Securities Regulation Daily Wrap Up, FRAUD AND MANIPULATION—S.D.N.Y.: Lack of particularity in pleading dooms shareholder suit against medical device company, (Sep 24, 2026)

By Rebecca E. Hoffman, J.D.

After ruling that the complaint did not plead the company’s alleged kickback scheme sufficiently, it went a step further and showed that many challenged statements were nonactionable for lack of scienter.

The complaint in a putative shareholder class action against a company that makes devices to remove blood clots, alleging that the company and its principals violated the Anti-Kickback Statute and the False Claims Act and then lied about it, was dismissed with leave to amend for failure to plead its claims with the requisite particularity (Michiana Area Electrical Workers’ Pension Fund v. Inari Medical, Inc., No. 1:24-cv-3686 (S.D.N.Y. Sept. 22, 2026)).

Inducement needed. The plaintiffs are three pension funds that sought to represent all purchasers of Inari Medical, Inc. common stock between March 10, 2021, and February 28, 2024. The court explained that the market for the type of equipment Inari sells is highly competitive and requires that Inari’s sales team “persuad[e]” professionals in this field “to forgo traditional anticoagulant therapy or invasive treatment methods in favor of Inari’s products, and to choose Inari’s devices over those of its competitors.”

Thus, the company spent a lot of resources on that persuasion, the court said. The plaintiffs alleged that Inari provided meals, entertainment, and other incentives to the providers to encourage sales of its products. Three confidential former employees who believed the company’s conduct was improper contributed their experiences to the complaint. For example, one former employee said that “‘Inari paid for physicians to attend training sessions in vacation destinations, despite that the training event was not for the physician’s specialty.’”

The complaint alleged that numerous statements made in filings, earnings calls, and other settings during the class period were fraudulent. At the end of the class period, Inari disclosed that it was being investigated by the DOJ about meals and consulting service payments made to providers, and its subsequent Form 10-K admitted that there could be a “‘material impact on our business, results of operations or financial condition’” as a result of the investigation. The company’s stock declined by 21 percent that day, the court said.

Not particular. The plaintiffs claimed that the defendants violated Exchange Act Section 10(b) and Rule 10b-5 for fraudulent statements and scheme liability. The court determined that no actionable misstatements or omissions were pleaded, given that the alleged falsity of those statements depended on an alleged kickback scheme that was not pleaded with the particularity required by Rule 9(b) and PSLRA. “This failure is independently fatal to Plaintiffs’ claims,” the court found, noting that the plaintiffs would have had to provide actual examples of payments Inari made that were unlawful.

For example, the former employee who said that physicians were sent to vacation destinations did not identify any of those providers, did not name a destination, and did not specify the amounts paid. Furthermore, the former employee did not explain their belief that the doctors were sent on vacation to compensate them for referrals, and not actually for training. The company followed a code of conduct that permits training providers on the company’s products and paying any related travel expenses. “Plaintiffs fail to allege what pushed the allegedly improper payments they describe over the line from permissible to unlawful,” the court said.

Other allegations such as Inari’s payments to physicians increasing over the class period fare no better. The allegation that Inari’s marketing expenses as a percentage of revenue exceeded those of its competitors lacked detail as to how much of that expense was payments to physicians.

Even if the plaintiffs had provided sufficient allegations of a kickback scheme, at least some of the defendants’ allegedly actionable statements were not false or misleading, the court said. Inari warned of possible risks in disclosing the DOJ investigation, but those risks had not already materialized and, thus, the warning was not misleading, the court explained.

The plaintiffs also failed to allege facts showing that any undisclosed noncompliance in an agreement filed as an exhibit to Form 8-K could result in a “material adverse effect,” and “they do not plead the underlying noncompliance with particularity in the first place.”

Lastly, the plaintiffs do not show the defendants’ scienter. There are no facts to support an inference that the three principals’ stock sales were “suspicious in amount or in timing,” for example. The inference that they knowingly or recklessly hid a kickback scheme is not at least as compelling as the inference that “Defendants believed Inari’s sales and education practices were permissible under the many regulations they were subject to, but that some employees disagreed.”

The case is No. 1:24-cv-3686.

Judge: Woods, G.

Attorneys: Daniel Lawrence Berger (Grant & Eisenhofer P.A.) for Michiana Area Electrical Workers' Pension Fund. Christopher Emmanuel Duffy (King & Spalding LLP) for Inari Medical, Inc.

Companies: Inari Medical, Inc.; Michiana Area Electrical Workers' Pension Fund

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