A Medical Device Daily

On Aug. 7, a consent and final judgment against Michael Smeraski was entered by the U.S. District Court for the Northern District of California. Smeraski was charged in a previously-filed action with securities fraud in connection with a massive financial reporting fraud at McKesson HBOC (San Francisco), a Fortune 100 company. Smeraski consented to the entry of judgment without admitting or denying the allegations of the Securities and Exchange Commission’s (SEC) complaint except as to jurisdiction.

The complaint, filed Sept. 27, 2001, alleged that Smeraski, a senior sales VP, together with other senior executives participated in a long-running fraudulent scheme to inflate the revenue and net income of HBO & Co., an Atlanta-based vendor of healthcare software that merged with McKesson in 1999.

Smeraski and others routinely approved software sales contracts with associated side letters containing unsatisfied contingencies precluding revenue recognition and backdated contracts and other documents for the purpose of recognizing revenue in an earlier reporting period. Both of these practices failed to comply with Generally Accepted Accounting Principles. The fraud enabled HBO & Co. to report falsely in press releases and in periodic reports filed with the SEC that the company was having an unbroken run of financial success and that HBO & Co. had continually exceeded analysts’ expectations. However, when McKesson HBOC reported in April 1999 that the company was conducting an internal investigation into financial reporting irregularities, its shares tumbled from about $65 to $34, a drop that slashed its market value by more than $9 billion.

The final judgment against Smeraski permanently enjoins him from violating the antifraud provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5)of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. In addition, Smeraski was ordered to pay a civil penalty of $50,000.

In other court news: The law offices of Howard G. Smith reported that a securities class action lawsuit has been filed on behalf of shareholders who purchased the common stock of Pall (East Hills, New York) between April 20, 2007, and August 2, 2007, inclusive. The class action lawsuit was filed in the U.S. District Court for the Eastern District of New York.

The complaint alleges that defendants violated federal securities laws by issuing material misrepresentations to the market concerning the company’s financial performance, thereby artificially inflating the price of Pall securities. No class has yet been certified in the above action.

Pall says it is the largest and most diverse filtration, separations and purifications company in the world.