Orthofix in Hot Water Over Alleged Falsified Financial Statements

On August 14, a class action lawsuit was filed against Orthofix International N.V. The class was defined as all those who purchased Orthofix common stock between May 5, 2011, and July 29, 2013 (the “class period”). The complaint, filed in the United States District Court for the Southern District of New York, alleged that the company and its executives violated federal securities laws with respect to its disclosures concerning business, operational, and compliance policies. Specifically, the action alleges that certain revenues should not have been recognized during 2011 and 2012, and as a result Orthofix issued materially false and misleading financial statements during the class period.

In other words, the company is being accused of having lied to shareholders and losing shareholders money.

On July 29 this year, the end of the class period, Orthofix announced that it was postponing the release of its financial results for the second quarter of 2013 and its previously announced conference call. The earnings were supposed to be released on July 31. The company explained that additional time was needed to review matters relating to revenue recognition practices for prior periods, and the audit committee, along with help from outside professionals, had commenced an internal investigation into these issues.

Following this news, on July 30, Orthofix’s stock dropped $4.46 or 16.28 percent to close at $22.94. Then on Aug. 6, the company announced that it would restate financial statements for fiscal years 2011 and 2012 and the first quarter of 2013.

At this time, Orthofix is not providing annual or quarterly guidance for 2013.

In October last year, Orthofix’s former Chief Financial Officer, Brian McCollum, resigned his position to be replaced by Emily Buxton. This resignation is not known to have been related to the company’s troubles, but in March this year, former CEO of Orthofix Robert Vaters followed suit, now replaced by Brad Mason.

“We are particularly interested in what Orthofix knew when its senior executives resigned from their key positions earlier this year,” said Reed Kathrein, a partner at Hagens Berma Sobol Shapiro LLP, a national investor-rights law firm. “The timing and abruptness of those resignations, along with the subsequent restatement, indicates that something was known to be amiss by the board as early as March.”