Case 3:19-cv-01079-LAB-AHG Document 1 Filed 06/07/19 PageID.1 Page 1 of 16
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`LIONEL Z. GLANCY (#134180)
`ROBERT V. PRONGAY (#270796)
`LESLEY F. PORTNOY (#304851)
`CHARLES LINEHAN (#307439)
`PAVITHRA RAJESH (#323055)
`GLANCY PRONGAY & MURRAY LLP
`1925 Century Park East, Suite 2100
`Los Angeles, California 90067
`Telephone:(310) 201-9150
`Facsimile: (310) 201-9160
`Email:
`info@glancylaw.com
`
`Attorneys for Plaintiff Ervin Derr
`
`[Additional Counsel on Signature Page]
`
`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF CALIFORNIA
` Case No.
`ERVIN DERR, Individually and on
`
`Behalf of All Others Similarly Situated,,
`CLASS ACTION COMPLAINT
`
`FOR VIOLATIONS OF THE
`FEDERAL SECURITIES LAWS
`
`
`JURY TRIAL DEMANDED
`
`
`
`v.
`
`Plaintiff,
`
`
`RA MEDICAL SYSTEMS, INC.,
`DEAN IRWIN, ANDREW JACKSON,
`MELISSA BURSTEIN, MARTIN
`BURSTEIN, RICHARD HEYMANN,
`MAURICE BUCHBINDER, MARTIN
`COLOMBATTO, RICHARD MEJIA,
`JR., PIPER JAFFRAY & CO.,
`CANTOR FITZGERALD & CO.,
`SUNTRUST ROBINSON
`HUMPHREY, INC., NOMURA
`SECURITIES INTERNATIONAL,
`INC., and MAXIM GROUP LLC,
`
`
`Defendants.
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`CLASS ACTION COMPLAINT
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`'19
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`CV1079
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`NLS
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`LAB
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`Case 3:19-cv-01079-LAB-AHG Document 1 Filed 06/07/19 PageID.2 Page 2 of 16
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`Plaintiff Ervin Derr (“Plaintiff”), individually and on behalf of all others
`similarly situated, by and through his attorneys, alleges the following upon
`information and belief, except as to those allegations concerning Plaintiff, which are
`alleged upon personal knowledge. Plaintiff’s information and belief is based upon,
`among other things, his counsel’s investigation, which includes without limitation:
`(a) review and analysis of regulatory filings made by Ra Medical Systems, Inc. (“Ra
`Medical” or the “Company”) with the United States (“U.S.”) Securities and
`Exchange Commission (“SEC”); (b) review and analysis of press releases and media
`reports issued by and disseminated by Ra Medical; and (c) review of other publicly
`available information concerning Ra Medical.
`NATURE OF THE ACTION AND OVERVIEW
`1.
`This is a class action on behalf of persons and entities that purchased or
`otherwise acquired Ra Medical securities pursuant and/or traceable to the
`registration statement and prospectus (collectively, the “Registration Statement”)
`issued in connection with the Company’s September 2018 initial public offering
`(“IPO” or the “Offering”). Plaintiff pursues claims against the Defendants, under the
`Securities Act of 1933 (the “Securities Act”).
`2.
`Ra Medical is a medical device company that purports to use its
`excimer laser-based platform for treatment of vascular and dermatological immune-
`mediated inflammatory diseases.
`3.
`On September 27, 2018, the Company filed its prospectus on Form
`424B4 with the SEC, which forms part of the Registration Statement. In the IPO, the
`Company sold 4,485,000 shares of common stock at a price of $17.00 per share. The
`Company received proceeds of approximately $67.6 million from the Offering. The
`proceeds from the IPO were purportedly to be used for expansion of its direct sales
`force and marketing of its products; clinical studies for new products and product
`enhancements; and other research and development activities, working capital, and
`general corporate purposes.
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`CLASS ACTION COMPLAINT
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`4.
`On March 14, 2019, the Company revealed that the fourth quarter 2018
`financial results were negatively impacted by issues related to the hiring and training
`of qualified sales personnel as well as production limitations in the Company’s
`manufacturing process.
