The Ninth Circuit on Friday delivered a significant victory for Eargo Inc., affirming the dismissal of a securities class action lawsuit that accused the hearing aid company of engaging in insurance billing fraud. The lawsuit, led by the IBEW Local 353 Pension Plan and Xiaobin Cai, claimed that Eargo, its executives, and underwriters misled investors by inflating the company’s revenue potential and failing to disclose critical risks about an insurance audit linked to a U.S. Department of Justice investigation.
A three-judge panel issued a memorandum supporting the district court’s dismissal, stating that Eargo’s initial public offering (IPO) prospectus was clear about the company’s evaluation of insurance coverage for potential customers. Contrary to the plaintiffs’ claims, the panel explained that Eargo had been reimbursed by insurers for nearly three years before the statements in the prospectus were made, making the allegations of fraud by hindsight nonactionable.
The Ninth Circuit panel also rejected investors’ arguments that Eargo had failed to disclose known risks related to forfeiting past insurance proceeds and the potential exclusion of “over-the-counter” hearing aids from insurance coverage. Eargo’s prospectus, according to the panel, adequately disclosed a range of risks including the possibility of reduced insurance coverage and legal risks associated with non-compliance with the False Claims Act.
