Hansen Medical (NSDQ:HNSN) said a California court approved its deal to settle a set of lawsuits filed against by shareholders over a 2009 financial restatement for $300,000.
The settlement, first announced in February, will cover the plaintiffs’ legal fees; the agreement also calls for Hansen to institute safeguards to prevent a recurrence of the problem, according to regulatory documents.
Hansen adjusted its books in 2009 after receiving an anonymous tip that "documentation related to certain revenue transactions was falsified, and there was not an effective control environment in our sales, clinical and field service departments," according to regulatory filings. The company had recognized revenues for the sale of 2 of its Sensei robotic surgery systems but had in fact received only $320,000.
"As a result, there were instances where revenue was recognized prior to the completion of all of the elements required for revenue recognition under our revenue recognition policy. All of the irregularities that were identified during the investigation occurred outside of the accounting department," according to the filings.
The restatement pushed Hansen’s losses during the 3 months ended Sept. 30, 2008, from $12.0 million, or 48 cents per share, to $12.9 million, or 51 cents per share. HNSN shares plunged 9% that day, from an Oct. 16, 2009, close of $3.43 to end the next day at $3.12.
Shareholder lawsuits soon followed, alleging that the company and its management "made false and/or misleading statements and/or failed to make disclosures regarding our financial results and compliance with [generally accepted accounting principles] while improperly recognizing revenue; that these misstatements and/or non-disclosures resulted in overstatement of our revenue and financial results and/or artificially inflated our stock price; and that following our October 19, 2009 announcement, the price of our stock declined," according to SEC filings.
Last October Hansen settled an SEC probe into the affair without admitting any wrongdoing and without paying a fine, agreeing to "cease and desist from committing or causing violations of the disclosure, periodic reporting, books and records and internal control provisions of the federal securities laws," the company said at the time.
The SEC also leveled fraud charges last fall against a pair of former Hansen sales executives, Christopher Sells and Timothy Murawski, accusing them of a scheme to artificially inflate company revenues.
The lawsuit (PDF), filed in the U.S. District Court for Northern California, alleges that Sells, Hansen’s former vice president of commercial operations, and sales VP Murawski, Sells’ one-time deputy, "schemed to have Hansen Medical personnel temporarily install the company’s robotic catheter system at a customer site before the customer was ready for it so that Hansen Medical could record the product sale," according to a press release.
"Hansen Medical personnel would then immediately dismantle the equipment and put it in storage until months later, when they would return to reinstall the equipment," according to the statement. "The SEC further alleges that, in a sales transaction in the final days of December 2008, Sells and Murawski instructed Hansen Medical personnel to forge a customer signature on certain required documents to allow the company to record the revenue that quarter."
Sells and Murawski allegedly aimed to avoid revenue recognition rules and fool the company’s financial gurus "into believing that the sales had been completed and revenue could be recorded," according to the agency.