`5.
`On this news, the Company’s share price fell $2.14, nearly 33%, to
`close at $4.43 per share on March 15, 2019, on unusually heavy trading volume.
`6.
`By the commencement of this action, Ra Medical stock was trading as
`low as $4.00 per share, a nearly 77% decline from the $17 per share IPO price.
`7.
`The Registration Statement was false and misleading and omitted to
`state material adverse facts. Specifically, Defendants failed to disclose to investors:
`(1) that the Company’s evaluation of sales personnel candidates was inadequate; (2)
`that the Company’s training program for sales personnel was inadequate; (3) that, as
`a result, the Company could not reasonably assure that its newly hired sales
`personnel were adequately experienced; (4) that, as a result, the Company would
`suffer a shortage of qualified sales personnel; (5) that the Company’s manufacturing
`process could not reasonably support increased catheter production; (6) that, as a
`result, the Company would suffer production delays; and (7) that, as a result of the
`foregoing, Defendants’ positive statements about
`the Company’s business,
`operations, and prospects, were materially misleading and/or lacked a reasonable
`basis.
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`8.
`As a result of Defendants’ wrongful acts and omissions, and the
`precipitous decline in the market value of the Company’s securities, Plaintiff and
`other Class members have suffered significant losses and damages.
`JURISDICTION AND VENUE
`9.
`The claims asserted herein arise under and pursuant to Sections 11 and
`15 of the Securities Act (15 U.S.C. §§ 77k and 77o).
`10. This Court has jurisdiction over the subject matter of this action
`pursuant to 28 U.S.C. § 1331, Section 22 of the Securities Act (15 U.S.C. § 77v).
`CLASS ACTION COMPLAINT
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`11. Venue is proper in this Judicial District pursuant to 28 U.S.C. §
`1391(b). The Company’s principal executive offices are in this district.
`12.
`In connection with the acts, transactions, and conduct alleged herein,
`Defendants directly and indirectly used the means and instrumentalities of interstate
`commerce, including the United States mail, interstate telephone communications,
`and the facilities of a national securities exchange.
`PARTIES
`13. Plaintiff Ervin Derr, as set forth in the accompanying certification,
`incorporated by reference herein, purchased or otherwise acquired Ra Medical
`securities pursuant and/or traceable to the Registration Statement issued in
`connection with the Company’s IPO, and suffered damages as a result of the federal
`securities law violations and false and/or misleading statements and/or material
`omissions alleged herein.
`14. Defendant Ra Medical is incorporated under the laws of Delaware with
`its principal executive offices located in Carlsbad, California. Ra Medical’s common
`stock trades on the New York Stock Exchange (“NYSE”) under the symbol
`“RMED.”
`15. Defendant Dean Irwin (“Irwin”) was, at all relevant times, the Chief
`Executive Officer (“CEO”), Co-President, Chief Technology Officer, and Chairman
`of the Board of Directors of the Company, and signed or authorized the signing of
`the Company’s Registration Statement filed with the SEC.
`16. Defendant Andrew Jackson (“Jackson”) was, at all relevant times, the
`Chief Financial Officer of the Company, and signed or authorized the signing of the
`Company’s Registration Statement filed with the SEC.
`17. Defendant Melissa Burstein (“Melissa Burstein”) was a director of the
`Company and signed or authorized the signing of the Company’s Registration
`Statement filed with the SEC.
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`18. Defendant Martin Burstein (“Martin Burstein”) was a director of the
`Company and signed or authorized the signing of the Company’s Registration
`Statement filed with the SEC.
`19. Defendant Richard Heymann (“Heymann”) was a director of the
`Company and signed or authorized the signing of the Company’s Registration
`Statement filed with the SEC.
`20. Defendant Maurice Buchbinder (“Buchbinder”) was a director of the
`Company and signed or authorized the signing of the Company’s Registration
`Statement filed with the SEC.
