1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

GLANCY PRONGAY & MURRAY LLP

ROBERT V. PRONGAY (#270796) 

KARA M. WOLKE (#241521) 

ALEXA MULLARKY (#307932) 

1925 Century Park East, Suite 2100 

Los Angeles, California 90067 

Telephone: (310) 201-9150 

Facsimile: (310) 201-9160 

Email: info@glancylaw.com 

Attorneys for Lead Plaintiff John Costabile

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF CALIFORNIA 

JOHN COSTABILE, Individually and On 

Behalf of All Others Similarly Situated, 

 Plaintiff, 

 v. 

NATUS MEDICAL INCORPORATED, 

JAMES B. HAWKINS and JONATHAN A. 

KENNEDY, 

 Defendants. 

 Case No.: 4:17-cv-00458-JSW 

CLASS ACTION 

FIRST AMENDED COMPLAINT FOR 

VIOLATION OF THE FEDERAL 

SECURITIES LAWS 

DEMAND FOR JURY TRIAL 

 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 1 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

i 

TABLE OF CONTENTS 

I.    NATURE AND BACKGROUND OF THE ACTION ......................................................... 1

II.    JURISDICTION AND VENUE ............................................................................................ 9

III.    PARTIES ............................................................................................................................. 10

IV.    PARTIES WITH KNOWLEDGE REPORT THAT THE SUPPLY CONTRACT WAS 

NOT EXECUTED BY THE MINISTRY OF HEALTH .................................................... 11

V.    PARTIES WITH KNOWLEDGE REPORT A HISTORY OF PROBLEMS WITH 

VENEZUELAN CONTRACTS, INCLUDING THAT THE COMPANY’S PREVIOUS 

CONTRACT WITH VENEZUELA – TOUTED BY DEFENDANTS DURING THE 

CLASS PERIOD – WAS NOT TIMELY COMPLETED .................................................. 12

VI.    THE SUPPLY CONTRACT, IF SIGNED, WAS ESSENTIALLY 

UNENFORCEABLE .......................................................................................................... 13

VII.    MATERIALLY FALSE AND MISLEADING CLASS PERIOD STATEMENTS .......... 13

VIII.  UNDISCLOSED RISKS MATERIALIZE AND THE TRUTH ABOUT THE SUPPLY 

CONTRACT EMERGES THROUGH A SERIES OF PARTIAL, YET STILL 

MISLEADING, DISCLOSURES ....................................................................................... 25

IX.    ADDITIONAL SCIENTER ALLEGATIONS ................................................................... 33

X.    LOSS CAUSATION ........................................................................................................... 34

XI.    PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE ............... 36

XII.    INAPPLICABILITY OF THE STATUTORY SAFE HARBOR ....................................... 37

XIII.  CLASS ACTION ALLEGATIONS .................................................................................... 38

XIV. CAUSES OF ACTION ....................................................................................................... 40

XV.   PRAYER FOR RELIEF ...................................................................................................... 42

XVI. DEMAND FOR TRIAL BY JURY .................................................................................... 43

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 2 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

1 

 Lead Plaintiff John Costabile (“Plaintiff” or “Lead Plaintiff”), individually and on behalf 

of all others similarly situated, by Plaintiff’s undersigned attorneys, alleges the following based 

upon personal knowledge as to Plaintiff’s own acts, and upon information and belief as to all other 

matters based on the investigation conducted by and through Plaintiff’s attorneys, which included, 

among other things, a review of Securities and Exchange Commission (“SEC”) filings by Natus 

Medical Incorporated (“Natus Medical” or the “Company”), as well as media and analyst reports 

about the Company and conference call transcripts. Plaintiff believes that substantial additional 

evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for 

discovery. 

I. NATURE AND BACKGROUND OF THE ACTION 

1. This is a securities class action on behalf of all purchasers of the common stock of 

Natus Medical (NASDAQ: “BABY”) between October 16, 2015 and April 3, 2016, inclusive (the 

“Class Period”), alleging violations of §§10(b) and 20(a) of the Securities Exchange Act of 1934 

(the “Exchange Act”). 

2. Defendant Natus Medical designs, manufactures and markets newborn care and 

neurology healthcare products and services worldwide. 

3. On October 16, 2015, Defendants1

 announced that Natus Medical, through its 

wholly-owned Argentinian subsidiary, Medix I.C.S.A. (“Medix”), had entered into a three-year, 

$232.5 million supply contract (the “Supply Contract”) “to provide medical equipment, supplies 

and services” to the Ministry of Health of Venezuela (the “Ministry of Health”). Defendants 

further announced that “[p]repayments totaling approximately $69 million [under the Supply 

Contract] are expected by the first quarter of 2016.” 

4. Analysts immediately took note of the apparent significance of the Supply Contract 

as announced by Defendants. An analyst report published by Roth Capital Partners (“Roth”) on 

October 16, 2015 observed that “[t]his is a significant development that will provide material 

 

1

 As alleged herein, “Defendants” includes: Natus Medical; Natus Medical’s Chief Executive 

Officer (“CEO”), James B. Hawkins (“Hawkins”); and Natus Medical’s Chief Financial Officer 

(“CFO”), Jonathan A. Kennedy (“Kennedy”). 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 3 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

2 

upside versus current estimates,...” concluding “we are buyers on this development.” 

5. A report by William Blair & Co. (“William Blair”), also published on October 16, 

2015, similarly noted the apparent materiality of the Supply Contract, as it was described by 

Defendants, to the Company’s bottom line: 

The company intends to offer some forecasting details on the earnings call next 

Wednesday to provide guidance on the pacing of top- and-bottom line 

contribution,.... Running some math on the details provided Friday suggests that 

there will be material upside to our current estimates from this deal. For example, 

if we assume a roughly even distribution of business over the three years of the 

agreement, this deal could contribute roughly 20% upside to the top line and 16% 

upside to the bottom line in 2016 (we assume the company would pay the 34% 

corporate tax rate in Venezuela). 

6. On October 21, 2015, as Defendants had indicated to analysts they would do, 

Defendants provided additional detail regarding the impact of the Supply Contract on the 

Company’s revenue forecasts. Citing the Supply Contract, Defendants increased Natus Medical’s 

revenue and earnings guidance for both the fourth quarter of 2015 and the fiscal year ending 

December 31, 2015. In a Form 8-K and press release dated October 21, 2015, Defendants stated: 

For the fourth quarter of 2015, the Company increased its revenue guidance to 

$102.0 million to $105.0 million and guided non-GAAP earnings per share of 

$0.47 to $0.49. Full year 2015 earnings guidance was increased with expected 

non-GAAP earnings per share of $1.51 to $1.53. Full year 2015 revenue guidance 

also increased to $378 million to $381 million compared to previous guidance of 

$376 million to $378 million. 

7. During a conference call held the same day, Natus Medical’s CEO, James 

Hawkins, explained that under the Supply Contract, “we are to receive three payments totaling $69 

million by the end of the first quarter of 2016.” Commenting that “the large order from Venezuela, 

uniquely positions Natus for an exciting future,” Hawkins presented the Supply Contract as a 

substantial win for the Company, explaining: “I think we had mentioned a few different times that 

it was a possibility, even when we acquired Medix five years ago, this was certainly something 

that we had thought as a possibility. And here it’s happened really bigger than we thought.” 

Hawkins further explained that “after this contract expires, we do believe there will be a 

continuing relationship for supplies, other products going forward. So, yes, this contract was a 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 4 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

3 

long time in the making, and we’re veryexcited to have it and very pleased about it.” 

8. Also during the October 21, 2015 conference call, in response to an analyst’s 

question regarding potential currency exchange risks under the Supply Contract, Natus Medical’s 

CFO, Jonathan Kennedy, assured analysts and investors alike that any such risk was “minimal” 

because the Supply Contract supposedly denominated payment to be made in dollars. 

9. Following Defendants’ descriptions of the Supply Contract and the Company’s 

increased revenue forecasts, a Roth analyst report published on October 22, 2015 commented, 

“[a]s for Venezuela, we view the contract as a significant win for Natus as it should provide 

substantial revenue and earnings growth for the next three years at minimum.” 

10. Indeed, Defendants touted the Company’s supposed securing of the Supply 

Contract as a major win. Speaking at the Jefferies Autumn Global Healthcare Conference on 

November 19, 2015, Defendant Hawkins cited the “major contract, [a] supply agreement, with 

Venezuela where [Natus’s] Argentine subsidiary received a $232 million agreement to supply 

medical products and services to Venezuela over a three-year period” as one of the reasons for the 

positive trend in revenue and earnings, stating “with Venezuela we are going to have rate growth.” 

Hawkins further stated, “[i]t is a very exciting piece of business. We will be paid up front as we go 

on this business. We are looking to get our first payment in by the end of the year, and those 

payments would continue throughout the life of the contract.” 

11. Similarly, during the Piper Jaffray Healthcare Conference held on December 1, 

2015, Defendants again reiterated the supposed benefits of the Supply Contract. Defendant 

Hawkins stated that “we have a very large order that we received from Venezuela totaling $232.5 

million for newborn and obstetric equipment[,] along with supplies and service for over 50 

hospitals in Venezuela.” Hawkins further stated, “[w]e expect to get our first $23 million payment 

in the weeks ahead and then we’ll be prepaid on all of this as we go forward on a rolling basis. It’s 

quite a big order for us and we are very excited to not only have it ourselves, but also for the 

babies and mothers in Venezuela.” 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 5 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

4 

12. On December 17, 2016, Natus Medical shares reached a Class Period – and all-time 

– high closing price of $50.48 per share. On December 18, 2015, Natus Medical reached its Class 

Period – and all-time – high intra-day trading price of $50.86 per share. 

13. Unbeknownst to investors, however, the Supply Contract was not as Defendants 

had publicly portrayed it. Specifically, while touting the Supply Contract in November and 

December 2015, Defendants did not disclose that the Venezuelan government had already failed 

to make tens of millions of dollars in prepayments to Natus Medical, as were required under the 

Supply Contract to have been paid as follows: (i) $24,413,410.95 due in October 2015; (ii) 

$22,669,595.89 due in November 2015; and (iii) $22,669,595.89 due in December 2015, for a 

total pre-payment of $69,752,602.73 due by the end of 2015. None of these scheduled payments 

was timely made. 

14. Additionally, Natus Medical had no means of effectively enforcing its rights under 

the Supply Contract, as Venezuela – already experiencing significant political and economic 

turmoil at the time – was the exclusive forum for dispute resolution and the Venezuelan 

government was the other party to the contract. Natus Medical’s receipt of payments pursuant to 

the Supply Contract also was contingent on the outcome of Venezuelan elections, which had the 

potential to be volatile and introduce uncertainty into the Ministry of Health’s ability and 

willingness to comply with the terms of the Supply Contract. As a confidential witness (“CW”) 

who was employed as the Purchasing Coordinator at the Ministry of Health between February 

2016 and July 2016 (“CW1”) explained, “the minister leaves and everything that he does that isn’t 

invoiced gets lost – if the money is not committed. One thing is a promise to do a contract and 

other thing is a contract.” Overall, the Supply Contract did not have the economic benefits or 

certitude that Defendants had represented. 

