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Medical equipment industry

Guidant Executives Accused of Concealing Defibrillator Defects

Strategic Insights

— 2 min read

A securities fraud lawsuit has been filed against Guidant Corp. and six of its executives, alleging that they concealed life-threatening defects in the firm's heart defibrillators to keep the stock price high for their pending merger with Johnson & Johnson. The lawsuit claims that Guidant executives sold $39.5 million worth of stock they personally owned while withholding information about the defibrillator problems. As a result, the company's stock price fell, causing shareholders to suffer financial losses. The plaintiff, Moussa Yeroushalmi, seeks to certify the lawsuit as a class action to allow anyone who bought Guidant stock between Dec. 15 and June 17 to join the case.

Key Takeaways:

  • Guidant executives allegedly concealed life-threatening defects in the firm's heart defibrillators to keep the stock price high for their pending merger with Johnson & Johnson.
  • Six Guidant executives, including Ronald W. Dollens, Keith E. Brauer, and Guido J. Neels, sold $39.5 million worth of stock they personally owned between Jan. 31 and May 23.
  • The lawsuit claims that Guidant didn't issue the first recall until The New York Times was on the verge of printing a May 24 story about the defibrillator problems.
  • The plaintiff, Moussa Yeroushalmi, seeks to certify the lawsuit as a class action to allow anyone who bought Guidant stock between Dec. 15 and June 17 to join the case.
  • Guidant's stock price has lost about 15 percent of its value, falling about $10 a share, since the first of three defibrillator recalls was issued May 24.
  • The company's stock gained 90 cents a share on Monday, closing at $64.80.
  • Stock analysts have predicted that Johnson & Johnson might renegotiate the deal to pay a lower price for Guidant's stock.
  • The lawsuit was filed by the law firm of Scott + Scott, with co-counsel Irwin B. Levin and Richard E. Shevitz.

Statistics:

  • $39.5 million: The amount of stock sold by the six Guidant executives between Jan. 31 and May 23.
  • 15%: The percentage of Guidant's stock price that has lost value since the first recall was issued May 24.
  • $10: The drop in stock price per share since the first recall.
  • $64.80: The closing price of Guidant's stock on Monday.
  • 90 cents: The gain in stock price on Monday.
  • 2003: The year a similar securities fraud lawsuit was filed against Guidant.
  • 2005: The year the current lawsuit was filed.

Sources:

  • The Indianapolis Star, June 28, 2005
  • The New York Times, May 24, 2005
  • U.S. District Court, Indianapolis, 2005
  • Johnson & Johnson, 2005
  • Guidant Corp., 2005
  • Scott + Scott law firm, 2005
  • Irwin B. Levin and Richard E. Shevitz, co-counsel, 2005

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