1 

UNITED STATES DISTRICT COURT 

NORTHERN DISTRICT OF ILLINOIS 

EASTERN DIVISION

DOMINICK DE FILIPPIS, Derivatively on 

Behalf of Nominal Defendant RTI SURGICAL 

HOLDINGS, INC., 

Plaintiff, 

v. 

CAMILLE I. FARHAT, BRIAN K. 

HUTCHISON, JONATHON M. SINGER, 

ROBERT P. JORDHEIM, JOHANNES W. 

LOUW, PETER F. GEAREN, THOMAS A. 

MCEACHIN, CURTIS M. SELQUIST, MARK 

D. STOLPER, CHRISTOPHER R. SWEENEY, 

PAUL G. THOMAS, NICHOLAS J. 

VALERIANI, and SHIRLEY A. WEIS, 

Defendants, 

and 

RTI SURGICAL HOLDINGS, INC., 

Nominal Defendant. 

 

Case No. 

SHAREHOLDER DERIVATIVE COMPLAINT

Plaintiff Dominick De Filippis (“Plaintiff”), by and through his undersigned attorneys, 

brings this derivative complaint for the benefit of nominal defendant, RTI Surgical Holdings, Inc. 

(“RTI” or the “Company”), against certain members of its Board of Directors (the “Board”) and 

certain of its executive officers seeking to remedy defendants’ breaches of fiduciary duties, insider 

trading (i.e., Brophy claim), violations of Section 10(b) and 14(a) of the Securities Exchange Act 

of 1934 (the “Exchange Act”), waste of corporate assets, and unjust enrichment. Plaintiff’s 

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allegations are based upon his personal knowledge as to himself and his own acts, and upon 

information and belief, developed from the investigation and analysis by Plaintiff’s counsel, 

including a review of publicly available information, including filings by RTI with the U.S. 

Securities and Exchange Commission (“SEC”), press releases, news reports, analyst reports, 

investor conference transcripts, publicly available filings in lawsuits, and matters of public record. 

I. NATURE AND SUMMARY OF THE ACTION 

1. RTI is a global surgical implant company that provides surgeons with safe biologic, 

metal and synthetic implants, which are used in sports medicine, general surgery, spine, orthopedic 

and trauma procedures. 

2. For fiscal years 2015 through 2018, RTI reported strong results and a consistent 

revenue recognition policy and affirmed the effectiveness of its internal control over financial 

reporting. 

3. On March 8, 2019, RTI Surgical Inc. acquired Paradigm Spine, LLC and 

reorganized as RTI Surgical Holdings, Inc., the successor reporting company. 

4. Then, on January 13, 2020, the Company announced that it had reached an 

agreement to sell its original equipment manufacturer (“OEM”) business for $490 million to 

Montagu Private Equity LLP, subject to closing conditions and shareholder approval. 

5. On March 16, 2020, after the market closed, RTI disclosed that it could not timely 

file its annual report on Form 10-K for fiscal 2019 due to ongoing investigations by the SEC and 

the Audit Committee regarding revenue recognition. Specifically, the investigation concerned the 

timing of revenue with respect to certain contractual arrangements, primarily with OEM 

customers. 

6. On this news, RTI’s stock price fell $0.40 per share, nearly 15%, to close at $2.35 

per share on March 17, 2020, on unusually heavy trading volume. 

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7. Days later, the Company disclosed that, due to the failure to timely file a proxy 

statement with the SEC, RTI was in breach of the agreement with Montagu to sell the OEM 

business. 

8. On April 9, 2020, the Company revealed that financial statements for fiscal years 

2014 through 2018 should no longer be relied upon and would be restated. RTI disclosed that 

“goods were delivered early without obtaining the customers’ affirmative approval,” thus leading 

to improper revenue recognition, and that improper adjustments had been made for product returns. 

9. On April 29, 2020, the Company announced certain amendments to its agreement 

to sell the OEM business, including, among other things, a $50 million reduction in the purchase 

price. 

10. On June 8, 2020, RTI filed its restated financial statements for the previously 

disclosed periods, impacting various line items including revenue, operating expenses, accounts 

receivable, inventories, and accounts payable. RTI also identified material weaknesses, including 

that “the tone from executive management was insufficient to create the proper environment for 

effective internal control over financial reporting” and that “the Company’s formal SOX 

compliance program did not have sufficient scope and focus on the key financial reporting risks.” 

