Luna Innovations Inc. and three of the Roanoke tech company’s former executives have agreed to settle a stockholder lawsuit, according to a federal court document.
The fiber-optic sensing and monitoring company, delisted from the Nasdaq Stock Market and steadily losing value on the over-the-counter markets, had faced a class-action filing alleging federal securities law violations.
The year-old case in a California federal court followed a company disclosure in Securities and Exchange Commission filings that multiple quarterly and annual financial reports were unreliable, with “material weaknesses in its internal control.”
Luna has reported to the SCC that an investigation “identified accounting errors relating to revenue recognition.” Revenue recognition is an accounting principle that deals with determining precisely when revenue has been earned by a company. Generally speaking, it requires that revenue is recognized during the time period that products and services are delivered, not necessarily when payment is received.
Plaintiffs alleged that Luna’s former president and CEO, Scott Graeff, and former chief financial officers Eugene Nestro and George Gomez-Quintero knew about the accounting issues or had “reckless disregard for the truth” at the time plaintiffs purchased Luna stock. The company was responsible for its executives’ actions, the suit stated.
Luna shares were trading between $6 and $8 before the federal disclosures. Nasdaq in January removed Luna from its listings. The company, which hasn’t filed an accurate financial statement in more than a year, is no longer required to report to the SCC.
It is now traded on the OTC Expert Market, where only broker-dealers and professional-level investors are allowed to view quotations. Its stock was trading at about 30 cents a share on Friday afternoon.
According to the settlement notice, filed last week, the final agreement is contingent on factors including “the Court’s certification of the subject class action.” The parties have until May 5 to file a final agreement with the court.
At least six plaintiffs are listed in court documents, though others who purchased the stock before May 16, 2022, may be eligible to join the class.
A Luna spokeswoman and the plaintiffs’ lawyer declined to comment on Friday. An email sent to Graeff was not returned by Friday evening.