St. Jude Medical Sues Muddy Waters

St. Jude Medical Inc. on Wednesday filed a lawsuit against Muddy Waters Capital LLC, claiming the research firm intentionally made false and misleading claims about its heart devices in order to profit from a decline in its stock.

The complaint, filed in U.S. District Court in Minnesota, also names MedSec, a cybersecurity startup whose work was cited by Muddy Waters, and some executives at both Muddy Waters and MedSec.

"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 cybersecurity concerns, do not use this avenue to do so again," St. Jude Chief Executive Michael Rousseau said.

Responding to the lawsuit, a Muddy Waters spokesman said: "It is not unusual for a company like this to try to silence its critics, and we are always prepared to vigorously defend our right to criticize a company that puts its profits before its patients."

The dispute comes as St. Jude is in the process of being acquired by Abbott Laboratories in a cash-and-stock deal initially valued at $25 billion. The deal, set to close in the fourth quarter, would create one of the leading makers of heart-related devices. The combined company is expected to generate annual cardiovascular sales of about $8.7 billion.

In an August report, Muddy Waters said that St. Jude's pacemakers and other heart devices were vulnerable to hacking and other cybersecurity threats, claims that the medical-device maker has denied.

Muddy Waters, which is known for shorting stocks, or making bets that a company's share price will fall, had said it had a short position in St. Jude.

Muddy Waters also said the vulnerable heart devices represented about 46% of St. Jude's total revenue of $5.54 billion for 2015. The research firm also urged a recall of the devices.

St. Jude's complaint said the Muddy Waters report, based on research by MedSec, includes false claims that the medical-device maker's implantable cardiac devices were vulnerable to cyberattacks that could cause the devices to crash or to create a drain on their batteries.

The company is seeking an undetermined amount in damages as well as disgorgement of profits.

After the release of the Muddy Waters report on Aug. 25, St. Jude's stock slipped 5%. The shares dipped an additional 2.6% the following day before the medical-device maker issued a denial of the firm's claims.

The shares subsequently recovered some ground to close on Aug. 26 at $78.01, up 19 cents. Since then, the stock has risen roughly 2% but remains below where it traded at before the report.

In recent trading Wednesday, St. Jude's shares were up 53 cents at $79.43.

Write to Tess Stynes at [e-mail]

(END) Dow Jones Newswires

September 07, 2016 14:27 ET (18:27 GMT)

Copyright (c) 2016 Dow Jones & Company, Inc.