11. The same day, the Company filed its belated 2019 annual report, which restated 

certain financial items that were previously reported in quarterly reports for fiscal 2019. It further 

identified “errors [that] were made in connection with the recording of the acquisition of Paradigm 

Spine, LLC in 2019.” 

12. Moreover, while the material information regarding revenue recognition with 

respect to OEM customers remained non-public, RTI spent an aggregate $4.5 million to repurchase 

approximately 1,006,318 shares of its own common stock at artificially inflated prices. As the 

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Company’s stock was actually worth only $2.35, the price at the close of market on March 17, 

2020, the Company overpaid for the purchases of its own stock by approximately $2.1 million. 

13. These revelations precipitated the filing of a securities class action in the U.S. 

District Court for the Northern District of Illinois against RTI and certain of its officers, Lowry v. 

RTI Surgical Holdings, Inc., et al., 1:20-cv-01939 (the “Securities Class Action”). 

14. Plaintiff did not make a litigation demand prior to filing this action because such 

demand would have been futile based upon the composition of the Board and the actions taken by 

the Board. The Board is currently composed of ten directors, eight of whom are named in this 

action. As alleged herein, at least eight directors knew the disclosures with respect to RTI’s 

revenue recognition and the effectiveness of its internal controls were incomplete or inaccurate, 

yet allowed misleading statements to be disseminated. Thus, more than half the members would 

be interested in a demand to investigate their own wrongdoing. 

II. JURISDICTION AND VENUE 

15. This Court has jurisdiction over this action pursuant to 28 U.S.C. § 1331 in that this 

Complaint states a federal question: violations of Section 14(a) and 10(b) of the Securities 

Exchange Act of 1934. This Court has supplemental jurisdiction over the state law claims asserted 

herein pursuant to 28 U.S.C. § 1367(a). This action is not a collusive one to confer jurisdiction on 

a court of the United States which it would not otherwise have. 

16. Venue is proper in this District pursuant to 28 U.S.C. §§ 1391 and 1401 because a 

substantial portion of the transactions and wrongs complained of herein occurred in this District, 

and the Defendants have received substantial compensation in this district by engaging in 

numerous activities that had an effect in this District. 

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III. PARTIES 

Plaintiff 

17. Plaintiff Dominick De Filippis purchased 500 shares of RTI stock in June 2015 and 

has continuously owned his RTI stock since that date. 

Nominal Defendant 

18. Nominal Defendant RTI is a Delaware corporation with its principal executive 

offices located at 520 Lake Cook Road, Suite 315, Deerfield, Illinois 60015. The Company stock 

trades on the NASDAQ stock exchange under the symbol “RTIX.” 

Defendants 

19. Defendant Camille I. Farhat (“Farhat”) has served as RTI’s Chief Executive Officer 

(“CEO”), President and a director since March 2017. Farhat is named as a defendant in the 

Securities Class Action. 

20. Defendant Brian K. Hutchison (“Hutchison”) served as RTI’s CEO and President 

from December 2001 to December 2016. Hutchison is named as a defendant in the Securities 

Class Action. 

21. Defendant Jonathon M. Singer (“Singer”) has served as RTI’s Chief Financial and 

Administrative Officer (“CFAO”) since September 2017 and as Corporate Secretary since 

November 2017. On January 10, 2020, Singer was promoted to serve as Chief Operating Officer 

(“COO”), contingent and effective upon the Company’s proposed sale of its OEM business. He 

served as a director of RTI from May 2016 to September 2017. Singer is named as a defendant in 

the Securities Class Action. 

22. Defendant Robert P. Jordheim (“Jordheim”) served as the Company’s Chief 

Financial Officer (“CFO”) and Executive Vice President from June 2010 to December 16, 2016 

and from March 15, 2017 to October 31, 2017. He also served as interim President and CEO from 

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December 16, 2016 to March 15, 2017. Jordheim is named as a defendant in the Securities Class 

Action. 

23. Defendant Johannes W. Louw (“Louw”) served as the Company’s Vice President 

of Financial Planning and Analysis from September 2018 to April 2020, when he was terminated 

from the Company. Louw served as interim CFO from December 2016 to March 2017. On 

January 10, 2020, he was promoted to CFO, contingent and effective upon the Company’s 

proposed sale of its OEM business. After joining RTI in June 2003, he served in various roles, 

including interim CFO and Vice President of Finance and Corporate Controller. Louw is named 

as a defendant in the Securities Class Action. 