15. Further, there is no evidence that the Supply Contract was actually ever executed, 

or otherwise effective or enforceable. The Supply Contract, as Defendants attached it as Exhibit 

10.12 to the Company’s 2015 Form 10-K filed with the SEC on February 29, 2016 (the “2015 

Form 10-K”), is unsigned. Indeed, according to information provided by CW1, it appears that the 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 6 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

5 

Ministry of Health had not actually signed the Supply Contract, and thus had not finally agreed to 

its terms. As such, in addition to the significant barrier to enforcement posed by the designated 

forum for dispute resolution, Defendants had no way of enforcing the Supply Contract, which 

appears not to have been finally agreed to in the first place. 

16. Defendants were thus aware of facts tending to seriously undermine their 

statements regarding the Supply Contract and financial guidance, and showing that their 

statements lacked a reasonable basis when made, including that pre-payments supposedly due 

under the Supply Contract already were months late, and the Supply Contract, if it was ever even 

executed, would be difficult, if not impossible, to enforce. As a result of the foregoing, Defendants 

knew or recklessly disregarded that Natus Medical was not on track to achieve the increased 

fourth quarter and year-end 2015 revenue guidance provided by Defendants. 

17. These previously undisclosed facts and risks were first partially revealed to the 

market on January 11, 2016, when Defendants issued a press release revealing that the Company 

expected to fall short of its increased fourth quarter and fiscal year 2015 guidance. Defendants 

disclosed that the Company now only expected to report fourth quarter revenues of approximately 

$100 million, compared to its prior guidance of $102 million to $105 million, and fiscal year 2015 

revenues of $375.9 million, compared to its prior of $378 million to $381 million. Defendants 

explained that “[t]he guidance provided by the Company in October for the fourth quarter of 2015 

included expected revenue of approximately $4 million under the new Venezuelan Ministry of 

Health contract,” but “[t]he Company was not able to ship product on the anticipated schedule 

because the prepayment under the contract was delayed.” Defendants further explained that “[t]he 

Company believes the delay was most likely due to a combination of important national elections 

that occurred in Argentina in November and Venezuela in December, Argentina’s currency 

devaluation in December[,] as well as national Christmas holidays.” As a result, Defendants stated 

that “[t]he Company now expect[ed] to receive prepayment and begin shipments in the first 

quarter of 2016,” and that the first quarter 2016 “guidance include[d] $5 million of revenue from 

Venezuela and $60 million of revenue for [fiscal year 2016] guidance.” 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 7 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

6 

18. On this revelation of a purported “delay” in the payments from the Ministry of 

Health, the price of Natus Medical common stock declined, falling from its close of $43.20 per 

share on January 8, 2016 to close at $38.25 per share on January 11, 2016, a decline of almost 

$5.00 per share, or 11%, on usually high trading of approximately 1.4 million shares, or more than 

four times the average daily volume over the preceding ten trading days. However, due to 

Defendants’ mischaracterization of the Ministry of Health’s failure to perform as a mere 

temporary “delay,” their reckless reassurances that the payments and product shipments would 

begin shortly in the first quarter of 2016, their continued inclusion of revenue from the Supply 

Contract in the Company’s revenue guidance, and Defendants’ concealment of the true terms and 

risks under the Supply Contract, including but not limited to the fact that the Ministry of Health 

had already defaulted on three separately scheduled payments, the price of Natus Medical stock 

remained artificially inflated. 

19. Indeed, on January 26, 2016, The Motley Fool noted Defendants’ preliminary 

announcement of the fourth quarter 2015 revenue miss, and cited Defendants’ explanation for the 

miss as follows: “[m]anagement blamed the miss on their expectations for $4 million in sales 

under Natus’ new contract with the Venezuelan Ministry of Health that didn’t materialize. 

Apparently, the government never made the prepayment for the contract, so Natus Medical didn’t 

ship any product.” Based on Defendants’ false reassurances, however, the article concluded on a 

positive note, “[f]ortunately, the issue seems to be worked out, so Natus has $5 million of revenue 

baked into its guidance for the current quarter [the first quarter of 2016] and $60 million for the 

full year [2016].” 

20. On January 27, 2016, Defendants issued a press release announcing final fourth 

quarter and fiscal year-end 2015 results, and reaffirming that the revenue shortfall in the fourth 

quarter of 2015 was the result of a purported “delay” in receiving prepayments under the Supply 

Contract, and that Natus Medical’s guidance depended, at least in part, on revenues from the 

Supply Contract. The press release also referred to unspecified “risks associated with [the 

Company’s] Venezuela contract[.]” Despite the supposed “delay” in payment, Defendant Hawkins 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 8 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

7 

reassured investors during a conference call the same day that “the funding is there” and that it 

was “set aside” just waiting to be paid to the Company. 

21. Following this news, and despite Defendant Hawkins’ reassurances, numerous 

analysts expressed skepticism that the Supply Contract would convey the economic benefits that 

Defendants had previously reported. For example, on January 27, 2016, William Blair reported 

that they were removing revenue from the Supply Contract from their modeling, explaining: 

As the company alluded to in its prerelease, the top line fell short of original 

guidance by about $4 million due to a delay with the implementation of a recently 

signed contract with the Venezuelan Ministry of Health. If not for a favorable tax 

rate, this ... would have caused an EPS miss in the quarter. 

Regarding Venezuela, management remains optimistic the contract will be 

executed fairly. However, it seems clear that the timing of payments and ability to 

actually record revenue from the prepayments is still uncertain and we remain 

skeptical that the full $60 million of revenue attributable to the Venezuela 

contract in 2016 will materialize this year. As a result, we continue to strongly 

advise investors to focus exclusively on the impressive performance in the base 

business. 

The company also reiterated first-quarter guidance (revenue of $96.5 million-$97.5 

million and adjusted EPS of $0.34-0.35) and 2016 guidance ($445 million-$450 

million in revenues and $1.84-$1.88 in EPS), both of which include contribution 

from Venezuela. Excluding Venezuela, guidance appears to call for 2%-4% 

revenue growth and EPS of around $1.67 or $1.68. 

(emphasis added). 

22. On this news, the price of Natus Medical stock fell once again, from its close of 

$37.15 per share on January 27, 2016 to close at $34.71 per share on January 28, 2016, a decline 

of $2.44 per share, on abnormally high trading volume. 

23. On February 29, 2016, Natus Medical filed its Annual Report on Form 10-K for the 

fiscal year ending December 31, 2015 (the “2015 Form 10-K”). The 2015 Form 10-K disclosed 

that, “[f]ollowing the announcement of [the Ministry of Health] contract, there ha[d] been 

elections in both Venezuela and Argentina leading to significant political changes in those 

countries” and “it [had been] reported that Venezuela [was] experiencing a highly inflationary 

economy and recessionary economic conditions,” stating that “[t]hese developments may impact 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 9 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

8 

the likelihood of the Venezuelan Ministry of Health’s following through with orders under the 

agreement, and Medix [Natus Medical’s Argentinian subsidiary] ha[d] not yet received any 

prepayments under the agreement and no products or services ha[d] been shipped or provided.” 

24. For the first time, Defendants made the Supply Contract itself public, attaching a 

copy to the 2015 Form 10-K as Exhibit 10.12. The Supply Contract, as attached, was unsigned. 

The Supply Contract further revealed that the approximately $69 million in prepayments by the 

Ministry of Health had been due by the end of 2015, such that approximately $24 million was due 

in October 2015, approximately $23 million was due in November 2015, and another 

approximately $23 million was due in December 2015. 

25. As revealed by the Supply Contract, and as previously unbeknownst to investors, 

the prepayments under the Supply Contract actually had been in default for months. The Company 

was not experiencing a mere one-time “delay” in payment early in the first quarter of 2016, as 

Defendants had repeatedly represented. As to Natus Medical’s ability to legally enforce the terms 

of the Supply Contract, the contract provided that it was governed solely by Venezuelan law, 

meaning that the Venezuelan government could unilaterally renege on all aspects of the 

agreement. The Venezuelan government could also, presumably, renege on a supposed contract 

that appears to never have been signed in the first place. 

26. On this news, the price of Natus Medical stock once again declined, falling from its 

close of $37.21 per share on February 26, 2016 to close at $36.32 per share on February 29, 2016. 

Because the full extent of the risks underlying the Supply Contract remained concealed from the 

market, however, the Company’s stock price continued to remain artificially inflated. 

27. Finally, on April 4, 2016, Defendants issued a press release announcing the 

Company’s preliminary first quarter 2016 results. The release disclosed that “[r]evenue for the 

first quarter of 2016 is expected to be approximately $87.5 million versus previous guidance of 

$91.5 million to $92.5 million, excluding revenue from the Venezuela Ministry of Health 

contract.” The release specifically disclosed that Natus Medical did not have “‘any revenue 

associated with the Venezuela Ministry of Health contract as [it] did not receive any prepayments 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 10 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

9 

during the quarter.’” On this news and materialization of the risk, the price of Natus Medical stock 

declined precipitously, falling from its close of $39.64 per share on April 1, 2016 to close at 

$31.84 per share on April 4, 2016, a decline of $7.80 per share, or nearly 20%, on unusually high 

trading volume of more than 2.7 million shares, or more than eight times the average daily trading 

volume over the preceding ten trading days. 

28. When the Company finally released its first quarter 2016 results on April 20, 2016, 

Defendants slashed the Company’s fiscal year 2016 guidance, finally publicly conceding that they 

could “no longer include revenue or earnings from the agreement in . . . guidance until there is 

more clarity” on Venezuela’s performance under the agreement. 

29. As a result of Defendants’ false and misleading statements as alleged herein, Natus 

Medical stock traded at artificially inflated prices during the Class Period, reaching $50.86 per 

share in intraday trading on December 18, 2015 – an all-time high. As a result of the aboverecounted revelations hitting the market, the Company’s shares were hammered by massive sales 

as the truth was revealed, causing a total price drop of approximately $19 per share, marking a 

37% decline, from the Class Period high. 

30. While public shareholder equity was hammered, Hawkins and Kennedy cashed in 

before the truth about the Supply Contract was revealed, unloading their personally held stock to 

the unsuspecting public at artificially inflated prices during the Class Period. Together, Hawkins 

and Kennedy collectively sold more than $10.7 million worth of Natus Medical stock in the days 

and weeks immediately following their false and misleading announcements regarding the Supply 

Contract. 

II. JURISDICTION AND VENUE 

31. The claims asserted herein arise under §§10(b) and 20(a) of the Exchange Act, 15 

U.S.C. §§78j(b) and 78t(a), and Rule 10b-5, 17 C.F.R. §240.10b-5. Jurisdiction is conferred by 

§27 of the Exchange Act, 15 U.S.C. §78aa. 

32. Venue is proper in this district pursuant to §27 of the Exchange Act. The acts and 

transactions giving rise to the violations of law complained of occurred and Natus Medical’s 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 11 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

10 

headquarters are located in this District. 

III. PARTIES 

33. Lead Plaintiff John Costabile, as set forth in the Certification previously filed and 

incorporated herein by reference, acquired Natus Medical common stock at artificially inflated 

prices during the Class Period and was damaged upon the revelation of the alleged corrective 

disclosures and materialization of the previously undisclosed risks. 

34. Defendant Natus Medical, based in Pleasanton, California, designs, manufactures, 

and markets newborn care and neurology healthcare products and services worldwide. During the 

Class Period, shares of Natus Medical traded in an efficient market on the NASDAQ under the 

ticker symbol “BABY.” 

