Earlier this year, the U.S. Department of Justice arrested Laura Perryman, the co-founder and former CEO of neurostimulation devicemaker Stimwave, on accusations of fraud. Several months later, the Securities and Exchange Commission is piling on.
The SEC filed a complaint (PDF) this week alleging that Perryman committed fraud while raising Stimwave’s series D funding round between 2018 and 2019. The resulting $41 million in support was based on “materially false and misleading statements” that Perryman made to investors, per the SEC, specifically centering on Stimwave’s peripheral nerve stimulation device, the StimQ.
The agency has asked for a jury trial, in which it’ll be seeking permanent injunctions that would stop Perryman from repeating her alleged actions and prevent her from ever holding another officer or director role, as well as monetary punishments of an undisclosed total, combining a civil penalty with disgorgement of her allegedly “ill-gotten gains,” plus prejudgment interest.
The charges revolve around the accusation that Stimwave had in early 2018 begun selling a version of the StimQ device that replaced its receiver with a non-functional piece of plastic.
The prescription-only technology was originally cleared by the FDA in 2016, followed a year later by an expanded clearance allowing the system to be used during MRI scans. Designed to provide relief for severe chronic pain, the wireless system comprised an external neurostim transmitter, an implanted electrode array to deliver the stimulation and an implanted receiver to connect the other two components.
The SEC alleges that after doctors began complaining about the difficulty of implanting the receiver, which was about nine inches long, Stimwave began shipping out StimQ systems with two receiver options: the original, working version with a copper core and a shorter, non-functional, all-plastic option—without telling them the latter didn’t actually work.
That change was reportedly based on the fact that if doctors weren’t able to implant the original receiver, they would only be able to bill for about $4,000 to $6,000 in reimbursement—compared to between $20,000 and $24,000 for the full system—making it not economically viable for them to purchase the device, which Stimwave sold for an average of $16,000, per the SEC.
The agency claims that Perryman was behind the creation of the shorter receiver—and either “knew, or was reckless in not knowing” that it was non-functional—and led her staff’s moves to encourage doctors to opt for the shorter receiver if necessary and to bill payers for the full amount when it was used, leading to a spate of inadvertently fraudulent insurance claims.
She also allegedly lauded the multiple receiver options as she headed up the series D investment round and repeatedly claimed to investors that the entire system was FDA-cleared, even though the company had never submitted the shorter receiver for agency review.
In addition, the SEC has also accused Perryman of misrepresenting Stimwave’s financial performance and projections in her conversations with investors.
“We allege that Perryman touted a supposedly innovative medical pain-relief device while concealing that a primary component of the device was fake and that patients were unwittingly undergoing unnecessary surgeries to implant the non-functional component into their bodies,” Monique Winkler, director of the SEC’s San Francisco regional office, said in the agency’s announcement this week. “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.”
The Justice Department’s March indictment is based on similar accusations against Perryman, linked to charges of one count of healthcare fraud and one count of conspiracy to commit wire fraud and healthcare fraud, which carry maximum potential prison sentences of 10 years and 20 years, respectively.
After Perryman’s alleged scheme was first uncovered in 2019, under pressure from both internal and external investigations, she resigned from the company in November 2019. Stimwave began a voluntary recall of approximately 5,600 StimQ devices equipped with fake receivers in mid-2020, then filed for bankruptcy last year, which was followed by a sell-off of most of its assets.
Separately from the charges against Perryman, Stimwave agreed in 2022 to a non-prosecution agreement with the DOJ requiring it to admit to “an extensive statement of facts,” implement a strict compliance program, cooperate fully with the government and pay a total penalty of $10 million—which includes the $8.6 million it agreed to pay in another settlement, this one in a civil fraud lawsuit filed under the False Claims Act.