24. Defendant Peter F. Gearen (“Gearen”) served as a director of the Company from 

1998 to March 2019. He served as Vice Chairman of the Board from February 2016 to March 

2019. 

25. Defendant Thomas A. McEachin (“McEachin”) has served as a director of the 

Company since December 2015. He is Chair of the Audit Committee. 

26. Defendant Curtis M. Selquist (“Selquist”) has served as a director of the Company 

since July 2013 and as Chairman of the Board since February 2016. 

27. Defendant Mark D. Stolper (“Stolper”) has served as a director of the Company 

since March 2017. He is a member of the Audit and Compensation Committees. 

28. Defendant Christopher R. Sweeney (“Sweeney”) has served as a director of the 

Company since October 2015. 

29. Defendant Paul G. Thomas (“Thomas”) has served as a director of the Company 

since June 2016. He is a member of the Compensation Committee. 

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30. Defendant Nicholas J. Valeriani (“Valeriani”) has served as a director of the 

Company since June 2016. He is a member of the Compensation Committee. 

31. Defendant Shirley A. Weis (“Weis”) has served as a director of the Company since 

October 2014. She served as a member of the Audit Committee until 2019. 

32. Defendants Farhat, Hutchison, Singer, Jordheim, Louw, Gearen, McEachin, 

Selquist, Stolper, Sweeney, Thomas, Valeriani, and Weis are sometimes referred to hereinafter as 

the “Individual Defendants.” Defendants Farhat, Gearen, McEachin, Selquist, Stolper, Sweeney, 

Thomas, Valeriani, and Weis are sometimes referred to hereinafter as the “Director Defendants.” 

Non-Party Directors 

33. Jeffrey C. Lightcap has served as a director of the Company since March 8, 2019. 

34. Stuart F. Simpson has served as a director of the Company since June 1, 2020. 

IV. DUTIES OF THE INDIVIDUAL DEFENDANTS 

A. Fiduciary Duties 

35. By reason of their positions as officers, directors, and/or fiduciaries of RTI and 

because of their ability to control the business and corporate affairs of RTI, at all relevant times, 

the Individual Defendants owed RTI and its shareholders fiduciary obligations of good faith, 

loyalty, and candor, and were required to use their utmost ability to control and manage RTI in a 

fair, just, honest, and equitable manner. The Individual Defendants were required to act in 

furtherance of the best interests of RTI and its shareholders so as to benefit all shareholders equally 

and not in furtherance of their personal interest or benefit. Each director and officer of the 

Company owes to RTI and its shareholders a fiduciary duty to exercise good faith and diligence 

in the administration of the affairs of the Company and in the use and preservation of its property 

and assets, and the highest obligations of fair dealing. 

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36. The Individual Defendants, because of their positions of control and authority as 

directors and/or officers of RTI, were able to and did, directly and/or indirectly, exercise control 

over the wrongful acts complained of herein. Because of their advisory, executive, managerial, 

and directorial positions with RTI, each of the Individual Defendants had knowledge of material 

non-public information regarding the Company. 

37. To discharge their duties, the officers and directors of RTI were required to exercise 

reasonable and prudent supervision over the management, policies, practices and controls of the 

Company. By virtue of such duties, the officers and directors of RTI were required to, among 

other things: 

(a) Exercise good faith to ensure that the affairs of the Company were 

conducted in an efficient, business-like manner so as to make it possible to 

provide the highest quality performance of their business; 

(b) Exercise good faith to ensure that the Company was operated in a diligent, 

honest, and prudent manner and complied with all applicable federal and 

state laws, rules, regulations and requirements, and all contractual 

obligations, including acting only within the scope of its legal authority; 

(c) Exercise good faith to ensure that the Company’s communications with the 

public and with shareholders are made with due candor in a timely and 

complete fashion; and 

(d) When put on notice of problems with the Company’s business practices and 

operations, exercise good faith in taking appropriate action to correct the 

misconduct and prevent its recurrence. 

B. Code of Conduct 

38. RTI has a Code of Conduct, which requires the Company’s officers, directors and 

employees to adhere to “principles and standards of business conduct . . . to avoid even the 

appearance of improper behavior.” 

39. The Code of Conduct provides that each employee must “[p]rovide full, fair, 

accurate, timely and understandable disclosure in reports and documents that the Company files 

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with or submits to the Securities and Exchange Commission and in other public communications 

made by the Company.” 

