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Boston Scientific Corporation's Sale of Defective Defibrillators Maddens Investors



A Massachusetts federal judge, the Honorable William G. Young, tossed a shareholder derivative suit out of U.S. District Court in that state in late September 2011. The shareholder suit alleged that defendant Boston Scientific Corporation's board of directors acted in a reckless and callous manner by knowingly approving the sale of defective defibrillators. As a result of the careless sale approval of the defective medical equipment, the corporation ultimately lost millions, and its stock was adversely impacted.

Purchase of Defibrillator Manufacturer Guidant Corporation Led to a String of Woes

The shareholder suit further alleged that the corporation's executives concealed issues and problems that were mounting with its business line regarding cardiac rhythm management. In 2006, Boston Scientific bought out Guidant Corporation, a defibrillator manufacturer. Many industry commentators point to the Guidant buy-out as the start to Boston Scientific's string of problems, including its later financial and legal woes.

Shareholder Derivative Suit Against Board of Directors Tossed out for Procedural Flaws

Judge Young's dismissal order in the case was short and succinct, coming in at only one page in total length. In the brief order, of only a single sentence, Judge Young summarily adopted the findings of U.S. Magistrate Judge Leo T. Sorokin, to whom the case was referred as part of the court's docket control and case management system. Magistrate Judge Sorokin recommended to the district judge that the shareholder derivative suit be dismissed for failure of the plaintiff shareholders to allege sufficient wrongdoing on behalf of the board of the directors. To Magistrate Judge Sorokin, the shareholders' complaint was procedurally flawed to the point of not being able to survive arguments made within the defendants' well-taken dismissal motion.

Underlying Allegations of Shareholder Derivative Suit Lodged Against Boston Scientific

The shareholder derivative suit alleged the medical product corporation and its senior management breached fiduciary duties to shareholders on multiple counts. To shareholder plaintiffs, Boston Scientific fell short of its obligations to investors when it acquiesced to a course of improper dealing that included unethical business, illegal operations, making and selling defective products, and concealing wrongdoing from investors. Plaintiff Rick Barrington led the class of suing shareholders in making these accusations. Mr. Barrington also alleged that directors and executives of the Massachusetts-based medical giant disguised and concealed problems about Guidant in 2009 and 2010. The disgruntled shareholders posit that false press releases, industry comments, conference calls, and federal filings painted overly-positive pictures of the company's finances that ultimately served to artificially inflate stock prices.