wrongful intent can reasonably be inferred."