40. The Code of Conduct further provides that each employee must “[r]ecognize and 

report possible violations of this Code, as well as all policies, guidelines, applicable laws and 

regulatory requirements under which the Company operates.” 

41. The Code of Conduct also provides that RTI is committed to “offer only those 

products and services that we can deliver and strive to meet or exceed the commitments that we 

made. We compete fairly, engaging only in legal and ethical practice. Lastly, we meet our 

contractual obligations by reporting information accurately and charging honestly for our products 

and services.” 

42. In a section titled, “Securities Trading & Insider Information,” the Code of Conduct 

states that: 

Company policy forbids unauthorized disclosure of material non-public 

information about the Company or the companies it deals with, and both Company 

policy and the law forbid profiting from material non- public information relating 

to the Company or the companies with whom we do business. Material information 

includes any information that a reasonable investor is likely to consider important 

in determining whether to buy, sell or hold the Company’s stock. 

C. Code of Ethics for Senior Financial Officers 

43. The Code of Conduct also requires “senior executive officers and those responsible 

for our financial reporting” to adhere to “the Code of Ethics for Senior Financial Officers which 

imposes strict obligations on them to take careful steps to assure that the Company properly tracks 

and reports our financial performance.” 

44. The Code of Ethics for Senior Financial Officers (the “Code of Ethics”) aims to 

ensure “proper disclosure of financial information in filings with, or submissions to, the Securities 

and Exchange Commission and to deter wrongdoing.” The Code of Ethics is “applicable to the 

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Company’s Chief Executive Officer, President, Chief Financial Officer, Director of 

Finance/Controller and other senior financial professional performing similar functions (‘Senior 

Financial Professionals’).” The Code of Ethics “is intended to supplement the [Code of Conduct] 

that is applicable to all employees and directors of the Company.” 

45. In addition to promoting “a culture of honesty, integrity, ethical behavior and 

accountability,” Senior Financial Professionals must maintain accurate records. Specifically, the 

Code of Ethics states, in relevant part: 

Senior Financial Professionals shall maintain all Company accounting records and 

reports derived from Company accounting records in accordance with applicable 

laws, in a manner that fairly and accurately reflects the transactions or occurrences 

to which they relate and ensures that the Company accounting records fairly and 

accurately reflect in reasonable detail the Company’s assets, liabilities, revenues 

and expenses and do not contain any false or intentionally misleading entries. In 

this regard, compliance with the Company’s system of internal controls is required 

at all times. 

46. Moreover, under the heading “Disclosure in SEC Filings and Other Public 

Communications,” the Code of Ethics states that: 

Senior Financial Professionals shall conduct themselves in a manner that promotes 

the full, fair, accurate, timely and understandable disclosure of all material 

information required to be included in: (1) each report or other document the 

Company files with, or submits to, the SEC and (2) in all other public 

communications made by the Company. To this end, the Senior Financial 

Professionals will establish and apply the Company’s internal controls and 

disclosure controls and procedures in a manner that will enable the Company’s 

financial statements to present fairly, in all material respects, the financial position, 

results of operations and cash flows of the Company. 

47. In a section titled “Compliance with Applicable Laws, Rules and Regulations,” the 

Code of Ethics states that: 

The Senior Financial Professionals shall conduct themselves, and shall encourage 

all employees to conduct themselves, to ensure and facilitate compliance by the 

Company with the laws, rules and regulations applicable to its business. To this 

end, they are charged with overseeing the Company’s various programs and 

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Oxley Act and similar laws applicable to the Company and (2) identifying and 

promptly reporting to the Audit Committee and correcting any material deviation 

from applicable laws, rules and regulations and Company policies. 

48. The Code of Ethics further provides that “Senior Financial Professionals are 

required to report to the Audit Committee any known or suspected violation of this Code by any 

Senior Financial Professional.” 

V. SUBSTANTIVE ALLEGATIONS 

A. Background 

49. RTI is a global surgical implant company that provides surgeons with safe biologic, 

metal and synthetic implants, which are used in sports medicine, general surgery, spine, orthopedic 

and trauma procedures. 

50. On March 8, 2019, RTI Surgical, Inc. acquired Paradigm Spine, LLC, a motion 

preservation and non-fusion spinal implant technology company, and reorganized as RTI Surgical 

Holdings, Inc. Thereafter, RTI Surgical, Inc. became a wholly owned subsidiary of RTI Surgical 

Holdings, Inc., the successor reporting company. 