`21. Defendant Martin Colombatto (“Colombatto”) was a director of the
`Company and signed or authorized the signing of the Company’s Registration
`Statement filed with the SEC.
`22. Defendant Richard Mejia, Jr. (“Mejia”) was a director of the Company
`and signed or authorized the signing of the Company’s Registration Statement filed
`with the SEC.
`23. Defendants Irwin, Jackson, Melissa Burstein, Martin Burstein,
`Heymann, Buchbinder, Colombatto, and Mejia are collectively referred to
`hereinafter as the “Individual Defendants.”
`24. Defendant Piper Jaffray & Co. (“Piper Jaffray”) served as an
`underwriter for the Company’s IPO.
`25. Defendant Cantor Fitzgerald & Co. (“Cantor”) served as an underwriter
`for the Company’s IPO.
`26. Defendant SunTrust Robinson Humphrey, Inc. (“SunTrust”) served as
`an underwriter for the Company’s IPO.
`27. Defendant Nomura Securities International, Inc. (“Nomura”) served as
`an underwriter for the Company’s IPO.
`28. Defendant Maxim Group LLC (“Maxim”) served as an underwriter for
`the Company’s IPO.
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`29. Defendants Piper Jaffray, Cantor, SunTrust, Nomura, and Maxim are
`collectively referred to hereinafter as the “Underwriter Defendants.”
`CLASS ACTION ALLEGATIONS
`30. Plaintiff brings this action as a class action pursuant to Federal Rule of
`Civil Procedure 23(a) and (b)(3) on behalf of a class, consisting of all persons and
`entities that purchased or otherwise acquired Ra Medical securities issued in
`connection with the Company’s IPO. Excluded from the Class are Defendants, the
`officers and directors of the Company, at all relevant times, members of their
`immediate families and their legal representatives, heirs, successors, or assigns, and
`any entity in which Defendants have or had a controlling interest.
`31. The members of the Class are so numerous that joinder of all members
`is impracticable. Throughout the Class Period, Ra Medical’s common shares
`actively traded on the NYSE. While the exact number of Class members is
`unknown to Plaintiff at this time and can only be ascertained through appropriate
`discovery, Plaintiff believes that there are at least hundreds or thousands of
`members in the proposed Class. Millions of Ra Medical common stock were traded
`publicly during the Class Period on the NYSE. Record owners and other members
`of the Class may be identified from records maintained by Ra Medical or its transfer
`agent and may be notified of the pendency of this action by mail, using the form of
`notice similar to that customarily used in securities class actions.
`32. Plaintiff’s claims are typical of the claims of the members of the Class
`as all members of the Class are similarly affected by Defendants’ wrongful conduct
`in violation of federal law that is complained of herein.
`33. Plaintiff will fairly and adequately protect the interests of the members
`of the Class and has retained counsel competent and experienced in class and
`securities litigation.
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`CLASS ACTION COMPLAINT
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`34. Common questions of law and fact exist as to all members of the Class
`and predominate over any questions solely affecting individual members of the
`Class. Among the questions of law and fact common to the Class are:
`(a) whether the federal securities laws were violated by Defendants’ acts as
`alleged herein;
`(b) whether statements made by Defendants to the investing public during
`the Class Period omitted and/or misrepresented material facts about the business,
`operations, and prospects of Ra Medical; and
`(c)
`to what extent the members of the Class have sustained damages and
`the proper measure of damages.
`35. A class action is superior to all other available methods for the fair and
`efficient adjudication of this controversy since joinder of all members is
`impracticable. Furthermore, as the damages suffered by individual Class members
`may be relatively small, the expense and burden of individual litigation makes it
`impossible for members of the Class to individually redress the wrongs done to
`them. There will be no difficulty in the management of this action as a class action.
`SUBSTANTIVE ALLEGATIONS
`Background
`36. Ra Medical is a medical device company that purports to use its
`excimer laser-based platform for treatment of vascular and dermatological immune-
`mediated inflammatory diseases.
