Facing Felony Charges, Medtech CEO Gets Raise

The CEO of Vascular Solutions has been charged with promoting a medical device for an unsanctioned uses.

Nancy Crotti

A company under federal indictment for alleged off-label promotion of a product has warned the Securities & Exchange Commission of the potential for a financial disaster. That was after it gave its embattled CEO a raise.

The scenario described in the SEC filing warns of potential risks stemming from the November 2014 west Texas indictment of Vascular Solutions (VASC, Maple Grove, MN) and its CEO, Howard Root. The indictment alleges that the company's sales force promoted off-label use of a laser ablation device for treating varicose veins.

The Vari-Lase products were cleared by the FDA only for the treatment of superficial veins, but Root led a sales campaign from 2007 until 2014 that sold them for the ablation of "perforator" veins, which connect the superficial vein system to the deep vein system, the U.S. Justice department said in the indictment. Root and his employer are each charged with one count of conspiracy and eight counts of introducing adulterated and misbranded medical devices into interstate commerce.

A criminal conviction under the Social Security Act, or a felony or misdemeanor health care fraud conviction, would automatically exclude Vascular Solutions from participating in the federal reimbursement programs such as Medicare and Medicaid, the company warned the SEC. That would "substantially adversely affect our ability to continue to conduct our business," the filing says.

Vascular Solutions previously paid $520,000 to settle a Department of Justice civil lawsuit, denying any wrongdoing. It has vowed a vigorous defense in the criminal case.

After the indictment, several law firms began investigating the company for potential securities law and shareholder derivative action lawsuits, representatives at the company told the SEC.

"We may become subject to shareholder litigation, which could divert the attention of management from the day-to-day operation of our business or result in us incurring substantial costs and liabilities," the company said.

Despite the indictments and potential for financial disaster, the firm gave longtime CEO Root a 3% raise to $1.17 million for 2014. Root's compensation and that of other company executives can be found here.

Apparently, investors in the company are not concerned with the short-term risk to the company's bottom line. Its stock is trading in the neighborhood of $35 per share--a considerable increase from the $23 ballpark it was trading at in April of last year.

Analyst firm Canaccord Genuity has increased the price target for the firm from $37.00 to $33.00, which praised the company for beating its financial estimates for its most recent quarterly earnings.