51. Prior to the fourth quarter of 2019, RTI operated as one reporting segment 

comprised of four franchise lines: spine; sports; OEM (“Original Equipment Manufacturer”) and 

international. OEM, which accounts for the largest percentage of the Company’s total revenues, 

focuses on the design, development, and manufacture of biologic, metal and synthetic implants for 

medical technology companies. During the fiscal year ended December 31, 2018, OEM accounted 

for 43% of RTI’s total revenues. In the fourth quarter of 2019, the Company reorganized to operate 

under two operating segments: Global Spine and Global OEM. The Global Spine segment focuses 

on sales, distribution, and research and development activities for the global spine market, whereas 

the Global OEM segment focuses on the design, development, and manufacturing of biologics and 

hardware medical technology. 

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52. Despite reporting record results for the OEM business in second quarter 2019, the 

Company announced on January 13, 2020 that it had agreed to sell its OEM Business to Montagu 

Private Equity LLP (“Montagu”), a private European equity firm, for $490 million. Following the 

sale, RTI would become a “Global Pure Play Spine Company.” The transaction was unanimously 

approved by RTI’s Board of Directors and subject to shareholder approval. According to the press 

release announcing the transaction, the sale “complete[d] the first phase of [RTI’s] strategic 

transformation to reduce complexity, drive operational excellence and accelerate the growth of 

RTI.” 

B. The Individual Defendants Caused RTI to Issue Materially Misleading 

Statements 

53. On March 7, 2016, defendants Hutchison, Jordheim, Gearen, McEachin, Selquist 

Sweeney, and Weis caused RTI to file its annual report on Form 10-K with the SEC for the period 

ended December 31, 2015 (the “2015 10-K”). The report was signed by defendants Hutchison, 

Jordheim, Selquist, Gearen, McEachin, Sweeney, and Weis, and nonparties Dean H. Bergy, Philip 

R. Chapman, and Adrian J.R. Smith. Regarding RTI’s policy for revenue recognition, the 2015 

10-K stated, in relevant part: 

Revenue Recognition—Revenue is recognized upon shipping, or receipt by the 

Company’s customers of the implant, depending on the Company’s distribution 

agreements with the Company’s customers or distributors. Other revenues are 

recognized when all significant contractual obligations have been satisfied. 

The Company permits returns of implants in accordance with the terms of 

contractual agreements with customers if the implant is returned in a timely manner, 

in unopened packaging, and from the normal channels of distribution. Allowances 

for returns are provided based upon analysis of the Company’s historical patterns 

of returns matched against the revenues from which they originated. 

The Company records estimated implant returns, discounts, rebates and other 

distribution incentives as a reduction of revenue in the same period revenue is 

recognized. Estimates of implant returns are recorded for anticipated implant 

returns based on historical distributions and returns information. Estimates of 

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discounts, rebates and other distribution incentives are recorded based on 

contractual terms, historical experience and trend analysis. 

54. The 2015 10-K stated that RTI’s “management believes that, as of December 31, 

2015, the Company’s internal control over financial reporting is effective.” Moreover, the 2015 

10-K contained certifications pursuant to the Sarbanes-Oxley Act of 2002 (“SOX”) signed by 

defendants Hutchison and Jordheim, attesting to the accuracy of the financial statements contained 

therein, the disclosure of all fraud, and the effectiveness of the Company’s internal control over 

financial reporting. 

55. The statements in ¶¶ 53-54 were materially misleading because they failed to 

disclose: (1) that revenue was improperly recognized because certain customer orders, primarily 

for OEM customers, were shipped early to customers without obtaining authorized approval; (2) 

that there were material weaknesses in the Company’s internal control over financial reporting, 

including with respect to the accuracy of journal entries and the accounting for sales returns; (3) 

that, as a result of the foregoing, RTI’s disclosure controls and procedures were not effective; and 

(4) that, as a result of the foregoing, RTI was reasonably likely to restate its financial statements. 

56. On March 13, 2017, Jordheim, Louw, Singer, Gearen, McEachin, Selquist, 

Sweeney, Thomas, Valeriani, and Weis caused RTI to file its annual report on Form 10-K with the 

SEC for the period ended December 31, 2016 (the “2016 10-K”), which was signed by these 

defendants. Regarding RTI’s revenue recognition policy, the 2016 10-K stated, in relevant part: 

Revenue Recognition—Revenue is recognized upon shipping, or receipt by the 

Company’s customers of the implant, depending on the Company’s distribution 

agreements with the Company’s customers or distributors. Other revenues are 

recognized when all significant contractual obligations have been satisfied. 