35. Defendant Hawkins has served as the CEO of Natus Medical and a member of its 

Board of Directors since April 2004 and throughout the Class Period. Hawkins also served as the 

President of Natus Medical from April 2004 through January 2011, and from June 2013 

throughout the Class Period. 

36. Defendant Kennedy has served as the Senior Vice President and CFO of Natus 

Medical since April 2013 and throughout the Class Period. 

37. Defendants Hawkins and Kennedy are sometimes together referred to herein as the 

“Individual Defendants.” 

38. During the Class Period, the Individual Defendants ran Natus Medical as “handson” managers overseeing Natus Medical’s operations and finances,2

 and they made the material 

false and misleading statements described herein. The Individual Defendants had intimate 

knowledge about core aspects of Natus Medical’s financial and business operations, including its 

major contracts and revenue sources, such as the Supply Contract. Indeed, the Individual 

Defendants commented repeatedly on the status of payments purportedly due under the Supply 

 

2 See http://investor.natus.com/management-team (last visited on July 14, 2017) (representing that 

Defendant Hawkins had “highly relevant leadership experience in the medical technology 

industry” and a “unique perspective on [the Company’s] operations due to his position as [its] 

Chief Executive Officer[;]” while Defendant Kennedy had financial expertise, including as a 

Certified Public Accountant). 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 12 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

11 

Contract, and were intimately involved in deciding which disclosures would be made by Natus 

Medical. Indeed, the Individual Defendants made various public statements on behalf Natus 

Medical during the Class Period and participated in all Class Period investor conferences, wherein 

they represented to investors that they were knowledgeable on the topics about which they spoke. 

IV. PARTIES WITH KNOWLEDGE REPORT THAT THE SUPPLY CONTRACT 

WAS NOT EXECUTED BY THE MINISTRY OF HEALTH 

39. The document Defendants attached to the Company’s 2015 Form 10-K, filed with 

the SEC on February 29, 2016, and described as the “Agreement For the Acquisition of Medical 

Devices between Medix ICSA and the Ministry of Health of the Republic of Venezuela dated 

October 15, 2016” (i.e., the Supply Contract) is unsigned. A true and correct copy of the Supply 

Contract, as attached to the 2015 Form 10-K at Exhibit 10.12, is attached hereto as Exhibit A. As 

set forth herein, CW1 confirms that the Supply Contract was not executed by the Ministry of 

Health. 

40. CW1 was the Ministry of Health’s Purchasing Coordinator during the Class Period, 

from February 2016 until July 2016. As Purchasing Coordinator, CW1 was responsible for 

preparing price quotes, handling and maintaining information regarding payments due under 

contracts for purchases and services, and tracking receipt of goods and services, among other 

responsibilities. 

41. As Purchasing Coordinator, CW1 also had oversight responsibility for purchasing 

department buyers and members of the Ministry of Health’s Commission on Purchasing and 

Supplies. According to CW1, the Commission on Purchasing and Supplies advised the Health 

Minister and made recommendations on purchasing decisions, including, for example, appropriate 

pricing and selection of suppliers. The Health Minister, however, retained ultimate authority for 

negotiating final prices and other material contract terms, and for executing contracts. 

42. According to CW1, Medix/Natus Medical did not have a contract with the Ministry 

of Health during the fourth quarter of 2015 or the first quarter of 2016. As such, according to 

CW1, no payments were scheduled as due or owing by the Ministry of Health to Medix during the 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 13 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

12 

fourth quarter of 2015 or the first quarter of 2016. 

43. According to CW1, and based on information provided to CW1 by the Purchasing 

Coordinator who immediately preceded him, as well as two other individuals who were 

Purchasing Department buyers and members of the Commission on Purchasing and Supplies 

during the fourth quarter of 2015 – all individuals for whom CW1 had oversight responsibility 

when CW1 assumed the role of Purchasing Coordinator in the first quarter of 2016 – while the 

Supply Contract was substantially negotiated leading up to the fourth quarter of 2015, it was not 

actually executed by the Ministry of Health. 

V. PARTIES WITH KNOWLEDGE REPORT A HISTORY OF PROBLEMS WITH 

 VENEZUELAN CONTRACTS, INCLUDING THAT THE COMPANY’S 

 PREVIOUS CONTRACT WITH VENEZUELA – TOUTED BY DEFENDANTS 

 DURING THE CLASS PERIOD – WAS NOT TIMELY COMPLETED 

44. CW1 also reported that CW1 learned in connection with CW1’s role as Purchasing 

Coordinator that a previous contract between the Ministry of Health and Medix from in or around 

2011, a contract which was actually executed, failed to come to completion and was cancelled or 

suspended when the final amounts owing under the contract were not paid to Medix by the 

Ministry of Health. 

45. Similarly, CW2, who was Natus Medical’s Director of Operations in Argentina 

from January 2011 through February 2013, confirms that this prior contract between the Ministry 

of Health and Medix was in flux during CW2’s tenure at Natus Medical, explaining that: “The 

contract with Venezuela was always in the air. Medix was always trying to close it.” Even after 

the contract was eventually executed, CW2 reported that “there were issues with the last part of 

the payment,” and “a history of difficulties with payments with Venezuela.” 

46. CW3, a Regional Sales Manager for Natus Medical in Latin America from 2005 to 

July 2015, recalled that “payment of this contract was done one or two months before I left the 

company,” and the payment was therefore “very late – a very late payment. One or two years 

late.” 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 14 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

13 

VI. THE SUPPLY CONTRACT, IF SIGNED, WAS ESSENTIALLY 

 UNENFORCEABLE 

47. The Supply Contract states that: “all aspects relative to the interpretation, 

application, performance and compliance of this agreement, shall be ruled by the Laws of the 

Bolivarian Republic of Venezuela and the [parties] have chosen the City of Caracas as their 

special domicile for such effects[.]” See 2015 Form 10-K Exhibit 10.12 (the Supply Contract), at 

p. 23. 

48. Under these terms, Defendants had no means of effectively enforcing their rights 

under the Supply Contract since Venezuela was the exclusive forum for dispute resolution and the 

Venezuelan government was a party to the contract. This is particularly true in light of the 

turbulent legal, political, and economic systems in Venezuela. For example, the International 

Commission of Jurists (“ICJ”) identified “key deficiencies in the Venezuelan legal system, which 

threaten the rule of law,” and issued a 2014 report documenting “failures by the authorities, as 

well as interference, intimidation, arbitrary suspensions and other pressures, that have undermined 

the independence and impartiality of the country’s judges and prosecutors, and the ability of 

lawyers to be effective and independent in upholding people’s rights.”3

49. Additionally, in Venezuela, contracts tentatively agreed to by one minister were 

unlikely to be honored by his or her successor. As CW1 – the Ministry of Health’s Purchasing 

Coordinator during the Class Period, from February 2016 until July 2016 – explained: “Here 

things happen in a different way. The minister leaves and everything that he does that isn’t 

invoiced gets lost – if the money is not committed. One thing is a promise to do a contract and 

another thing is a contract.” Thus, with elections around the corner and an unsigned contract in the 

fourth quarter of 2015, Defendants knew or recklessly disregarded the significant risk that 

fulfillment of the Supply Contract would never come to fruition. 

VII. MATERIALLY FALSE AND MISLEADING CLASS PERIOD STATEMENTS 

50. The Class Period starts on October 16, 2015, when Natus Medical filed a Current 

 

3 See ICJ, VENEZUELA: WEAK LEGAL SYSTEM THREATENS DEMOCRACY, available at 

https://www.icj.org/venezuela-weak-legal-system-threatens-democracy-and-human-rightsreforms-urgently-needed-new-report-says/ (last visited July 14, 2017). 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 15 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

14 

Report on Form 8-K with the SEC, signed by Defendant Kennedy, attaching a press release which 

announced that on October 15, 2015, the Company had, through its Medix subsidiary, “entered 

into a supply agreement with the Ministry of Health of Venezuela (‘Ministry of Health’) to 

provide medical equipment, supplies and services over a three-year period, including certain third 

party products.” The press release purported to describe the terms of the Supply Agreement, 

stating in relevant part: 

Under the terms of the Supply Agreement, products and services will be delivered 

pursuant to prepayments made by the Ministry of Health. Prepayments totaling 

approximately $69 million are expected by the first quarter of 2016. Payments 

will be received in Argentine Pesos based on the current exchange rate of the U.S. 

dollar and the Argentine Peso at the time of payment. The agreement may be 

cancelled at any time by the Ministry of Health except for the amount of any 

prepayments. If fully performed, the total sales under the agreement would 

aggregate $232.5 million. 

(emphasis added). 

51. The above-quoted statements from the October 16, 2015 Form 8-K and press 

release were materially false or misleading because Defendants misrepresented and failed to 

disclose that: (i) pursuant to the terms of the Supply Contract, three independent pre-payments 

were separately due in October, November, and December 2015, not, as Defendants had vaguely 

represented, “the first quarter of 2016[;]” (ii) the Ministry of Health apparently did not sign the 

Supply Contract in October 2015, and thus, did not give its final agreement to the contract’s terms 

or agree to make any payments under the contract; and (iii) even if the Supply Contract were 

signed, Defendants had no means of effectively enforcing the Company’s rights under the Supply 

Contract since Venezuela was the exclusive forum for dispute resolution and the Venezuelan 

government was a party to the contract. 

52. Additionally, Defendants’ misleading description of the pre-payment terms of the 

Supply Contract violated Item 1.01 of the Instructions to SEC Form 8-K and the SEC’s 

interpretive releases mandate, which requires the disclosure of the material terms of any “Material 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 16 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

15 

Definitive Agreement” entered into by issuers within four business days.4 These rules also state 

that the SEC “encourage[s] companies to file the [contract as an] exhibit with the Form 8-K when 

feasible, particularly when no confidential treatment is requested.”5 Contrary to this directive, 

Defendants failed to make the Supply Contract available to investors until February 29, 2016, 

when it was attached as Exhibit 10.12 to the Company’s 2015 Form 10-K, and only after the 

prepayments supposedly due under the Supply Contract were months in default. See ¶ 92, infra. 

53. On October 21, 2015, Natus Medical filed a Current Report on Form 8-K with the 

SEC, signed by Defendant Kennedy, attaching a press release and announcing the Company’s 

third quarter 2015 results. Defendants increased the Company’s fourth quarter and full-year 2015 

revenue guidance based on the Supply Contract, and Defendant Hawkins was quoted as 

commenting positively on the Supply Contract, stating in relevant part: 

I am most satisfied that we achieved a 20% non-GAAP operating profit margin 

during the quarter and am now confident that we will exceed our full year nonGAAP operating margin goal of 18%. We are increasingly confident that we can 

achieve and potentially exceed our long term operating margin goal of 20% in 

2016 ... In addition to our record performance during the quarter, we recently 

secured a $232.5 million, three-year agreement between our Argentina 

subsidiary, Medix, and the Venezuelan Ministry of Health. This agreement will 

provide over fifty hospitals with a broad range of obstetric and neonatal devices, 

supplies and services including more than $50 million of Medix and Natus 

equipment and supplies. 

* * * 

For the fourth quarter of 2015, the Company increased its revenue guidance to 

$102.0 million to $105.0 million and guided non-GAAP earnings per share of 

$0.47 to $0.49. 

