Revision of Earnings Due to Overbilling Supports Fraud Claims

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Allegations that a medical device manufacturer knowingly overbilled insurance companies and reported these unrecoverable accounts as income were sufficient to support security fraud claims.

According to plaintiffs, Zynex Inc. deliberately overbilled insurance companies and reported this inflated income on its financial statements even though top officers knew that the company would not be able to collect this amount. Zynex announced on April 1, 2009, that it was revising its financial reports for the first three quarters of 2008, telling investors that the reduction in earnings was based on "provider discounts" that should have been recognized during that period. Zynex's stock price dropped 56% following the announcement, and plaintiffs sued the company and two officers for securities fraud under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10(b)(5) promulgated thereunder.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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