It was announced today that Robbins Umeda LLP will formally investigate Stryker Corporation for possible mismanagement.
“Robbins Umeda LLP’s investigation of Stryker concerns questionable statements issued by the Company between January 25, 2007 and November 13, 2008, regarding its business success and profitability as well as whether the Company cut corners on its operational costs by failing to document and maintain adequate quality controls over the products it manufactured. Company insiders took advantage of the stock’s 52-week high of $75 per share (split-adjusted) in November 2007, when they sold their personally-held shares generating more than $300 million in proceeds prior to the stock’s 52% decline to $36.11 on November 20, 2008.”
So the question is was this truly mismanagement, insider manipulation or another example of abusing the legal system because someone thinks it is unfair that the executives of Stryker made so much money by selling their stock at the right time?
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This is absolutely abuse of the legal system – in regards to investigating the sale of stock. If a private investor (and non-employee) shareholder unloaded it in November of 07 based on their prediction of a market collapse or a change in Stryker's business model that would affect stock price – no one would bat an eye. We can't set up a system designed to make private investors money and then complain when it works. To say that insiders are due investigation because they “took advantage” is vague and opens the door for too many legal cases and over-regulation.
However, it is totally appropriate for an investigation into quality standards and documentation since there are notified bodies that oversee those standards and all companies must follow those rules, regardless of whether or not they like how it affects their operational costs.
Robbins Umeda specializes in this kind of litigation and trust me, Stryker is in for it. They are going to have to produce every conceivable document and the truth will come out. Unfortunately for them, it appears at first pass that this is abuse of the legal system, however, we must remember that where there is smoke there is usually fire and Robbins Umeda wouldn't have taken this case unless their due diligence came back with something at least somewhat compelling. It will be interesting to see where this goes. Probably a settlement to avoid the truth from coming out.
Most ortho stocks swooned during this period. Valuations were very high and selling is a natural behavior.
There is no doubt some fire to go with the smoke. But, when is the proctology exam going to end for ortho? Its been one long colonoscopy for us and its time they move on already!
Surely the stock sales during that period by insiders will raise suspicions in the current market microscope, but if the allegation that the company intentionally did not comply with the FDA quality systems requirements, that's corporate suicide…. can you say consent decree?