Full year 2015 earnings guidance was increased with expected non-GAAP 

earnings per share of $1.51 to $1.53. Full year 2015 revenue guidance also 

increased to $378 million to $381 million compared to previous guidance of $376 

million to $378 million. 

(emphasis added). 

 

4 See Form 8-K, Item 1.01 of General Instructions, Information to be Included in the Report, at 

p.4; see also Final Rule: Additional Form 8-K Disclosure Requirements and Acceleration of Filing 

Date, 69 F.R. 15594, at 15597 (Mar. 25, 2004). 

5 See Final Rule, 69 F.R., at 15597, supra n. 4. 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 17 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

16 

54. The above-quoted statements from the October 21, 2015 Form 8-K and press 

release were materially false or misleading because Defendants misrepresented and failed to 

disclose that: (i) the Ministry of Health apparently did not sign the Supply Contract in October 

2015, and thus, did not give its final agreement to the contract’s terms or agree to make any 

payments under the contract; and (ii) even if the Supply Contract were signed, Defendants had no 

means of effectively enforcing the Company’s rights under the Supply Contract since Venezuela 

was the exclusive forum for dispute resolution and the Venezuelan government was a party to the 

contract. As a result of the foregoing, there existed facts tending to seriously undermine the 

Company’s financial guidance, which was based, at least in part, on revenues supposedly expected 

from the Supply Contract. 

55. On October 21, 2015, Defendants also held a conference call with analysts and 

investors to discuss the Company’s earnings and operations. During the conference call, 

Defendants reiterated that the Supply Contract would positively impact the Company’s financial 

results, with Defendant Hawkins stating in relevant part: 

Last Friday we announced that Medix, our Argentine subsidiary, signed a threeyear agreement with the Ministry of Health of Venezuela for $232.5 million to 

supply Venezuela with neonatal and obstetric equipment supplies and services. As 

stated in our filing, we are to receive three payments totaling $69 million by the 

end of the first quarter of 2016. Prepayments are to continue throughout the 

contract period as we fulfill our requirements. We expect to commence on this 

contract in our fourth quarter, but revenue is expected to be minimal in the fourth 

quarter. 

(emphasis added). 

56. The above-quoted statements from the October 21, 2015 conference call were 

materially false or misleading because Defendants misrepresented and failed to disclose that: (i) 

pursuant to the terms of the Supply Contract, three independent pre-payments were separately due 

in October, November, and December 2015, not, as Defendant Hawkins had represented, “by the

end of the first quarter of 2016[;]” (ii) the Ministry of Health apparently did not sign the Supply 

Contract in October 2015, and thus, did not give its final agreement to the contract’s terms or 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 18 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

17 

agree to make any payments under the contract; and (iii) even if the Supply Contract were signed, 

Defendants had no means of effectively enforcing the Company’s rights under the Supply 

Contract since Venezuela was the exclusive forum for dispute resolution and the Venezuelan 

government was a party to the contract. 

57. Defendant Hawkins further misrepresented the Supply Contract in response to 

analyst questioning during the October 21, 2015 conference call. For example: 

Roth Capital Partners: I wanted to start on the Venezuelan contract; hoping you 

could provide a little bit more color just on how we should think about that 

contract contributing next year, both in terms of revenues and earnings, and the 

cadence of when those prepayments expected by the first quarter will be 

recognized as revenues throughout 2016. 

Defendant Hawkins: [I]t will probably be fairly even throughout the three years 

... We expect to receive some payments here by the end of the year, to start 

those three payments totaling the $69 million. And then to – most likely those 

would extend into the first quarter of next year ... As we – way this contract is, 

we’re going to be prepaid throughout the entire contract. So we’ll ship after we 

get prepaid. We’ll get more prepayments, and it will have that kind of cadence. 

(emphasis added). 

58. The above-quoted statements from the October 21, 2015 conference call were 

materially false or misleading because Defendant Hawkins misrepresented and failed to disclose 

that: (i) pursuant to the terms of the Supply Contract, three individual pre-payments were 

separately due in October, November, and December 2015, not, as Hawkins had represented, 

“some payments...by the end of the year” and “extend[ing] into the first quarter of next year[;]” 

(ii) the Ministry of Health apparently did not sign the Supply Contract in October 2015, and thus, 

did not give its final agreement to the contract’s terms or agree to make any payments under the 

contract; and (iii) even if the Supply Contract were signed, Defendants had no means of 

effectively enforcing the Company’s rights under the Supply Contract since Venezuela was the 

exclusive forum for dispute resolution and the Venezuelan government was a party to the contract. 

59. Also during the October 21, 2015 conference call, Defendant Hawkins confirmed 

that revenue from the Supply Contract had factored into the Company’s fourth quarter 2015 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 19 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

18 

guidance, stating that “we put in a couple million dollars in there,” but claiming that this estimate 

and the forecasted economic impact of the Supply Contract was “conservative,” and that “[i]t’s 

sort of a practice of ours anyway. We’d rather be on the conservative side, and if we do better, 

great.” (emphasis added). 

60. The above-quoted statements from the October 21, 2015 conference call were 

materially false and misleading because Defendant Hawkins misrepresented and failed to disclose 

that: (i) far from conservatively forecasting revenue, Defendants had included revenue from a 

contract that was, apparently, not even signed; and (ii) even if the Supply Contract were signed, 

Defendants had no means of effectively enforcing their rights under the Supply Contract since 

Venezuela was the exclusive forum for dispute resolution and the Venezuelan government was a 

party to the contract. As a result of the foregoing, there existed facts tending to seriously 

undermine the Company’s financial guidance. 

61. Continuing to tout the economic benefits of the Supply Contract, Defendant 

Kennedy stated: 

The other comment to make about this, this isn’t the first contract with 

Venezuela that Medix has entered into. So this is a continuation of an ongoing 

relationship. While it’s lumpy, it comes over the course of several years. The 

orders are typically very large, and stretch out over many years. So when we 

acquired Medix in 2010, they had just completed, I want to say, about a $100 

million deal with Venezuela. So there is an ongoing relationship between Medix 

and other South American countries that is valuable. 

(emphasis added). 

62. The above-quoted statements from the October 21, 2015 conference call were 

materially false or misleading because Defendants misrepresented and failed to disclose that the 

prior $100 million deal with Venezuela did not successfully reach completion; rather, that contract 

had been suspended or cancelled before its fulfillment when the final amounts owed under the 

contract were not timely paid by the Ministry of Health. See ¶¶ 44-46, supra. 

63. Finally, during the October 21, 2015 conference call, in response to an analyst 

question regarding currency exchange risk, Defendant Kennedy assured investors that the currency 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 20 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

19 

risk of dealing with a South American buyer was supposedly “minimal,” because: 

The thing that’s the most protective on us here is that we do get – the contract is 

denominated in dollars, and our payment is a dollar-denominated payment. So 

over time, we will be recognizing – we’re taking prepayments in a constant 

currency. Once we convert the currency into pesos to pay our vendors and 

employees, then we will take the currency risk, to the extent that that peso stays on 

our balance sheet. 

But our intent would be to time that to go equally timed, so that as we’re 

collecting pesos we’re paying pesos, and it minimizes the currency risk. But there 

is some risk, although I’d call it minimal. 

(emphasis added). 

64. The above-quoted statements from the October 21, 2015 conference call ensuring 

that payment was to be made in dollars were materially false or misleading because Defendants 

misrepresented and failed to disclose that payment under the Supply Contract was, in fact, 

“payable in Argentinian Pesos at the current exchange rate for the effective day of payment” (see 

Exhibit 10.12, the Supply Contract, at Clause Fourth: Of the Form of Payment”), thereby 

introducing currency exchange risk into any payments made under the Supply Contract. 

65. On November 19, 2015, Defendant Hawkins presented for Natus Medical at the 

Jefferies Autumn Global Healthcare Conference. Opening his remarks, Defendant Hawkins 

reiterated the guidance provided on October 21, 2015, stating: “[t]o look at our financials, which 

we are very proud of, we’ve been able to show very consistent revenue growth over the last few 

years. And we have guided to almost $380 million mid guidance this year.” (emphasis added). 

Further, expressly lauding the supposedly lucrative Supply Contract, Defendant Hawkins stated: 

We also recently announced a major contract, supply agreement, with Venezuela 

where our Argentine subsidiary received a $232 million agreement to supply 

medical products and services to Venezuela over a three-year period. Not only is 

this for our products, but a variety of newborn care and obstetric products to service 

over 50 hospitals in Venezuela. 

You can see that the Natus products represent about $50 million and the other 

products that we will be bringing in and then also the service, warranty, installation 

and all that is for the rest of the contract. It is a very exciting piece of business. We 

will be paid up front as we go on this business. 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 21 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

20 

We are looking to get our first payment in by the end of the year, and those 

payments would continue throughout the life of the contract. 

(emphasis added). 

66. The above-quoted statements from the November 19, 2015 Jefferies Autumn 

Global Healthcare Conference were materially false and misleading because Defendant Hawkins 

misrepresented and failed to disclose that: (i) pursuant to the terms of the Supply Contract, three 

independent pre-payments were separately due in October, November, and December 2015, not, 

as Defendant Hawkins had represented, the “first payment [] by the end of the year[;]”; (ii) while 

Hawkins promised that the Company would be “paid up front” under the contract, he failed to 

disclose that the Ministry of Health was already late on its first pre-payment under the terms of the 

Supply Contract, and the cut-off for the second pre-payment was swiftly approaching; (iii) it was 

exceedingly unlikely that “payments would continue throughout the life of the contract” given that 

the Ministry of Health apparently had not signed the Supply Contract, and thus, had not finally 

agreed to its terms or agreed to make any payments; and (iv) even if the Supply Contract were 

signed, Defendants had no means of effectively enforcing their rights under the Supply Contract 

since Venezuela was the exclusive forum for dispute resolution and the Venezuelan government 

was a party to the contract. 

67. During the November 19, 2015 Jefferies Autumn Global Healthcare Conference, 

Defendant Hawkins responded to a Jefferies analyst who directly questioned the likelihood of 

payment under the Supply Contract, stating: 

Jefferies: So, when you receive this $200 million plus contract how certain are 

you that [Venezuela is] going to be able to perform against that contract and 

that you will actually receive those monies over the next three years? 

Hawkins: Yes, so, always a potential risk with any contract. The one thing I 

would say with this one, before we bought our subsidiary, which is located in 

Buenos Aires, which is who received this order, a company called Medix, they 

had received an $82 million order maybe seven years ago and it came through 

just fine. The money showed up as expected, and it did happen. 

So, we have pretty good confidence that it should happen. We have been told the 

money is set aside, and we are looking to get our first payment here by the end of 

December. 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 22 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

21 

(emphasis added). 

