Federal judge dismisses shareholder suit against Cardiovascular Systems

For the second time, a federal judge has dismissed an investors' lawsuit against New Brighton-based med-tech company Cardiovascular Systems, saying the class-action plaintiffs failed to show any alleged improprieties at the company were widely known among management.

Cardiovascular Systems sells devices used by doctors to clear blockages of plaque from arteries in the legs and around the heart, including more than 292,000 peripheral orbital atherectomy systems since the company was founded in 2000.

On Wednesday, U.S. District Judge Donovan Frank dismissed a lawsuit from several municipal retirement funds. He ruled that the benefits managers had failed to produce evidence showing that company management knowingly misled investors about Cardiovascular Systems' financial performance, or that management had recklessly failed to discover fraudulent schemes that drove up company sales.

"The company is pleased that its defense has been vindicated," said Robert Stern, one of the attorneys defending Cardiovascular Systems. "We're hopeful that this will be the end of it."

Frank dismissed the amended complaint with prejudice, meaning it cannot be amended and refiled again, after dismissing an earlier version without prejudice. It was not clear Thursday whether the plaintiffs would appeal; an attorney with the plaintiffs didn't respond to an e-mail Thursday.

The plaintiffs, led by retirement benefit plans in Miami, Virginia and Michigan, alleged that management damaged their investment holdings in Cardiovascular Systems by failing to disclose that some of the med-tech company's past and future revenue was based on sales schemes that ran afoul of the federal anti-kickback statute. The law prohibits offering anything of value in exchange for steering Medicare patients to certain doctors or treatments.

Cardiovascular Systems stock dropped from $40 a share in April 2015 to about $8 a year later, as the company weathered allegations from whistleblowers who claimed the company was illegally providing kickbacks to physicians to use the company's devices and marketing the devices for unapproved uses.

Company officials denied the allegations and said that they maintained rigorous policies and procedures to prevent such violations.

In June 2016 company officials agreed to pay the Justice Department $8 million and sign a five-year corporate integrity agreement with the U.S. Health and Human Services Department's inspector general to resolve allegations from former employee Travis Thams that the company illegally promoted its atherectomy products by offering marketing services to doctors who bought and used its devices.

"The settlement agreement contains no admissions of liability on the part of the company," CSI told investors at the time in a securities filing.

In April 2017, a Los Angeles jury awarded former CSI regional sales manager Steven Babyak more than $25 million in actual and punitive damages after he sued the company for firing him after he reported what he considered illegal sales tactics and kickbacks. On appeal, the damages were reduced to just over $5 million, and the case was then settled for an undisclosed amount.