Eargo is a medical device company. It claims that its hearing aids “are the first and only virtually invisible, rechargeable, completely-in-canal, FDA-regulated, exempt Class I and Class II devices for the treatment of hearing loss.”
On August 12, 2021, after the market closed, Eargo revealed that claims submitted to the Company’s largest third-party payor, which accounted for 80% of Eargo’s accounts receivable, had not been paid since March 1, 2021. On this news, the Company’s share price declined by $8.00 per share, or approximately 24.5%, from $32.70 to close at $24.70 per share on August 13, 2021.
On September 22, 2021, after the market closed, Eargo disclosed that “it is the target of a criminal investigation by the U.S. Department of Justice (the ‘DOJ’) related to insurance reimbursement claims the Company has submitted on behalf of its customers covered by federal employee health plans.” The Company also acknowledged that “[a]s previously disclosed, the Company has been the subject of an ongoing claims audit by an insurance company that is the Company’s largest third-party payor. The Company has been informed by the insurance company that the DOJ is now the principal contact related to the subject matter of the audit.” Eargo also added that it “is withdrawing its financial guidance for the fiscal year ending December 31, 2021.” On this news, the Company’s share price declined by $14.81 per share, or approximately 68.3%, from $21.67 per share to close at $6.86 per share on September 23, 2021.
The lawsuit alleges throughout the Class Period, Defendants made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects. Specifically, Defendants failed to disclose to investors: (1) that Eargo had improperly sought reimbursements from certain third-party payors; (2) that the foregoing was reasonably likely to lead to regulatory scrutiny; (3) that, as a result and because the reimbursements at issue involved the Company’s largest third-party payor, Eargo’s financial results would be adversely impacted; and (4) as a result, Defendants’ statements about its business, operations, and prospects were materially false and misleading and/or lacked reasonable basis at all relevant times.