St. Jude Files Suit in Minnesota over Heart Device Allegations

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St. Jude Medical Inc. said it had filed a lawsuit against short-selling firm Muddy Waters and cyber security company MedSec Holdings Ltd. alleging they intentionally disseminated false and misleading information in order to lower the value of St. Jude’s stock and profit as a result.

St. Jude’s shares fell sharply on Aug. 25 after Muddy Waters, run by Carson Block, said it had taken a short position in the company’s stock.

Block said his firm’s position was motivated by research from MedSec, which has a financial arrangement with Muddy Waters. MedSec had asserted that St. Jude’s heart devices were vulnerable to cyber attack and were a risk to patients.

Short sellers borrow shares and then sell them in the expectation that the price will fall. When it does, the short-sellers buy back the shares, return them to the lender, pay borrowing fees and pocket the difference.

St. Jude agreed in April to sell itself to Abbott Laboratories for $25 billion.

“We felt this lawsuit was the best course of action to make sure those looking to profit by trying to frighten patients and caregivers, and by circumventing appropriate and established channels for raising cyber security concerns, do not use this avenue to do so again,” St. Jude Chief Executive Michael T. Rousseau said in a statement.

University of Michigan researchers said last week their own experiments had undermined allegations of security flaws in St. Jude’s pacemakers and other implantable devices.

Muddy Waters and MedSec did not immediately respond to requests for comment.

St. Jude’s shares were untraded before the opening bell on Wednesday after closing at $78.90 on Tuesday.

The stock has fallen about 4 percent since Muddy Waters disclosed its position.

The case is St. Jude Medical vs. Muddy Waters, MedSec Holdings et al, in the United States District Court for the District of Minnesota, No. 16-cv-03002.

(Reporting by Ankur Banerjee in Bengaluru; Editing by Ted Kerr)