`The Company’s False and/or Misleading
`Registration Statement and Prospectus
`37. On September 24, 2018, the Company filed its final amendment to the
`Registration Statement with the SEC on Form S-1/A, which forms part of the
`Registration Statement. The Registration Statement was declared effective on
`September 26, 2018.
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`38. On September 27, 2018, the Company filed its prospectus on Form
`424B4 with the SEC, which forms part of the Registration Statement. In the IPO, the
`Company sold 4,485,000 shares of common stock at a price of $17.00 per share. The
`Company received proceeds of approximately $67.6 million from the Offering. The
`proceeds from the IPO were purportedly to be used for expansion of its direct sales
`force and marketing of its products; clinical studies for new products and product
`enhancements; and other research and development activities, working capital, and
`general corporate purposes.
`39. The Registration Statement was negligently prepared and, as a result,
`contained untrue statements of material facts or omitted to state other facts
`necessary to make the statements made not misleading, and was not prepared in
`accordance with the rules and regulations governing its preparation.
`40. Under applicable SEC rules and regulations, the Registration Statement
`was required to disclose known trends, events or uncertainties that were having, and
`were reasonably likely to have, an impact on the Company’s continuing operations.
`41. Regarding the Company’s sales force, the Registration Statement
`stated, in relevant part:
`We market and sell DABRA and Pharos primarily through our direct
`sales force in the U.S. As of June 30, 2018, we had a 15-person direct
`sales force in the U.S. with 12 persons focused on vascular and
`three persons focused on dermatology. Our sales force is organized by
`geographic sales territories, and each territory is managed by a sales
`manager who acts as the primary customer contact. We plan to
`continue to increase the size of our sales organization to expand our
`installed unit base and to increase utilization of the DABRA and
`Pharos. Our initial focus for DABRA is high-volume OBLs. We
`partner with distributors for DABRA and Pharos in select geographies
`outside of the U.S.
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`Our marketing department currently consists of five professionals. Our
`marketing program focuses on:
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`
`educating physicians regarding the proper use and application of
`DABRA and Pharos;
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`supporting physicians’ efforts to enhance referral opportunities;
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`improving patient and caregiver awareness of our treatments; and
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`facilitating national and international marketing programs.
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`the Company’s
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`We use a targeted marketing approach to introduce our products to the
`medical marketplace. We primarily target our marketing efforts to
`practitioners through marketing materials, medical conferences and
`journals. In addition, we host seminars and webinars where industry
`leaders discuss case studies and treatment techniques using DABRA
`and Pharos.
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`42. Moreover, regarding risks related
`to growing
`salesforce, the Registration Statement stated, in relevant part:
`We will need to grow the size of our organization, and we may
`experience difficulties in managing this growth.
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`At June 30, 2018, we had 75 full-time employees. As our sales and
`marketing strategies develop, and as we transition into operating as a
`public company, we expect to need additional managerial, operational,
`sales, marketing, financial, and other personnel. Future growth would
`impose significant added responsibilities on members of management,
`including:
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`identifying, recruiting, integrating, maintaining, and motivating
`additional employees;
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`managing our internal development efforts effectively, while
`complying with our contractual obligations to contractors and other
`third parties; and
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`improving our operational, financial and management controls,
`reporting systems and procedures.
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`Our future financial performance and our ability to successfully market
`and sell our products will depend, in part, on our ability to effectively
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`Case 3:19-cv-01079-LAB-AHG Document 1 Filed 06/07/19 PageID.10 Page 10 of 16
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`manage any future growth, and our management may also have to
`divert a disproportionate amount of its attention away from day-to-
`day activities in order to devote a substantial amount of time to
`managing these growth activities.
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`If we are not able to effectively expand our organization by hiring new
`employees and expanding our groups of consultants and contractors,
`we may not be able to successfully implement the tasks necessary to
`further develop and commercialize our products and, accordingly, may
`not achieve our research, sales and marketing goals, which would have
`a material adverse effect on our business, financial condition, and
`results of operations.
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`43. Regarding risks affecting production, the Registration Statement stated,
`in relevant part:
`We may experience development or manufacturing problems or delays
`that could limit the potential growth of our revenue or increase our
`losses.