The Company permits returns of implants in accordance with the terms of 

contractual agreements with customers if the implant is returned in a timely manner, 

in unopened packaging, and from the normal channels of distribution. Allowances 

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for returns are provided based upon analysis of the Company’s historical patterns 

of returns matched against the revenues from which they originated. 

The Company records estimated implant returns, discounts, rebates and other 

distribution incentives as a reduction of revenue in the same period revenue is 

recognized. Estimates of implant returns are recorded for anticipated implant 

returns based on historical distributions and returns information. Estimates of 

discounts, rebates and other distribution incentives are recorded based on 

contractual terms, historical experience and trend analysis. 

Other revenues consists of service processing, tissue recovery fees, biomedical 

laboratory fees, recognition of previously deferred revenues, shipping fees, 

distribution of reproductions of our allografts to distributors for demonstration 

purposes and restocking fees which is included in revenues. 

57. The 2016 10-K stated that RTI’s “management believes that, as of December 31, 

2016, the Company’s internal control over financial reporting is effective.” Moreover, the 2016 

10-K contained SOX certifications signed by defendants Jordheim and Louw, attesting to the 

accuracy of the financial statements contained therein, the disclosure of all fraud, and the 

effectiveness of the Company’s internal control over financial reporting. 

58. The statements in ¶¶ 56-57 were materially misleading because they failed to 

disclose: (1) that revenue was improperly recognized because certain customer orders, primarily 

for OEM customers, were shipped early to customers without obtaining authorized approval; (2) 

that there were material weaknesses in the Company’s internal control over financial reporting, 

including with respect to the accuracy of journal entries and the accounting for sales returns; (3) 

that, as a result of the foregoing, RTI’s disclosure controls and procedures were not effective; and 

(4) that, as a result of the foregoing, RTI was reasonably likely to restate its financial statements. 

59. On March 2, 2018, Farhat, Singer, Gearen, McEachin, Selquist, Stoper, Sweeney, 

Thomas, Valeriani, and Weis caused RTI to file its annual report on Form 10-K with the SEC for 

the period ended December 31, 2017 (the “2017 10-K”), which was signed by these defendants. 

Regarding RTI’s revenue recognition policy, the 2017 10-K stated, in relevant part: 

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Revenue Recognition—Revenue is recognized upon shipping, or receipt by the 

Company’s customers of the implant, depending on the Company’s distribution 

agreements with the Company’s customers or distributors. Other revenues are 

recognized when all significant contractual obligations have been satisfied. 

The Company permits returns of implants in accordance with the terms of 

contractual agreements with customers if the implant is returned in a timely manner, 

in unopened packaging, and from the normal channels of distribution. Allowances 

for returns are provided based upon analysis of the Company’s historical patterns 

of returns matched against the revenues from which they originated. 

The Company records estimated implant returns, discounts, rebates and other 

distribution incentives as a reduction of revenue in the same period revenue is 

recognized. Estimates of implant returns are recorded for anticipated implant 

returns based on historical distributions and returns information. Estimates of 

discounts, rebates and other distribution incentives are recorded based on 

contractual terms, historical experience and trend analysis. 

Other revenues consist of service processing, tissue recovery fees, biomedical 

laboratory fees, recognition of previously deferred revenues, shipping fees, 

distribution of reproductions of our allografts to distributors for demonstration 

purposes and restocking fees which is included in revenues. 

60. In addition, the 2017 10-K stated that the Company had adopted a five-step 

framework set forth by the Financial Accounting Standards Board (“FASB”) for revenue 

recognition. Specifically, the report stated, in relevant part: 

Revenue from Contracts with Customers — In May 2014, the FASB, issued a new 

revenue recognition standard which amends revenue recognition principles and 

provides a single, comprehensive set of criteria for revenue recognition within and 

across all industries. The new standard provides a five-step framework whereby 

revenue is recognized when control of promised goods or services are transferred 

to a customer at an amount that reflects the consideration to which the entity expects 

to be entitled in exchange for those goods or services. The standard also requires 

enhanced disclosures pertaining to revenue recognition in both interim and annual 

periods. In August 2015, the FASB deferred the effective date of the new revenue 

standard from January 1, 2017 to January 1, 2018. In March 2016, the FASB issued 

amendments to clarify the implementation guidance on principal versus agent 

considerations. In April 2016, the FASB issued amendments to clarify the guidance 

on accounting for licenses of intellectual property and identifying performance 

obligations. In May 2016, the FASB issued amendments related to collectability, 

non-cash consideration, the presentation of sales and other similar taxes collected 

from customers and transition. The standard allows for adoption using a full 

retrospective method or a modified retrospective method. On January 1, 2018, the 

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Company adopted this standard using the modified retrospective method. The 

