A federal judge in Los Angeles has approved a $7.3 million settlement in a class-action lawsuit against Roanoke tech company Luna Innovations Inc.
Plaintiffs alleged that the company and three former executives committed securities fraud, related to accounting errors that left Luna unable to file quarterly and annual reports with the Securities and Exchange Commission.
The settlement, however, is neither an admission of guilt nor a concession to plaintiffs, according to an order that U.S. District Court Judge Consuelo Marshall signed Feb. 24.
Messages sent to Luna’s former president and CEO, Scott Graeff, and to a company spokeswoman were unanswered by the end of business on Friday.
Lucas Gilmore, a Seattle-based attorney whose firm represented the class action’s lead plaintiff, said in an email that he and his partners are pleased that the court granted final approval, “marking a significant recovery for Luna investors, given the company’s financial position.”
The case dates to 2024, when the fiber-optic sensing and monitoring company disclosed that accounting discrepancies had led to multiple inaccurate quarterly financial statements and one incorrect annual report. Shares were trading between $6 and $8 on the Nasdaq Stock Market about that time, then began a steady decline.
Nasdaq has since removed Luna from its listings.
Shareholders who purchased Luna securities between May 16, 2022, and April 19, 2024, “suffered economic losses when the price of Luna securities declined as a result of a series of corrective disclosures between March 12, 2024, and April 25, 2024,” court filings alleged. More than 30 million shares were outstanding at that time.
The plaintiffs blamed Graeff, the former president and CEO, along with former financial officers Eugene Nestro and George Gomez-Quintero.
Graeff resigned in March 2024, shortly after the first SEC disclosures. A special committee of board members and outside legal and financial advisers later announced a finding that Graeff had engaged in conduct that constituted “cause” under his contract. The company canceled his severance payments and took back stock from him.
The plaintiffs alleged that Graeff, Nestro and Gomez-Quintero knew about the accounting issues or had “reckless disregard for the truth” at the time the plaintiffs purchased Luna stock, and that the company was responsible for its executives’ actions.
In SEC filings, the company reported that quarterly and annual financial reports were unreliable, with “material weaknesses in its [Luna’s] internal control.” Six quarterly reports and one annual report were never rewritten, and the company did not file any such statements with the SEC after fourth quarter 2023.
Luna’s SEC filings indicated that an investigation “identified accounting errors relating to revenue recognition” dating to 2022. Under federal law, companies must recognize revenue during the time that they deliver products and services to customers, not necessarily when the customers pay them.
In a May 2025 court filing that proposed the settlement, Luna admitted no wrongdoing and denied all allegations in the class-action lawsuit, but agreed to settle it “solely to eliminate the uncertainty, burden, and expense of further protracted litigation” in a case that has stretched beyond a year.
The plaintiffs faced the possibility that Luna’s financial situation could leave no funds available after a potential judgment that might not happen for years, if the case continued, their lawyers wrote in court filings.
The parties took part in mediation sessions before reaching their agreement, Marshall’s order stated.
Marshall, after hearing testimony and receiving documents in evidence on Feb. 17, signed an order Feb. 24 approving the settlement as “fair, reasonable and adequate,” with a proper method to distribute funds.
“The Court takes no position on the [case] merits … but notes that the existence of substantial arguments both for and against their respective positions further supports approval of the Settlement,” she wrote.
In a separate order, the judge approved attorneys’ fees of $2.2 million, plus about $41,000 for litigation expenses, to be paid from the settlement fund. More than 8,600 potential class members received notice of the settlement, according to the order.
Her order also settles a related case that a Luna shareholder filed on the company’s behalf against certain board members and the former executives. The so-called derivative action, filed in September 2024, asserted that the board failed to file its own claim on Luna’s behalf.
Luna closed on Friday at $1 a share on the OTC Expert Market, where only broker-dealers and professional-level investors are allowed to view quotations. The company is no longer required to publicly disclose its finances, since its departure from the tech-centric Nasdaq. Under the terms of a $15 million loan from investor White Hat Capital in July 2024, Luna was to seek a sale or merger. It’s unclear where that process stands.