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`We may encounter unforeseen situations in the manufacturing and
`assembly of our products that would result in delays or shortfalls in our
`production. For example, our production processes and assembly
`methods may have to change to accommodate any significant future
`expansion of our manufacturing capacity, which may increase our
`manufacturing costs, delay production of our products, reduce our
`product margin, and adversely impact our business. Conversely, if
`demand for our products shifts such that a manufacturing facility is
`operated below its capacity for an extended period, we may adjust our
`manufacturing operations to reduce fixed costs, which could lead to
`uncertainty and delays in manufacturing times and quality during any
`transition period.
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`Additionally, since all of our products are manufactured at our facility
`in Carlsbad, any contamination of
`the controlled environment,
`equipment malfunction, or failure to strictly follow procedures can
`significantly reduce our yield. A drop in yield can increase our cost to
`manufacture our products or, in more severe cases, require us to halt
`the manufacture of our products until the problem is resolved.
`Identifying and resolving the cause of a drop in yield can require
`substantial time and resources.
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`If our manufacturing activities are adversely impacted, or if we are
`otherwise unable to keep up with demand for our products by
`successfully manufacturing, assembling, testing, and shipping our
`products in a timely manner, our revenue could be impaired, market
`acceptance for our products could be adversely affected and our
`customers might instead purchase our competitors’ products, which
`would have a material adverse effect on our business, financial
`condition, and results of operations.
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`44. The Registration Statement was false and misleading and omitted to
`state material adverse facts. Specifically, Defendants failed to disclose to investors:
`(1) that the Company’s evaluation of sales personnel candidates was inadequate; (2)
`that the Company’s training program for sales personnel was inadequate; (3) that, as
`a result, the Company could not reasonably assure that its newly hired sales
`personnel were adequately experienced; (4) that, as a result, the Company would
`suffer a shortage of qualified sales personnel; (5) that the Company’s manufacturing
`process could not reasonably support increased catheter production; (6) that, as a
`result, the Company would suffer production delays; and (7) that, as a result of the
`foregoing, Defendants’ positive statements about
`the Company’s business,
`operations, and prospects, were materially misleading and/or lacked a reasonable
`basis.
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`The Subsequent Disclosures
`45. On March 14, 2019, the Company revealed that the fourth quarter 2018
`financial results were negatively impacted by issues related to the hiring and training
`of qualified sales personnel as well as production limitations in the Company’s
`manufacturing process. The Company stated a press release, in relevant part:
`“During our steep ramp in the back half of 2018, we experienced certain
`issues that had an impact on our fourth quarter revenue and into 2019. In particular,
`the hiring and training of qualified sales personnel was dependent on the onboarding
`of our CCO and we also found that we needed a more robust training program for
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`our newly hired sales personnel,” he added. “In addition, we experienced production
`limitations in our manufacturing process as we scaled up catheter production. We
`believe we addressed those issues and will begin to see the positive impact on
`revenue beginning in the second quarter of 2019.”
`46. On this news, the Company’s share price fell $2.14, nearly 33%, to
`close at $4.43 per share on March 15, 2019, on unusually heavy trading volume.
`47. By the commencement of this action, Ra Medical stock was trading as
`low as $4.00 per share, a nearly 77% decline from the $17 per share IPO price.
`FIRST CLAIM
`Violation of Section 11 of the Securities Act
`(Against All Defendants)
`48. Plaintiff repeats and re-alleges each and every allegation contained
`above as if fully set forth herein, except any allegation of fraud, recklessness or
`intentional misconduct.
`49. This Count is brought pursuant to Section 11 of the Securities Act, 15
`U.S.C. § 77k, on behalf of the Class, against the Defendants.
`50. The Registration Statement for the IPO was inaccurate and misleading,
`contained untrue statements of material facts, omitted to state other facts necessary
`to make the statements made not misleading, and omitted to state material facts
`required to be stated therein.