Company’s implementation approach included performing a detailed review of its 

agreements. The Company has reviewed all types of customer contracts and has 

gone through the five step process outlined in the new revenue recognition standard 

for each type of contract. The new five step process required by the new revenue 

recognition standard provides results substantially consistent with the Company’s 

current revenue recognition policies. In addition, the Company designed internal 

controls to enable the preparation of financial information. The Company is in the 

process of finalizing its conclusions on key accounting assessments related to the 

new standard, including its assessment that the impact of accounting for costs 

incurred to obtain a contract. 

The Company identified two contracts which previously resulted in revenue 

recognition occurring at the time of shipment; however, under the new revenue 

recognition standard, the Company is required to recognize revenue over time. The 

Company currently estimates the impact of adopting the new revenue standard on 

the two contracts will result in a $1,800 to $2,200 reduction in accumulated deficit, 

the cumulative effect adjustment under the modified retrospective approach, a 

$2,500 to $3,000 increase in accounts receivable, and a $700 to $800 decrease in 

deferred tax assets. The Company also identified a contract that contains significant 

upfront payments; however, the Company has not yet finalized its assessment of 

the contract. Except for the three contracts discussed above, the Company does not 

anticipate the finalization of this assessment will result in a material impact to the 

Company’s financial position, results of operations, and disclosures. 

61. The 2017 10-K stated that RTI’s “management believes that, as of December 31, 

2017, the Company’s internal control over financial reporting is effective.” Moreover, the 2017 

10-K contained SOX certifications signed by defendants Farhat and Singer, attesting to the 

accuracy of the financial statements contained therein, the disclosure of all fraud, and the 

effectiveness of the Company’s internal control over financial reporting. 

62. The statements in ¶¶ 59-61 were materially misleading because they failed to 

disclose: (1) that revenue was improperly recognized because certain customer orders, primarily 

for OEM customers, were shipped early to customers without obtaining authorized approval; (2) 

that there were material weaknesses in the Company’s internal control over financial reporting, 

including with respect to the accuracy of journal entries and the accounting for sales returns; (3) 

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that, as a result of the foregoing, RTI’s disclosure controls and procedures were not effective; and 

(4) that, as a result of the foregoing, RTI was reasonably likely to restate its financial statements. 

63. On March 26, 2018, defendants Farhat, Gearen, McEachin, Selquist, Stolper, 

Sweeney, Thomas, Valeriani, and Weis issued a definitive proxy statement soliciting stockholder 

votes in advance of the Company’s annual meeting to be held April 30, 2018. In the proxy 

statement, these nine directors solicited stockholder votes in favor of three management proposals, 

including: (i) a proposal to elect Farhat, Gearen, McEachin, Stolper, Thomas, Valeriani, and Weis 

to new terms as directors; and (ii) a proposal to adopt the RTI Surgical Inc. 2018 Incentive 

Compensation Plan (the “2018 Plan”). 

64. The proxy statement disclosed that the Board had determined that defendant Farhat 

was not independent. 

65. Regarding corporate governance and risk oversight, the proxy statement stated that 

the full board was responsible for: 

Strategic, financial and execution risks and exposures associated with our business 

strategy, management succession planning, policy matters, significant litigation 

and regulatory exposures, and other current matters that may present material risk 

to our financial performance, operations, infrastructure, plans, prospects or 

reputation, mergers and acquisition activities and related integration matters, and 

divestitures. 

66. Moreover, the proxy statement stated that McEachin, Stolper, and Weis served on 

the Audit Committee. Regarding the Audit Committee’s responsibilities, the proxy statement 

stated, in relevant part: 

[The Audit Committee’s primary areas of oversight include:] Risks and exposures 

associated with financial matters, particularly financial reporting, tax, accounting, 

disclosure, internal control over financial reporting, financial infrastructure, 

investment guidelines and credit and liquidity matters. In addition, our programs 

and policies relating to legal and ethical compliance, quality, safety, environmental 

assurance and information technology security programs. 