68. The above-quoted statements from the November 19, 2015 Jefferies Autumn 

Global Healthcare Conference were materially false and misleading because Defendant Hawkins 

misrepresented and failed to disclose that: (i) pursuant to the terms of the Supply Contract, three 

independent pre-payments were separately due in October, November, and December 2015, not, 

as Defendant Hawkins had represented, the “first payment [] by the end of December[;]”; (ii) the 

Ministry of Health was already late on its first pre-payment under the terms of the Supply 

Contract, and the deadline for the second pre-payment was swiftly approaching; (iii) it was 

exceedingly unlikely that the “money [was] set aside” given that the Ministry of Health apparently 

had not signed the Supply Contract, and thus, had not finally agreed to its terms; and (iv) even if 

the Supply Contract were signed, Defendants had no means of effectively enforcing their rights 

under the Supply Contract since Venezuela was the exclusive forum for dispute resolution and the 

Venezuelan government was a party to the contract. Further, Defendant Hawkins misled investors 

by touting that Medix had received an $82 million order approximately seven years prior that 

“came through just fine.” Instead, Venezuela had a history of reneging on contracts with Medix, as 

evidenced by the fact that the previous contract, touted by Defendants as establishing a good 

history of dealing to support their optimism that the Supply Contract would be paid, was in fact 

suspended or cancelled due to the Ministry of Health’s failure to timely make payment. See ¶¶ 44-

46, supra. 

69. During the November 19, 2015 Jefferies Autumn Global Healthcare Conference, 

Defendant Hawkins continued to represent that the Supply Contract would positively impact the 

Company’s financial results, stating: “with Venezuela we are going to have rate growth ... So, we 

are quite happy overall of just keeping to what we are doing and growing the business and 

growing earnings.” (emphasis added). 

70. The above-quoted statements from the November 19, 2015 Jefferies Autumn 

Global Healthcare Conference were materially false and misleading because Defendant Hawkins 

misrepresented and failed to disclose that: (i) pursuant to the terms of the Supply Contract, preCase 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 23 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

22 

payments were due in October, November, and December 2015; (ii) the Ministry of Health was 

already late on its first pre-payment under the terms of the Supply Contract, and the deadline for 

the second pre-payment was swiftly approaching; (iii) the Ministry of Health apparently had not 

signed the Supply Contract, and thus, had not finally agreed to its terms; (iv) even if the Supply 

Contract were signed, Defendants had no means of effectively enforcing their rights under the 

Supply Contract since Venezuela was the exclusive forum for dispute resolution and the 

Venezuelan government was a party to the contract; and (v) as a result of the foregoing, there 

existed facts tending to seriously undermine the Company’s expectation of “growing earnings” as 

a result of the Supply Contract. 

71. On December 1, 2015, Defendant Hawkins presented for Natus Medical at the 

Piper Jaffray Healthcare Conference, during which he opened his remarks by stating: “[y]ou can 

see that our revenues have been growing nicely, and we’ve guided this year to $378 million to 

$381 million.” (emphasis added). Defendant Hawkins proceeded to, again, laud the allegedly 

lucrative and financially important Supply Contract, stating: 

Another announcement that we recently made: we have a very large order that we 

received from Venezuela totaling $232.5 million for newborn and obstetric 

equipment along with supplies and service for over 50 hospitals in Venezuela. This 

is an order that will be over three years. We have a Venezuelan partner that will be 

responsible for doing all the installation, training, and service and we’re going to be 

the ones selling our products along with purchasing other products. 

As you can see from the graph here, approximately $51 million is products that 

Natus manufacturers, with the remainder being other people’s products. And that 

also then breaks down into equipment, supplies, and services, as you can see in the 

bar chart. 

We look for some of these revenues to start in December. We expect to get our 

first $23 million payment in the weeks ahead and then we’ll be prepaid on all of 

this as we go forward on a rolling basis. It’s quite a big order for us and we are 

very excited to not only have it ourselves, but also for the babies and mothers in 

Venezuela. 

72. The above-quoted statements from the December 1, 2015 Piper Jaffray Healthcare 

Conference were materially false and misleading because: (i) pursuant to the terms of the Supply 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 24 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

23 

Contract, three independent pre-payments were separately due in October, November, and 

December 2015, not, as Defendants had represented, the “first $23 million payment in the weeks 

ahead”; (ii) the Ministry of Health was already late on both its first and second pre-payments 

under the terms of the Supply Contract, to the tune of an approximately $47 million default (i.e., 

payments representing over 20% of the entire value of the Supply Contract were already late when 

Hawkins was promising the “first” payment would be shortly forthcoming); (iii) the Ministry of 

Health apparently had not signed the Supply Contract, and thus, had not finally agreed to its terms; 

(iv) even if the Supply Contract were signed, Defendants had no means of effectively enforcing 

their rights under the Supply Contract since Venezuela was the exclusive forum for dispute 

resolution and the Venezuelan government was a party to the contract; and (v) as a result of the 

foregoing, there existed facts tending to seriously undermine the Company’s financial guidance. 

73. Later, during the Q&A session of the December 1, 2015 Piper Jaffray Healthcare 

Conference, Defendant Hawkins gave “a little more color” on the Supply Contract “and certainty 

of revenue,” without disclosing the fact that the Venezuelan government had already failed to 

make in prepayments under the Supply Contract and that the Company had no means of enforcing 

the Supply Contract. Similarly, instead of disclosing the fact that the Supply Contract was 

contingent on political and economic circumstances in Venezuela, Defendant Hawkins claimed 

that Venezuela was following through on a “commitment” to make the required payments, stating 

in pertinent part as follows: 

Sure. The question was for those that are listening on the Venezuela contract, a 

little more color on that and the certainty of revenue. How are we going to get paid 

and all of that. 

Well, certainly, it’s a very interesting situation. The order has come through our 

Argentinean subsidiary, which is one of the largest, if not the largest, medical 

device company in Argentina. Argentina has a very strong relationship with 

Venezuela that Argentina historically has had a commitment: whenever they buy 

oil outside of Argentina, they buy it from Venezuela. And Venezuela has said 

whenever we buy medical devices, when appropriate, we’ll buy them through 

Argentina. 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 25 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

24 

And with that, there’s been this balance of trade situation that Argentina has bought 

a lot more oil than Venezuela has bought medical devices. So it’s now such that 

Venezuela is now exercising this commitment to fund the medical device 

purchases. 

The money is being [sic] that we are receiving for this purchase is all in US dollars. 

And there always is some potential currency risk as we transfer those dollars into 

Argentine pesos to do the purchasing and delivering of product. But overall, over 

this three-year period, we are convinced it’s going to be a good piece of business 

for us. 

It will have average corporate margins of 18% to 20%. And although the gross 

profits won’t be near that, but the bottom line operating margin should be the same. 

So we are quite encouraged. We’re expecting to get payment here in the next few 

weeks and looking for this to kick off, Bill. 

(emphasis added). 

74. The above-quoted statements from the December 1, 2015 Piper Jaffray Healthcare 

Conference were materially false and misleading because: (i) pursuant to the terms of the Supply 

Contract, pre-payments were due in October, November, and December 2015, not, as Defendants 

had represented, payment “in the next few weeks[;]” (ii) the Ministry of Health was already late 

on both its first and second pre-payments under the terms of the Supply Contract, and the deadline 

for its third and final pre-payment was swiftly approaching; (iii) it was exceedingly unlikely that 

the “Venezuela [was] now exercising this commitment to fund the medical device purchases” 

given that the Ministry of Health apparently had not signed the Supply Contract, and thus, had not 

finally agreed to its terms; and (iv) even if the Supply Contract were signed, Defendants had no 

means of effectively enforcing their rights under the Supply Contract since Venezuela was the 

exclusive forum for dispute resolution and the Venezuelan government was a party to the contract. 

Further, Defendants misled investors by touting a relationship between Venezuela and Argentina, 

where Medix is located, when Venezuela had previously failed to pay amounts owed to Medix 

under a similar contract, resulting in the suspension and cancellation of that contract. See ¶¶ 44-46, 

supra. 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 26 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

25 

VIII. UNDISCLOSED RISKS MATERIALIZE AND THE TRUTH ABOUT THE 

SUPPLY CONTRACT EMERGES THROUGH A SERIES OF PARTIAL, YET 

STILL MISLEADING, DISCLOSURES 

75. On January 11, 2016, Natus Medical filed a Current Report on Form 8-K with the 

SEC, signed by Defendant Kennedy, attaching a press release announcing its first quarter and 

fiscal year 2016 financial guidance, which revealed that Venezuela had not made any expected 

payments under the Supply Contract due to a purported “delay,” which caused Natus Medical to 

miss its earnings guidance: 

For the full year 2016, the Company expects to report revenue of $445 million to 

$450 million and non-GAAP earnings per share of $1.84 to $1.88. For the first 

quarter of 2016, the Company expects to report revenue of $96.5 million to $97.5 

million and non-GAAP earnings per share of $0.34 to $0.35, an increase of 10% to 

13% over the first quarter of 2015 non-GAAP earnings per share of $0.31. 

The Company expects to report revenue of approximately $100.0 million for the 

fourth quarter of 2015, compared to prior guidance of $102.0 million to $105.0 

million and full year 2015 revenue of $375.9 million compared to prior guidance of 

$378.0 million to $381.0 million. The guidance provided by the Company in 

October for the fourth quarter of 2015 included expected revenue of 

approximately $4 million under the new Venezuelan Ministry of Health contract. 

The Company was not able to ship product on the anticipated schedule because 

the prepayment under the contract was delayed. The Company believes the delay 

was most likely due to a combination of important national elections that occurred 

in Argentina in November and Venezuela in December, Argentina’s currency 

devaluation in December as well as national Christmas holidays. The Company 

now expects to receive prepayment and begin shipments in the first quarter of 

2016. The first quarter 2016 guidance includes $5 million of revenue from 

Venezuela and $60 million of revenue for the full year guidance. 

(emphasis added). 

76. On this revelation, the price of Natus Medical common stock declined, falling from 

its close of $43.20 per share on January 8, 2016 to close at $38.25 per share on January 11, 2016, a 

decline of almost $5, or 11%, on usually high trading of approximately 1.4 million shares, or more 

than four times the average daily volume over the preceding ten trading days. 

77. Notwithstanding the partial disclosure and partial materialization of risk, 

Defendants’ statements in the January 11, 2016 Form 8-K and press release, including their 

mischaracterization of the Ministry of Health’s failure to perform as a mere “delay,” were 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 27 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

26 

materially false and misleading because: (i) pursuant to the terms of the Supply Contract, three 

independent pre-payments were separately due in October, November, and December 2015, and 

thus, more than just the first pre-payment—which Defendants represented they now “expect[ed] to 

receive ... in the first quarter of 2016”—was delayed; (ii) the Ministry of Health was actually late 

on all three of its pre-payments under the terms of the Supply Contract; (iii) the Ministry of Health 

apparently had not signed the Supply Contract, and thus, had not finally agreed to its terms; (iv) 

even if the Supply Contract were signed, Defendants had no means of effectively enforcing their 

rights under the Supply Contract since Venezuela was the exclusive forum for dispute resolution 

and the Venezuelan government was a party to the contract; and (v) as a result of the foregoing, 

there existed facts tending to seriously undermine the Company’s financial guidance, which 

continued to include $5 million of revenue from the Supply Contract in first quarter 2016 guidance 

and $60 million of revenue from the Supply Contract in full year guidance. As a result of the 

foregoing, the stock price remained artificially inflated. 

78. Analysts believed, and repeated, Defendants’ false narrative. For instance, Roth 

Capital Partners’ “Company Note” issued on January 12, 2016, referred to a “delay with [the 

Company’s] Venezuela contract” and stated that, “[w]hile Venezuela remains an uncertainty, 

management is confident shipments will begin in 1Q.” (emphasis added). 

