EP Med Systems vs. Echocath

EP Med Systems vs. EchoCath Securities Fraud

EP MedSystems vs. EchoCath Securities Fraud

The results of the case EP MedSystems v. EchoCath, highlights how it would be a vindication for the plaintiff. What happened was that EP MedSystems entered a partnership agreement with EchoCath to: purchase 280 thousand shares of preferred stock or the equivalent of a $1.4 million investment. This was based on meetings that took place between: executives of the two companies. As EchoCath had a number of promising deals that they were working on and the projections they were providing, indicated that demand for ultra sound machines will remain strong. This is because EchoCath was rumored, to have imminent contracts with some of the largest medical device makers to include: Johnson & Johnson, Medtronic and CR Baird. At which point, MedSytems entered the picture by: having an investment in the company and owning percentage of partnership rights for the new technology that they were developing.

However, inside the agreement and various projections that were provided to MedSystems, there were numerous statements made about the accuracy of the information. The most notable said, "This is intended as a beginning guide, and it is expected that it will be revised, and it is a simplified form of accounting but it does reflect accurately cash and income flows." ("EP MedSystems vs. EchoCath," n.d.) This is important, because this basic statement would be the foundation of the lawsuit that was filed by EP MedSystems. ("Securities Fraud and Insider Trading," n.d.)

This occurred, when EchoCath would ask MedSytems for: additional liquidity and capital (due to the unexpected consequences from the contracts that fell through). As they argued that EchoCath was knowingly making false statements about: the underlying health of their company and future business activities. While EchoCath claimed, that the information they provided were estimates. At the heart of the lawsuit, are the arguments that: EchoCath violated the Section 10 and Rule 10 b 5 of the Securities and Exchange Act of 1934. As MedSytems claimed, that the company knew that they could not meet: the numbers they were saying and that they had no intentions of on closing on the large contracts. To counter these arguments, EchoCath claimed that the numbers they provided were factual. However, given the changes that occurred and the fact that their product was considered to be new / experimental, were signs that this transaction was risky from the beginning (which MedSystems was aware of). As their advisors told them of these possible issues during the initial consultation stages (which are underscoring how the company was aware of these issues early on). (Chrisman, 2001, pp. 201 -- 225) ("EP MedSystems vs. EchoCath," n.d.)