Dive Brief:
- The U.S. Securities and Exchange Commission charged the former CEO and co-founder of medical device startup Stimwave Technologies with defrauding investors out of about $41 million, including allegations that she approved the creation of a “fake” implantable medical device.
- The SEC alleges that Laura Tyler Perryman materially misrepresented Stimwave’s peripheral nerve stimulation (PNS) device during capital fundraising events from 2018 through 2019. The allegations include that Perryman knew, or was reckless in knowing, an implantable component of the PNS device served no purpose, claimed the device was approved by the Food and Drug Administration when it was not, and made false and misleading statements about the company’s financial history, revenue projections and business model.
- The U.S. Attorney’s Office for the Southern District of New York also filed a superseding indictment against Perryman that added criminal securities fraud charges, according to the SEC’s Tuesday announcement.
Dive Insight:
The SEC charges are the latest controversy surrounding Perryman and her time at Stimwave. Perryman was arrested in March and indicted by the Department of Justice. The arrest and indictment are associated with Stimwave’s PNS system, which was intended to treat chronic nerve pain by sending electrical signals to specific nerves.
One component of the PNS device was a receiver, which helped capture and amplify electrical signals to stimulate nerves. Stimwave allegedly included two receivers of different sizes with the product, with the intent for the smaller one to be used when the larger receiver was too big to implant.
Perryman is accused of knowing, or was reckless in knowing, that the smaller receiver was fake and a “non-functional piece of plastic.” Furthermore, the SEC’s complaint alleges that Perryman was the person who directed and approved the creation of the receiver so “doctors, who purchased the PNS Devices and unwittingly implanted the Fake Receiver in patients, could obtain significant reimbursement amounts from health insurance programs.”
“Those reimbursements made it possible for Stimwave to charge doctors higher prices for the PNS Devices compared to the devices without a receiver,” the complaint stated. Because Perryman did not notify doctors that the receiver served no purpose, the regulator said that she forced providers to submit fraudulent insurance claims for unnecessary surgery.
The SEC also alleges that Perryman misleadingly told investors the product was the only effective peripheral nerve stimulation device on the market, told investors the version of the device with the “fake receiver” had been approved by the FDA when it had not been cleared, and made “numerous misrepresentations that gave investors the false and misleading impression that the Company’s products and its business model, which depended on health insurance reimbursements to doctors for device implantation procedures, would generate reliable revenue.”
Monique Winkler, director of the SEC’s San Francisco Regional Office, said in the statement that investors are “entitled to know material information about the products of the companies in which they invest. The SEC is committed to holding bad actors accountable.” Perryman is charged with violating antifraud provisions of the federal securities laws. The SEC seeks a permanent injunction, a civil penalty and an officer and director bar, among other penalties.
Perryman, who co-founded Stimwave in 2010, resigned as CEO in November 2019. Stimwave recalled PNS devices in July 2020, according to the complaint, and the company filed for Chapter 11 bankruptcy protection in June 2022 and sold most of its assets.
In October 2022, Stimwave agreed to pay the DOJ $10 million in a non-prosecution agreement.