Roanoke, VA — Luna Innovations Inc., alongside three former executives, has reached a preliminary agreement to settle a shareholder lawsuit that accused them of federal securities law violations, according to a recent federal court filing. The company, known for its fiber-optic sensing and monitoring technology, was removed from the Nasdaq Stock Market and has seen a continuous decline in value in the over-the-counter markets.
The lawsuit, which has been under scrutiny in a California federal court for over a year, stemmed from admissions by Luna in its filings with the Securities and Exchange Commission that several of its quarterly and annual financial reports were inaccurate due to significant internal control weaknesses. Specifically, these inaccuracies related to the improper handling of revenue recognition, a key accounting principle that dictates the timing of revenue reports.
Allegations in the class action lawsuit suggested that Luna’s ex-president and CEO, Scott Graeff, along with former CFOs Eugene Nestro and George Gomez-Quintero, were aware of or recklessly ignored these financial reporting issues when the impacted stocks were purchased by the plaintiffs. The lawsuit argued that Luna was liable for the misleading actions executed by its leadership.
Before these issues came to light, Luna’s stock was traded between $6 and $8. However, the listed status was revoked by Nasdaq this January, and incorrect financial statements haven’t been published by the company for over a year. Currently, Luna’s shares are only observable on the OTC Expert Market—a platform limited to broker-dealers and sophisticated investors—with a trading price roughly around 30 cents a share as of the last trading session.
The proposed settlement, as detailed in the court documents filed last week, remains subject to certain conditions including judicial approval of the class action certification. The involved parties have been given a deadline until May 5 to finalize the agreement for court approval.
Several plaintiffs have been explicitly named in the lawsuit documentation. However, the action may potentially include additional eligible participants who acquired the company’s stocks before May 16, 2022. As of the latest developments, representatives for Luna and the plaintiffs’ legal team have declined to give detailed comments on the unfolding situation. Further attempts to reach Graeff for his response remained unanswered.
As this case unfolds, it underscores the critical importance of strict financial governance and transparent reporting practices within publicly traded companies. The outcome of this court case may also prompt other companies in similar sectors to reassess and strengthen their financial reporting systems to avoid such pitfalls.
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