A newly filed federal lawsuit seeking class-action status against Roanoke-based Luna Innovations Inc. is looking to expand the timeline of the company’s alleged securities fraud.
Plaintiffs’ lawyers accuse the fiber-optic sensing company of issuing financial reports that illegally inflated Luna’s stock price. The suit — which identifies Luna, its former chief executive officer, Scott Graeff, and two former chief financial officers, Eugene J. Nestro and George Gomez-Quintero, as defendants — makes allegations similar to a case filed in April.
At that time, Luna had notified the federal Securities and Exchange Commission that it could not issue annual and fourth-quarter reports for 2023, due to financial discrepancies that rendered its two previous quarterly reports unreliable.
Since then, Luna has reported that financial statements dating to 2022 were also unreliable, due to improper revenue recognition. Federal rules state that a company typically has to recognize its revenue when it has completed a service, not necessarily when it receives its payment.
Lawyers in the new case, which was filed on behalf of plaintiff Lee Michael Thompson, ask that it be consolidated with the April suit, which a Los Angeles firm filed on behalf of plaintiff Eyad Karzoun. Both claim that they invested in Luna based on false information.
Where Karzoun’s allegations span Aug. 11, 2023, to March 25 of this year, the Thompson allegations range from May 16, 2022, through April 19, 2024.
On May 16, 2022, the stock closed at $5.16 a share, and at $6.14 a share the next day and remained fairly stable for nearly two years. The day before the company’s March 12, 2024, announcement about its financial reporting, it closed at $6.44 a share. But since then, it has lost more than half of its value and was trading at $3.01 by end of day Friday.
Graeff resigned from the company on March 24, after 21 years that included seven as president and CEO. A committee made up of board members and outside legal and financial advisers has since said that Graeff engaged in conduct that constituted “cause” under his contract, and the company canceled his severance payments and took back stock from him.
Graeff said in a recent email exchange that “in my over 20 years in leadership roles with Luna, I strived to ensure each and every decision I made, and my conduct as a leader, was consistent with my values.”
[Disclosure: Quinn Graeff, who is married to Scott Graeff, is a member of the Cardinal Productions Inc. board of directors. The Graeffs are also contributors to Cardinal News. Neither board members nor donors have any influence or say in news decisions; see our policy.]
Luna announced in early May that it had terminated its chief technology officer, Brian Soller, for cause, and accepted the resignation of CFO George Gomez-Quintero, who will receive neither severance nor benefits, according to a company SEC filing at the time.
Gomez-Quintero joined Luna in October 2023, succeeding Nestro, who had been there since 2019.
Luna, which notified the SEC that it is unable to file its first-quarter 2024 report, received notice April 2 from the Nasdaq Stock Market that the company risks being delisted from the exchange due to its reporting delays.