SEC Charges Stimwave Ex-CEO with $41 Million Fraud

Stimwave’s ex-CEO Laura Perryman has been hit with additional fraud charges for the role she played in allegedly defrauding the government after it was unveiled that the company’s white receiver was made entirely out of non-conductive plastic.

Let’s turn back the clock to 2016, six years after Perryman founded the Floridian company. The StimQ PNS system had just received 510(k) clearance and was hitting the United States market. Back then, it seems the company was on the up and up, creating the implantable, wireless device that reduced chronic neuropathic pain at most locations throughout the body. At that time, the device included three components: an implantable electrode array – which stimulated the nerve, a battery worn externally, and an implantable receiver that transmitted energy from the battery to the electrode array.

The receiver is where things seem to have gotten a little hinky. Known as the Pink Stylet due to its distinctive pink handle, the receiver did its job, but had to be a certain length to work. StimWave, after receiving reports from physicians that they were having problems implanting the stylet in some patients because of its length, developed the second iteration of the receiver, known as the white stylet, which could be cut to size.

The problem?

The white stylet was useless, “made entirely of plastic that served no medical purpose,” according to the Department of Justice (DOJ).

This depth of the scheme came to light in March, when Perryman was indicted by the DOJ for conspiracy to commit wire and healthcare fraud, crimes that carry a combined sentence of 30 years in prison. According to US Attorney for the Southern District of New York Damian Williams, in a release issued by the DOJ, “At the direction of its founder and CEO [Perryman], Stimwave created a dummy medical device component — made entirely of plastic — designed to be implanted in patients for the sole purpose of causing doctors to unwittingly bill Medicare and private insurance companies more than $16,000 for each implantation of the piece of plastic.”

But why continue to sell a useless device component that resulted in patients undergoing unnecessary implanting procedures? As previously reported by MD+DI, let’s follow the money.

The device was sold to medical providers for about $16,000. Medical insurance providers like Medicare would reimburse medical practitioners for implanting the device through two separate reimbursement codes, one for implanting the electrode array and another for the Pink Stylet. “The billing code for implanting the [electrode array] provided for reimbursement at a rate of between approximately $4,000 and $6,000, while the billing code for implanting a receiver, like the Pink Stylet, provided for reimbursement at a rate of between approximately $16,000 and $18,000,” according to DOJ.

This meant, according to reporting from Norbert Sparrow for MD+DI, that “It would have been next-to-impossible to sell the device at the list price without reimbursement for implanting the receiver since the medical provider would have been losing money with each procedure. So, Stimwave kept selling its device with the White Stylet while submitting ‘fraudulent reimbursement claims for implantation… to Medicare, resulting in millions of dollars in losses to the federal government,’ said the DOJ.”

In addition to Perryman’s arrest, Williams also announced the unsealing of a non-prosecution agreement with the company, which filed for bankruptcy in June 2022. Under the terms of the agreement, Stimwave accepted responsibility for its conduct, was fined $10 million, and will be required to maintain a compliance program overseen by a Chief Compliance Officer for three years.

Now, 9 months after the initial charge, the Securities and Exchange Commission (SEC) has tacked on an additional charge for defrauding investors out of approximately $41 million “by making false and misleading statements,” about the functionality of the white stylet —namely lying that the component wasn’t just a jumble of plastic.

The SEC complaint alleges that Perryman knew “or was reckless in not knowing, that the smaller receiver was, in reality, fake and nothing more than a piece of plastic,” the press release wrote. “According to the complaint, Perryman misrepresented to investors that the PNS Device was approved by the US Food and Drug Administration and was the only effective device of its kind on the market. The complaint also alleges that Perryman made false and misleading statements to investors about Stimwave’s historical revenues, revenue projections, and business model.”

Filed in the US District Court for the Southern District of New York, the complaint charges Perryman with violating the antifraud provisions of the federal securities laws. The SEC said it seeks permanent injunctions, including a conduct-based injunctions, disgorgement plus prejudgment interest, a civil penalty, and an officer and director bar.

Also on Dec. 19, The US Attorney’s Office for the Southern District of New York implemented a parallel, superseding indictment against Perryman that added criminal securities fraud charges.