79. Similarly, on January 20, 2016, Roth published a “FLASH NOTE” entitled “BABY 

4Q Preview: Preannouncement Should Leave Little Surprise,” in which Roth stated that it 

received the following additional reassurances from Natus Medical’s management: 

 Based on our discussions, management remains confident the contract 

should begin this quarter after political elections in Argentina and 

Venezuela, along with the Argentinian currency devaluation, all of which 

occurred in 4Q, caused the delay. 

 Management has assumed it will receive Venezuelan prepayments by the 

end of February and begin shipping on the contract thereafter, which 

would allow Natus to record ~$5 million of revenues in 1Q and remain on 

track with the $60 million revenue assumption imbedded in its 2016 

guidance. 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 28 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

27 

80. Next, On January 27, 2016, Natus Medical filed a Current Report on Form 8-K 

with the SEC, signed by Defendant Kennedy, attaching a press release reaffirming that the revenue 

shortfall in the fourth quarter of 2015 was a result of the purported “delay” in receiving 

prepayments under the Supply Contract, and that Natus Medical’s guidance depended on revenues 

from the Supply Contract. The release also disclosed unspecified “risks associated with our 

Venezuela contract.” 

81. The above-quoted statements in the January 27, 2016 Form 8-K and press release, 

including Defendants’ mischaracterization of the Ministry of Health’s failure to perform as a mere 

“delay,” were materially false and misleading because: (i) pursuant to the terms of the Supply 

Contract, three independent pre-payments were separately due in October, November, and 

December 2015, and thus, the Ministry of Health was actually late on all three of its pre-payments 

under the terms of the Supply Contract; (ii) the Ministry of Health apparently had not signed the 

Supply Contract, and thus, had not finally agreed to its terms; (iii) even if the Supply Contract 

were signed, Defendants had no means of effectively enforcing their rights under the Supply 

Contract since Venezuela was the exclusive forum for dispute resolution and the Venezuelan 

government was a party to the contract; and (iv) as a result of the foregoing, there existed facts 

tending to seriously undermine the Company’s financial guidance, which continued to included 

revenue from the Supply Contract. As a result of the foregoing, the stock price remained 

artificially inflated. 

82. Also on January 27, 2016, Natus Medical held a conference call with analysts and 

investors to discuss the press release, during which Defendant Hawkins acknowledged that, “[a]s 

previously announced, the guidance ... provided in October 2015 included expected revenue of 

approximately $4 million under the new $232 million Venezuela Ministry of Health contract to 

supply neonatal and obstetric equipment,” but claimed that the Company “did not ship product on 

the anticipated schedule because the prepayment under the contract was delayed.” Later in the call, 

Defendant Hawkins confirmed that “[t]he first-quarter revenue guidance include[d] approximately 

$5 million from the Venezuela contract” and that the “[f]ull-year revenue guidance include[d] 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 29 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

28 

approximately $60 million from the Venezuela contract.” Defendant Hawkins concluded his 

opening remarks by continuing to emphasize the importance of the Supply Contract, again stating: 

“the large order from Venezuela uniquely positions Natus for an exciting future.” (emphasis 

added). 

83. The above-quoted statements from the January 27, 2016 conference call, including 

Defendants’ mischaracterization of the Ministry of Health’s failure to perform as a mere “delay” 

and the Company’s continued inclusion of revenue from the Supply Contract in its financial 

guidance, were materially false and misleading for the same reasons as set forth in ¶ 81, supra. 

84. Later, when asked by an analyst during the January 27, 2016 conference call, 

“[w]hat gives you confidence that that contract will begin this quarter,” Defendant Hawkins 

reiterated that he was “very confident that this business will happen” (emphasis added). 

Similarly, Defendant Hawkins responded “yes” to an analyst who questioned whether it was “safe 

to assume guidance implies about $0.20 in earnings from Venezuela this year” (emphasis 

added); later representing that the Company “look[ed] to grow, hopefully, faster than we’ve 

guided, and also earnings” (emphasis added). 

85. The above-quoted statements from the January 27, 2016 conference call were 

materially false and misleading because: (i) pursuant to the terms of the Supply Contract, three 

independent pre-payments were separately due in October, November, and December 2015; (ii) 

the Ministry of Health was therefore late on all three of its pre-payments under the terms of the 

Supply Contract, and Defendants had no reasonable basis to assert that they were “very confident 

that this business will happen[;]” (iii) the Ministry of Health apparently had not signed the Supply 

Contract, and thus, had not finally agreed to its terms; (iv) even if the Supply Contract were 

signed, Defendants had no means of effectively enforcing their rights under the Supply Contract 

since Venezuela was the exclusive forum for dispute resolution and the Venezuelan government 

was a party to the contract; and (v) as a result of the foregoing, there existed facts tending to 

seriously undermine the Company’s financial guidance, which included revenue from the Supply 

Contract, as well as Defendants’ hope that Natus Medical would grow even “faster than we’ve 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 30 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

29 

guided.” As a result of the foregoing, the stock price remained artificially inflated. 

86. Defendant Kennedy provided similar assurances as to the economic benefits of the 

Supply Contract, when, during the January 27, 2016 conference call, he responded to an analyst’s 

question by stating: “The operating piece we can pretty much predict. If I had a gun to my head 

and had to predict, it’s probably in the mid-40%s for a gross profit margin, and Jim said just 

under 20% for the operating.” (emphasis added). 

87. The above-quoted statement from the January 27, 2016 conference call was 

materially false and misleading because: (i) pursuant to the terms of the Supply Contract, three 

independent pre-payments were separately due in October, November, and December 2015, and 

Ministry of Health was therefore late on all three of its pre-payments; (ii) the Ministry of Health 

apparently had not signed the Supply Contract, and thus, had not finally agreed to its terms; (iii) 

even if the Supply Contract were signed, Defendants had no means of effectively enforcing their 

rights under the Supply Contract since Venezuela was the exclusive forum for dispute resolution 

and the Venezuelan government was a party to the contract; and (iv) as a result of the foregoing, 

there existed facts tending to seriously undermine Defendants’ prediction that the Supply Contract 

would be “in the mid-40%s for a gross profit margin” and “just under 20% for the operating.” As a 

result of the foregoing, the stock price remained artificially inflated. 

88. Despite Defendants’ numerous assurances, following the release of the Form 8-K 

and the conference call, numerous analysts expressed skepticism that the Supply Contract would 

convey the economic benefits that Defendants had previously reported. For instance, stock 

research analysts from William Blair stated in their January 27, 2016 research report that while 

they still held out hope the Ministry of Health prepayments would come in, they were removing 

them from their modeling, stating: 

As the company alluded to in its prerelease, the top line fell short of original 

guidance by about $4 million due to a delay with the implementation of a recently 

signed contract with the Venezuelan Ministry of Health. . . . 

Regarding Venezuela, management remains optimistic the contract will be 

executed fairly. However, it seems clear that the timing of payments and ability to 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 31 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

30 

actually record revenue from the prepayments is still uncertain and we remain 

skeptical that the full $60 million of revenue attributable to the Venezuela 

contract in 2016 will materialize this year. As a result, we continue to strongly 

advise investors to focus exclusively on the impressive performance in the base 

business. 

The company also reiterated first-quarter guidance (revenue of $96.5 million-$97.5 

million and adjusted EPS of $0.34-0.35) and 2016 guidance ($445 million-$450 

million in revenues and $1.84-$1.88 in EPS), both of which include contribution 

from Venezuela. Excluding Venezuela, guidance appears to call for 2%-4% 

revenue growth and EPS of around $1.67 or $1.68. 

(emphasis added). 

89. On this news, the price of Natus Medical stock fell once again, from its close of 

$37.15 per share on January 27, 2016 to close at $34.71 per share on January 28, 2016, a decline 

of $2.44 per share, on abnormally high trading volume. 

90. However, as a result of the false and misleading statements set forth in ¶¶ 80, 82, 

84, 86, supra, the stock price remained artificially inflated. 

91. On February 29, 2016, Natus Medical filed the 2015 Form 10-K, disclosing that, 

“[f]ollowing the announcement of [the Ministry of Health] contract, there ha[d] been elections in 

both Venezuela and Argentina leading to significant political changes in those countries” and “it 

[had been] reported that Venezuela [was] experiencing a highly inflationary economy and 

recessionary economic conditions,” stating that “[t]hese developments may impact the likelihood 

of the Venezuelan Ministry of Health’s following through with orders under the agreement, and 

Medix ha[d] not yet received any prepayments under the agreement and no products or services 

ha[d] been shipped or provided.” The 2015 Form 10-K stated that if “the Venezuelan Ministry of 

Health does not make the required prepayments to initiate deliveries under the Medix agreement, 

we will not receive any benefit from it.” 

92. For the first time, the Company attached a copy of the Supply Contract as Exhibit 

10.12 to the 2015 Form 10-K, which disclosed that the $69 million in prepayments by the Ministry 

of Health were due by the end of 2015, including more than $24 million that was due in October 

2015, approximately $23 million that was due in November, and another approximately $23 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 32 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

31 

million that was due in December 2015, and thus, the pre-payments had been past due for 

months, not simply since the first quarter of 2016 as Defendants had previously misrepresented. 

93. Moreover, as to Defendants’ ability to legally enforce the terms of the Supply 

Contract, the Supply Contract provided that “all aspects relative to the interpretation, application, 

performance and compliance of this Agreement, shall be ruled by the Laws of the Bolivarian 

Republic of Venezuela and the [parties] have chosen the City of Caracas as their special domicile 

for such effects[.]” This choice of law provision rendered the Supply Contract essentially 

unenforceable by Natus Medical against the Venezuelan government, which was itself a party to 

the contract. See ¶¶ 47-49, supra. 

94. Additionally, the Supply Contract attached as Exhibit 10.12 to the 2015 Form 10-K 

is unsigned, and CW1 confirms that the Supply Contract was not executed by the Ministry of 

Health. See ¶¶ 39-43, supra. Accordingly, Defendants could not enforce a contract that never 

existed in the first place. 

95. On this news, the price of Natus Medical stock once again declined, falling from its 

close of $37.21 per share on February 26, 2016 to close at $36.32 per share on February 29, 2016. 

96. However, despite the disclosures in ¶¶ 91-93 , supra, the full extent of the risks 

underlying the Supply Contract remained concealed from the market, and the Company’s stock 

price continued to remain artificially inflated. 

97. Next, on a March 14, 2016, the Individual Defendants presented at the Roth 

investor conference call. During the call, Defendant Hawkins finally conceded that analysts could 

discount the expected revenues from the Supply Contract, but nevertheless continued to maintain 

that “we really believe this is going to happen.” (emphasis added). However, instead of the 

misleading confidence and certainty that he had previously conveyed regarding the Supply 

Contract, Hawkins at least acknowledged that “trying to handicap exactly when, with all the 

changes going on in both governments, Ministry of Health, oil prices, it has made it very 

difficult.” Later in the call, he characterized Venezuela as being, “quote, in the toilet,” and stated 

that the Company had “an agent there that is the number one distributor and supplier of product in 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 33 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

32 

Venezuela who we rely upon to really give us this feedback.” 

