Orthopedic Surgeons sue Internal Fixation Systems for misleading them about financial state of the company

Investors sue South Miami medical device company (Miami Herald)

Investors have filed a federal lawsuit against an orthopedics implants company and its chief executive, charging that the firm violated securities laws while covering up disastrous finances.

Twenty-nine investors, many of them South Florida doctors, are suing Internal Fixation Systems, a company marketing orthopedic implants, alleging that the company’s leadership misled them and violated Securities and Exchange laws as IFS’ finances collapsed and the stock plummeted from $2.58 to a penny a share in less than a year.

The lawsuit in federal court is also aimed at IFS Chief Executive Stephen Dresnick, a physician and veteran entrepreneur, and several company directors, including former Dolphins star Bob Kuechenberg.

Dresnick said Friday the case “is totally without merit” and was sparked by two vengeful former employees. Kuechenberg could not be reached for comment.

Started in 2007, Internal Fixation, based in South Miami, markets and distributes orthopedic screws, plates and implants. Its website boasts it offers quality products that cost about half what competitors charge. Dresnick, who has developed several major companies, including Sterling Healthcare, took charge of Internal Fixation in 2009. In May 2011 the company started being publicly traded as an over-the-counter stock.

The lawsuit, filed Wednesday, alleges that Dresnick and the other defendants were responsible for “false, misleading and incomplete information” in IFS’ filings with the SEC and press releases.

The complaint, filed by attorney Alexander Angueira, claims IFS failed to provide timely information about several matters, including a loan last spring that was “an improper agreement … which allowed IFS and/or Dresnick to secretly profit from the sale of one million shares.” IFS also didn’t quickly reveal that it was evicted from its manufacturing facility in April, the complaint said.

Dresnick denied the allegations. “I have never sold even one share of IFS stock and even a minimum of inquiry would have shown that to them.”

The company’s most recent financial report, filed Aug. 20, reports that IFS lost $1.3 million in the past six months with only $293,000 in sales. The report said that there was “substantial doubt about our ability to continue as a going concern. … We are seeking to raise capital through the sale of our securities. Without additional funding, there can be no assurances that we will be able to continue our operations.”

The debated loan from an investment company involved IFS giving the investor stock that could be immediately sold, the complaint alleges. A loan company executive asked IFS to create a list of 14 potential press releases and later asked IFS’ acting chief financial officer to send him a list of proposed headlines, according to the complaint.

Press releases are perceived as a method that companies with low-price stocks use to boost investor interest in the stock.

The acting CFO declined the request to produce proposed headlines, according to the complaint, and she later met with the company’s SEC counsel, expressing concern about the proposed loan. The counsel told the CFO that “the deal was not proper in many respects,” the complaint said.

The CFO is not named in the complaint. But Dresnick and others identify her as Laura Cattabriga. The complaint said she resigned on April 24, along with the vice president of sales, Ken West.

Dresnick said Friday the two “were pushed out due to poor performance” and since then “have been attempting to take control of the company.”

Raymond Robinson, the lawyer for Cattabriga and West, said that wasn’t true. “Neither of my clients did anything wrong.” He said the two disagreed with what was happening at the company and decided to resign.

Both have filed suit in circuit court claiming that IFS violated their employment contracts, Robinson said. And since both also own large amounts of stock, the lawyer is considering a federal lawsuit similar to that of the 29 investors.

Dresnick said Friday, “IFS made an offer to all of the shareholders last month to make them whole on their investment, but this group of shareholders is not out to be made whole. They are out to only try to take control of the company.”

Robinson said his clients are simply trying to make sure the company recovers its value so that their stock bounces back. “When a stock drops from $2.50 down to a penny share in a few months, that tells you there is something wrong.”