`51. Ra Medical is the registrant for the IPO. The Defendants named herein
`were responsible for the contents and dissemination of the Registration Statement.
`52. As issuer of the shares, Ra Medical is strictly liable to Plaintiff and the
`Class for the misstatements and omissions.
`53. None of the Defendants named herein made a reasonable investigation
`or possessed reasonable grounds for the belief that the statements contained in the
`Registration Statement was true and without omissions of any material facts and
`were not misleading.
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`CLASS ACTION COMPLAINT
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`54. By reasons of the conduct herein alleged, each Defendant violated,
`and/or controlled a person who violated Section 11 of the Securities Act.
`55. Plaintiff acquired Ra Medical shares pursuant and/or traceable to the
`Registration Statement for the IPO.
`56. Plaintiff and the Class have sustained damages. The value of Ra
`Medical common stock has declined substantially subsequent to and due to the
`Defendants’ violations.
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`SECOND CLAIM
`Violation of Section 15 of the Securities Act
`(Against the Individual Defendants)
`57. Plaintiff repeats and re-alleges each and every allegation contained
`above as if fully set forth herein, except any allegation of fraud, recklessness or
`intentional misconduct.
`58. This count is asserted against the Individual Defendants and is based
`upon Section 15 of the Securities Act.
`59. The Individual Defendants, by virtue of their offices, directorship, and
`specific acts were, at the time of the wrongs alleged herein and as set forth herein,
`controlling persons of Ra Medical within the meaning of Section 15 of the
`Securities Act. The Individual Defendants had the power and influence and
`exercised the same to cause Ra Medical to engage in the acts described herein.
`60. The Individual Defendants’ positions made them privy to and provided
`them with actual knowledge of the material facts concealed from Plaintiff and the
`Class.
`61. By virtue of the conduct alleged herein, the Individual Defendants are
`liable for the aforesaid wrongful conduct and are liable to Plaintiff and the Class for
`damages suffered.
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`CLASS ACTION COMPLAINT
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`Case 3:19-cv-01079-LAB-AHG Document 1 Filed 06/07/19 PageID.14 Page 14 of 16
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`PRAYER FOR RELIEF
`WHEREFORE, Plaintiff prays for relief and judgment, as follows:
`
`(a) Determining that this action is a proper class action under Rule 23 of
`the Federal Rules of Civil Procedure;
`(b) Awarding compensatory damages in favor of Plaintiff and the other
`Class members against all defendants, jointly and severally, for all damages
`sustained as a result of Defendants’ wrongdoing, in an amount to be proven at trial,
`including interest thereon;
`(c) Awarding Plaintiff and the Class their reasonable costs and expenses
`incurred in this action, including counsel fees and expert fees; and
`(d)
`Such other and further relief as the Court may deem just and proper.
`JURY TRIAL DEMANDED
`Plaintiff hereby demands a trial by jury.
`DATED: June 7, 2019
`GLANCY PRONGAY & MURRAY LLP
`
`
`
`
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`
`By:
`s/ Lesley F. Portnoy
`Lionel Z. Glancy
`Robert V. Prongay
`Lesley F. Portnoy
`Charles Linehan
`Pavithra Rajesh
`1925 Century Park East, Suite 2100
`Los Angeles, California 90067
`Telephone: (310) 201-9150
`Facsimile: (310) 201-9160
`
`LAW OFFICES OF HOWARD G. SMITH
`Howard G. Smith
`3070 Bristol Pike, Suite 112
`Bensalem, PA 19020
`Telephone: (215) 638-4847
`Facsimile: (215) 638-4867
`
`Attorneys for Plaintiff Ervin Derr
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`CLASS ACTION COMPLAINT
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`[REDACTED]
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`Case 3:19-cv-01079-LAB-AHG Document 1 Filed 06/07/19 PageID.16 Page 16 of 16
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`Ervin Derr's Transactions in
`Ra Medical Systems, Inc. (RMED)
`Transaction Type
`Quantity
`Bought
`500
`
`Unit Price
`$7.3000
`
`Date
`02/06/2019
`
`