98. Nevertheless, the above-quoted statements were materially false and misleading 

because: (i) the Ministry of Health was months late on all three of its pre-payments under the 

terms of the Supply Contract, to the tune of an approximately $69 million default (i.e., nearly 30% 

of the entire value of the Supply Contract); (ii) the Ministry of Health apparently had not signed 

the Supply Contract, and thus, had not finally agreed to its terms; (iii) even if the Supply Contract 

were signed, Defendants had no means of effectively enforcing their rights under the Supply 

Contract since Venezuela was the exclusive forum for dispute resolution and the Venezuelan 

government was a party to the contract; and (iv) as a result of the foregoing, Defendants lacked a 

reasonable basis to assert that “we really believe this is going to happen.” As such, the stock price 

remained artificially inflated. 

99. Finally, on April 4, 2016, Natus Medical issued a press release pre-announcing its 

preliminary first quarter 2016 results. The release disclosed that “[r]evenue for the first quarter of 

2016 [was] expected to be approximately $87.5 million versus previous guidance of $91.5 million 

to $92.5 million, excluding revenue from the Venezuela Ministry of Health contract.” The release 

revealed that Natus Medical did not have “‘any revenue associated with the Venezuela Ministry of 

Health contract as [it] did not receive any prepayments during the quarter.’” 

100. On this news, the price of Natus Medical stock declined precipitously, falling from 

its close of $39.64 per share on April 1, 2016 to close at $31.84 per share on April 4, 2016, a 

decline of $7.80 per share, or nearly 20%, on unusually high trading volume of more than 2.7 

million shares, or more than eight times the average daily trading volume over the preceding ten 

trading days. 

101. When the Company released its first quarter 2016 results on April 20, 2016, 

Defendants slashed the Company’s fiscal year 2016 guidance, finally publicly conceding that they 

could “no longer include revenue or earnings from the agreement in ... guidance until there is 

more clarity” on Venezuela’s performance under the agreement. 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 34 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

33 

IX. ADDITIONAL SCIENTER ALLEGATIONS 

102. As alleged herein, Defendants acted with scienter in that Defendants knew or 

recklessly disregarded that the public documents and statements issued or disseminated in the 

name of the Company were materially false and misleading; knew or recklessly disregarded that 

such statements or documents would be issued or disseminated to the investing public; and 

knowingly or recklessly and substantially participated or acquiesced in the issuance or 

dissemination of such statements or documents as primary violations of the federal securities laws. 

As set forth elsewhere herein in detail, Defendants, by virtue of their receipt of information 

reflecting the true facts regarding Natus Medical, their control over, and/or receipt or modification 

of Natus Medical’s allegedly materially misleading misstatements and/or their associations with 

the Company which made them privy to confidential proprietary information concerning Natus 

Medical and the Supply Contract at issue, participated in the fraudulent scheme alleged herein. 

103. Meanwhile, Defendants’ false and misleading statements artificially inflated the 

price of Natus Medical stock, which reached all-time highs of over $50 per share during the Class 

Period. While the price of Natus Medical stock was artificially inflated, both Hawkins and 

Kennedy cashed in, selling hundreds of thousands of shares of their personally held Natus Medical 

stock at fraud-inflated prices, and together receiving more than $10.7 million in gross proceeds. 

104. Defendant Kennedy’s stock sales were suspicious in timing and amount:

105. The gross proceeds from Defendant Kennedy’s stock sales during the 

approximately six month Class Period are more than three times greater than the gross proceeds 

from his stock sales during the six months preceding the Class Period. Additionally, these sales 

were made shortly after the announcement of the Supply Contract and the filing of the October 21, 

2015 Form 8-K and accompanying press release, and the October 21, 2015 conference call, during 

DEFENDANT 

KENNEDY 

DATE SHARES SOLD PRICE GROSS PROCEEDS 

Kennedy 10/27/15 10,496 $45.75 $480,192 

Kennedy 10/28/15 18,462 $45.70 $843,713 

Totals 22,958 $1,323,905 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 35 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

34 

which Defendants made false and misleading statements regarding the Supply Contract and 

financial guidance. 

106. Defendant Hawkins’ stock sales were also suspicious in timing and amount: 

107. The gross proceeds from Defendant Hawkins’ stock sales during the approximate 

six month Class Period are more than double the gross proceeds from his stock sales during the six 

months preceding the Class Period. Additionally, these sales were made shortly after the 

announcement of the Supply Contract and while the stock price was artificially inflated by 

Defendants’ numerous false and misleading statements regarding the Supply Contract and the 

Company’s financial guidance, and when the stock price was near an all-time high of over $50 per 

share. 

108. In addition to these lucrative stock sales, both Individual Defendants also enjoyed 

performance-based bonuses. According to the Company’s proxy statement filed on April 22, 2016, 

“[b]eginning with 2012, [Natus Medical’s] annual bonus plan has been tied to earnings and 

revenue goals and key business objectives.” As a result of Defendants’ false and misleading 

statements during the Class Period, Individual Defendants were able to achieve their consolidated 

revenue and consolidated adjusted pre-tax earnings per share (“EPS”) targets for the year 2015, 

and thus, both Individual Defendants received greater than the target inventive plan compensation. 

X. LOSS CAUSATION 

109. Plaintiff repeats and realleges each and every allegation set forth above as if fully 

set forth herein. 

DEFENDANT 

HAWKINS 

DATE SHARES SOLD PRICE GROSS PROCEEDS 

Hawkins 10/28/15 56,189 $45.89 $2,578,513 

Hawkins 10/29/15 6,162 $45.89 $282,774 

Hawkins 10/30/15 37,649 $45.53 $1,714,159 

Hawkins 11/10/15 15,731 $48.12 $756,976 

Hawkins 11/12/15 26,758 $47.32 $1,266,189 

Hawkins 11/25/15 14,103 $48.86 $689,073 

Hawkins 11/27/15 43,408 $49.17 $2,134,371 

Totals 22,958 $9,422,055 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 36 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

35 

110. Defendants’ wrongful conduct, as alleged herein, directly and proximately caused 

the economic loss suffered by Plaintiff and other Class members. During the Class Period, 

Plaintiff and other Class members purchased or acquired Natus Medical securities at artificially 

inflated prices in reliance on Defendants’ material misrepresentations and/or omissions. The price 

of those securities declined significantly when information was disclosed to the market for the first 

time during the Class Period, revealing those material misrepresentations and/or omissions. 

111. Prior to January 11 2016, Defendants had concealed material risks and misled 

investors regarding the Ministry of Health’s pre-payments under the Supply Contract and the 

impact of these pre-payments on Natus Medical’s financial guidance. These concealed risks 

partially materialized when, on January 11, 2016, Natus Medical filed a Current Report on Form 

8-K, attaching a press release, which announced that the Ministry of Health’s payment would be 

delayed and that the Company “now expects to receive prepayment and begin shipments in the 

first quarter of 2016.” In reaction to this news, the price of Natus Medical common stock declined, 

falling from its close of $43.20 per share on January 8, 2016 to close at $38.25 per share on 

January 11, 2016, a decline of almost $5, or 11%, on usually high trading of approximately 1.4 

million shares, or more than four times the average daily volume over the preceding ten trading 

days. 

112. Defendants continued to conceal material risks and mislead investors regarding the 

Ministry of Health’s pre-payments under the Supply Contract and the impact of these prepayments on Natus Medical’s financial guidance, until, on January 27, 2016, these risks partially 

materialized when, following the release of Natus Medical’s Form 8-K, attaching a press release, 

and the Company’s conference call, numerous analysts expressed skepticism that the Supply 

Contract would convey the economic benefits that Defendants had previously reported. In reaction 

to this news, the price of Natus Medical stock fell once again, from its close of $37.15 per share 

on January 27, 2016 to close at $34.71 per share on January 28, 2016, a decline of $2.44 per share, 

on abnormally high trading volume. 

113. Next, on February 29, 2016, certain material risks regarding the Ministry of 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 37 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

36 

Health’s pre-payments under the Supply Contract and the impact of these pre-payments on Natus 

Medical’s financial guidance were partially revealed when the Company filed its 2015 Form 10-K, 

attaching the Supply Contract, which revealed that three separate pre-payments had been due in 

2015 and warned that if the Ministry of Health “does not make the required prepayments to initiate 

deliveries under the Medix agreement, [Natus Medical] will not receive any benefit from it.” On 

this news, the price of Natus Medical stock once again declined, falling from its close of $37.21 

per share on February 26, 2016 to close at $36.32 per share on February 29, 2016. 

114. Finally, on April 4, 2016, the material risks regarding the Ministry of Health’s prepayments under the Supply Contract and the impact of these pre-payments on Natus Medical’s 

financial guidance were fully revealed when Natus Medical issued a press release announcing that 

the Company “did not receive any prepayments during the quarter” and that revenue from the 

Supply Contract had been excluded from the Company’s financial guidance. On this news, the 

price of Natus Medical stock declined precipitously, falling from its close of $39.64 per share on 

April 1, 2016 to close at $31.84 per share on April 4, 2016, a decline of $7.80 per share, or nearly 

20%, on unusually high trading volume of more than 2.7 million shares, or more than eight times 

the average daily trading volume over the preceding ten trading days. 

XI. PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE 

115. At all relevant times, the market for Natus Medical common stock was an efficient 

market for the following reasons, among others: 

a. Natus Medical stock met the requirements for listing, and was listed and 

actively traded on the NASDAQ, a highly efficient and automated market; 

b. According to the Company’s Form 10-Q filed on November 3, 2016, the 

Company had more than 32.9 million shares outstanding as of October 28, 

2016. During the Class Period, on average, 330,000 shares of Natus 

Medical stock were traded on a daily basis, demonstrating a very active and 

broad market for Natus Medical stock and permitting a very strong 

presumption of an efficient market; 

c. Natus Medical was qualified to file a less comprehensive Form S-3 

registration statement with the SEC that is reserved, by definition, to wellestablished and largely capitalized issuers for whom less scrutiny is 

required; 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 38 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

37 

d. As a regulated issuer, Natus Medical filed periodic public reports with the 

SEC; 

e. Natus Medical regularly communicated with public investors via 

established market communication mechanisms, including regular 

disseminations of press releases on the national circuits of major newswire 

services, the Internet and other wide-ranging public disclosures, such as 

communications with the financial press and other similar reporting 

services; 

f. Natus Medical was followed by many securities analysts who wrote reports 

that were distributed to the sales force and certain customers of their 

respective firms during the Class Period and each of these reports was 

publicly available and entered the public marketplace; and 

g. unexpected material news about Natus Medical was rapidly reflected in and 

incorporated into the Company’s stock price during the Class Period. 

116. As a result of the foregoing, the market for Natus Medical common stock promptly 

digested current information regarding Natus Medical from publicly available sources and 

reflected such information in Natus Medical’s stock price. Under these circumstances, all 

purchasers of Natus Medical common stock during the Class Period suffered similar injury 

through their purchase of Natus Medical common stock at artificially inflated prices, and a 

presumption of reliance applies. 

117. In addition, Plaintiff is entitled to a presumption of reliance under Affiliated Ute 

Citizens of Utah v. U.S., 496 U.S. 128 (1972), because the claims asserted herein are predicated in 

part on material omissions of fact that Defendants had a duty to disclose. 

XII. INAPPLICABILITY OF THE STATUTORY SAFE HARBOR 

118. The statutory safe harbor and/or bespeaks caution doctrine applicable to forwardlooking statements under certain circumstances do not apply to the false or misleading statements 

pleaded in this Complaint. 

119. The statements complained of herein were not forward-looking statements, nor 

were they identified as such when made. Rather, the statements at issue herein – including 

statements about the payment schedule under the Supply Contract, as well as statements about the 

Ministry of Health’s compliance with the Supply Contract – were statements of historical fact or 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 39 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

38 

statements of purportedly current facts and conditions at the time the statements were made. 

120. To the extent that any of the false and misleading statements alleged herein can be 

construed as forward-looking, those statements were not accompanied by meaningful cautionary 

language identifying important factors that could cause actual results to differ materially from 

those in the statements. Such factors include, among others, that the Ministry of Health was late on 

its pre-payments throughout 2015, the Supply Contract was never signed, and even if the Supply 

Contract were signed, Defendants had no means of effectively enforcing the Company’s rights 

under the Supply Contract since Venezuela was the exclusive forum for dispute resolution and the 

Venezuelan government was a party to the contract. Given these then-existing facts which were 

not adequately disclosed, any generalized risk disclosures were insufficient to insulate Defendants 

from liability for their materially false and misleading statements. 

121. Alternatively, Defendants are also liable for any forward-looking statements 

because the speaker knew or recklessly disregarded that the statements were false or misleading 

when made, or the statement was approved by an Individual Defendant who knew or recklessly 

disregarded that the statement was false when made. 

XIII. CLASS ACTION ALLEGATIONS 

122. 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 those who purchased or 

otherwise acquired Natus Medical common stock during the Class Period (the “Class”); and were 

damaged upon the revelation of the alleged corrective disclosures. Excluded from the Class are 

Defendants herein, 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. 

123. The members of the Class are so numerous that joinder of all members is 

impracticable. Throughout the Class Period, Natus Medical common stock was actively traded on 

the NASDAQ. While the exact number of Class members is unknown to Plaintiff at this time and 

can be ascertained only through appropriate discovery, Plaintiff believes that there are hundreds or 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 40 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

39 

thousands of members in the proposed Class. Record owners and other members of the Class may 

be identified from records maintained by Natus 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. 

124. 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. 

125. 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. Plaintiff has 

no interests antagonistic to or in conflict with those of the Class. 

126. 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: 

 whether the federal securities laws were violated by Defendants’ acts as alleged 

herein; 

 whether statements made by Defendants to the investing public during the Class 

Period misrepresented material facts about the business, operations and 

management of Natus Medical; 

 whether the Individual Defendants caused Natus Medical to issue false and 

misleading statements during the Class Period; 

 whether Defendants acted knowingly or recklessly in issuing false and misleading 

statements; 

 whether the prices of Natus Medical common stock during the Class Period were 

artificially inflated because of the Defendants’ conduct complained of herein; and 

 whether the members of the Class have sustained damages and, if so, what is the 

proper measure of damages. 

127. 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 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 41 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

40 

individual litigation make it impossible for members of the Class to individually redress the 

wrongs done to them. 

128. There will be no difficulty in the management of this action as a class action. 

XIV. CAUSES OF ACTION 

COUNT I 

For Violation of §10(b) of the Exchange Act 

and Rule 10b-5 Against All Defendants 

129. Plaintiff repeats and realleges the above paragraphs as though fully set forth herein. 

130. Throughout the Class Period, Defendants, in pursuit of their scheme and continuous 

course of conduct to inflate the market price of Natus Medical common stock, had the ultimate 

authority for making, and knowingly or recklessly made, materially false or misleading statements 

or failed to disclose material facts necessary to make the statements made, in light of the 

circumstances under which they were made, not misleading. 

131. During the Class Period, Defendants, and each of them, carried out a plan, scheme, 

and course of conduct using the instrumentalities of interstate commerce and the mails, which was 

intended to and, throughout the Class Period did: (a) artificially inflate and maintain the market 

price of Natus Medical common stock; (b) deceive the investing public, including Plaintiff and 

other Class members, as alleged herein; (c) cause Plaintiff and other members of the Class to 

purchase Natus Medical common stock at inflated prices; and (d) cause them losses when the truth 

was revealed over time. In furtherance of this unlawful scheme, plan and course of conduct, 

Defendants, and each of them, took the actions set forth herein, in violation of §10(b) of the 

Exchange Act and Rule 10b-5, 17 C.F.R. §240.10b-5. 

132. In addition to the duties of full disclosure imposed on Defendants as a result of 

their affirmative false and misleading statements to the investing public, defendants had a duty to 

promptly disseminate truthful information with respect to Natus Medical’s operations and 

performance that would be material to investors in compliance with the integrated disclosure 

provisions of the SEC, including with respect to the Company’s revenue and earnings trends, so 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 42 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

41 

that market price of the Company’s common stock would be based on truthful, complete and 

accurate information. 

133. Defendants had actual knowledge of the misrepresentations and omissions of 

material facts set forth herein or acted with reckless disregard for the truth in that they failed to 

ascertain and disclose such facts, even though such facts were either known or readily available to 

them. 

134. As a result of the dissemination of the materially false and misleading information 

and failure to disclose material facts as set forth above, the market price of Natus Medical 

common stock was artificially inflated during the Class Period. In ignorance of the fact that the 

market price of Natus Medical common stock was artificially inflated, and relying upon the 

integrity of the market in which the shares traded, Plaintiff and other members of the Class 

purchased Natus Medical stock during the Class Period at artificially high prices and, when the 

truth was revealed, were damaged thereby. 

135. Had Plaintiff and the other members of the Class and the marketplace known of the 

true facts, which were knowingly or recklessly concealed by defendants, Plaintiff and the other 

members of the Class would not have purchased their Natus Medical shares during the Class 

Period, or if they had purchased such shares during the Class Period, they would not have done so 

at the artificially inflated prices which they paid. 

136. By virtue of the foregoing, defendants Natus Medical and the Individual 

Defendants have violated §10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, 17 

C.F.R. §240.10-5. 

COUNT II 

For Violation of §20(a) of the Exchange Act 

Against All Defendants 

137. Plaintiff repeats and realleges the above paragraphs as though fully set forth herein. 

138. The Individual Defendants had control over Natus Medical and made the materially 

false and misleading statements and omissions on behalf of Natus Medical within the meaning of 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 43 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

42 

§20(a) of the Exchange Act as alleged herein. By virtue of their share ownership, executive and 

board positions and stock ownership, and their culpable participation, as alleged above, the 

Individual Defendants had the power to influence and control and did, directly or indirectly, 

influence and control the decision making of the Company, including the content and 

dissemination of the various statements which plaintiff contends were false and misleading. The 

Individual Defendants were provided with or had unlimited access to the Company’s internal 

reports, press releases, public filings, and other statements alleged by plaintiff to be misleading 

prior to or shortly after these statements were issued, and had the ability to prevent the issuance of 

the statements or cause them to be corrected. 

139. In particular, the Individual Defendants had direct involvement in and 

responsibility over the day-to-day operations of the Company and, therefore, are presumed to have 

had the power to control or influence the particular transactions giving rise to the securities 

violations as alleged herein. Natus Medical had the power to control and influence, and did control 

and influence, the Individual Defendants and all of its employees. 

140. By reason of such wrongful conduct, Natus Medical and the Individual Defendants 

are liable pursuant to §20(a) of the Exchange Act. As a direct and proximate result of Defendants’ 

wrongful conduct, Plaintiff and the other members of the Class suffered damages in connection 

with their purchases of the Company’s common stock during the Class Period. 

XV. PRAYER FOR RELIEF 

 WHEREFORE, Plaintiff prays for judgment as follows: 

 A. Determining that this action may be maintained as a class action under Rule 23 of 

the Federal Rules of Civil Procedure, and certifying Plaintiff as the Class representative; 

 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 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 44 of 47
1

2

3

4

5

6

7

8

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

FIRST AMENDED COMPLAINT FOR VIOLATION OF THE FEDERAL SECURITIES LAWS 

Case No.: 4:17-cv-00458-JSW 

43 

 D. Awarding such other and further relief as the Court may deem just and proper. 

XVI. DEMAND FOR TRIAL BY JURY 

 Plaintiff hereby demands a trial by jury. 

DATED: July 14, 2017 GLANCY PRONGAY & MURRAY LLP 

By: s/ Kara M. Wolke 

 Robert V. Prongay 

Kara M. Wolke 

Alexa Mullarky 

1925 Century Park East, Suite 2100 

Los Angeles, California 90067 

Telephone: (310) 201-9150 

Facsimile: (310) 201-9160 

Email: info@glancylaw.com 

Attorneys for Lead Plaintiff John Costabile 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 45 of 47
1

2

3

4

5

6

7

8

9

10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

25

26

27

28

PROOF OF SERVICE BY ELECTRONIC POSTING 

 I, the undersigned say: 

 I am not a party to the above case, and am over eighteen years old. On July 14, 2017, I served 

true and correct copies of the foregoing document, by posting the document electronically to the ECF 

website of the United States District Court for the Northern District of California, for receipt 

electronically by the parties listed on the Court’s Service List. 

 I affirm under penalty of perjury under the laws of the United States of America that the 

foregoing is true and correct. Executed on July 14, 2017, at Los Angeles, California. 

 s/ Kara M. Wolke 

 Kara M. Wolke 

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 46 of 47
Mailing Information for a Case 4:17-cv-00458-JSW Costablie v. Natus Medical

Incorporated et al

Electronic Mail Notice List

The following are those who are currently on the list to receive e-mail notices for this case.

Mary K. Blasy

mblasy@rgrdlaw.com

Brian Edward Cochran

bcochran@rgrdlaw.com

Jennifer Ann Ebling

jebling@fenwick.com,rchang@fenwick.com

Frank James Johnson

frankj@johnsonandweaver.com,paralegal@johnsonandweaver.com,michaelf@johnsonandweaver.com,ceciliar@johnsonandweaver.com

Kevin Peter Muck

kmuck@fenwick.com,kayoung@fenwick.com,lkelleybourne@fenwick.com

Lesley F. Portnoy

LPortnoy@glancylaw.com

Robert Vincent Prongay

rprongay@glancylaw.com,info@glancylaw.com,echang@glancylaw.com,bmurray@glancylaw.com

Samuel H. Rudman

srudman@rgrdlaw.com

Phong L. Tran

phongt@johnsonandweaver.com,paralegal@johnsonandweaver.com

David Conrad Walton

davew@rgrdlaw.com

Shawn A. Williams

shawnw@rgrdlaw.com,jillk@rgrdlaw.com,e_file_sd@rgrdlaw.com,e_file_sf@rgrdlaw.com

Kara M Wolke

kwolke@glancylaw.com

Manual Notice List

The following is the list of attorneys who are not on the list to receive e-mail notices for this case (who therefore require manual noticing). You

may wish to use your mouse to select and copy this list into your word processing program in order to create notices or labels for these

recipients.

(No manual recipients)

CAND-ECF- https://ecf.cand.uscourts.gov/cgi-bin/MailList.pl?734618942773676-L_1_0-1

1 of 2 7/14/2017 6:28 PM

Case 4:17-cv-00458-JSW Document 25 Filed 07/14/17 Page 47 of 47