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* * * 

Our Audit Committee is charged with, among other things, the appointment of our 

independent registered public accounting firm, as well as discussing and reviewing 

with the independent registered public accounting firm the scope and the results of 

the annual audit, pre-approving the engagement of the independent registered 

public accounting firm for all audit-related services and permissible non-audit 

related services, and reviewing and approving all related-party transactions. Our 

Audit Committee also reviews interim financial statements included in our 

quarterly reports and reviews financial statements and related documents filed with 

the Securities and Exchange Commission. 

67. Regarding non-employee director compensation, the proxy statement told 

stockholders that each of Gearen, McEachin, Singer, Thomas, Valeriani, and Weis received 

compensation from RTI for their service on the Board during 2017 ranging between $125,000 and 

$136,250. In addition, Selquist received $175,000 in compensation, whereas Stolper and Sweeney 

received $102,000 and $115,000, respectively. 

68. In addition to this excessive compensation, the proxy statement solicited 

stockholder approval of the 2018 Plan. According to the proxy statement, the 2018 Plan is 

administered by the Compensation Committee. Specifically, the proxy statement stated: 

The 2018 Plan is to be administered by the Compensation Committee of the Board, 

provided, however, that except as otherwise expressly provided in the 2018 Plan, 

the independent members of the Board may elect to exercise any power or authority 

granted to the Committee under the 2018 Plan. Subject to the terms of the 2018 

Plan, the Committee is authorized to select eligible persons to receive Awards, 

grant Awards, determine the type, number and other terms and conditions of, and 

all other matters relating to, Awards, prescribe Award agreements (which need not 

be identical for each participant) and the rules and regulations for the administration 

of the 2018 Plan, construe and interpret the 2018 Plan and Award agreements, 

correct defects, supply omissions or reconcile inconsistencies therein, and make all 

other decisions and determinations as the Committee may deem necessary or 

advisable for the administration of the 2018 Plan. Decisions of the Committee shall 

be final, conclusive and binding on all persons or entities, including the Company, 

any subsidiary or any participant or beneficiary, or any transferee under the 2018 

Plan or any other person claiming rights from or through any of the foregoing 

persons or entities. 

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69. If approved, the number of shares reserved for issuance under the 2018 Plan would 

be 5,738,142 shares, which represents 9.2% of the total number of shares outstanding as of March 

9, 2018. 

70. The proxy statement was materially misleading for the following reasons: (i) it 

misrepresented the actual activities of the Board, as well as the Audit Committee, with respect to 

risk management and oversight while soliciting votes to reelect and compensate directors who 

were breaching their fiduciary duties; and (ii) it failed to disclose that each of the non-employee 

directors were interested in their own grants of discretionary compensation. A reasonable 

shareholder would have found the truth to be material when deciding whether to vote for or against 

these proposals. 

71. On May 1, 2018, the Company filed with the SEC a Form 8-K disclosing the results 

from the votes on the proposals contained in the 2018 proxy statement. In particular: (i) Farhat, 

Gearen, McEachin, Stolper, Thomas, Valeriani, and Weis were reelected to terms as directors; and 

(ii) the 2018 Plan was approved by stockholders. The reelection of Farhat, Gearen, McEachin, 

Stolper, Thomas, Valeriani, and Weis and the approval of the 2018 Plan based on the misleading 

statements contained in the 2018 proxy statement and other public filings was a fundamental link 

in these directors’ continued breaches of fiduciary duties and the continued enrichment of at the 

expense of the Company’s unaffiliated stockholders. 

72. On March 5, 2019, Farhat, Singer, Gearen, McEachin, Selquist, Stolper, Sweeney, 

Thomas, Valeriani, and Weis caused RTI to file its annual report on Form 10-K for the period 

ended December 31, 2018 (the “2018 10-K”), which was signed by these defendants. Regarding 

RTI’s revenue recognition policy, the 2018 10-K stated, in relevant part: 

Revenue Recognition—The Company recognizes revenue upon shipping, or 

receipt by the Company’s customers of its products and implants, depending on the 

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Company’s distribution agreements with its customers or distributors. The 

Company’s performance obligations consist mainly of transferring control of 

implants identified in the contracts. The Company typically transfers control at a 

point in time upon shipment or delivery of the implants for direct sales, or upon 

implantation for sales of consigned inventory. The customer is able to direct the use 

of, and obtain substantially all of the benefits from, the implant at the time the 

implant is shipped, delivered, or implanted, respectively based on the terms of the 

contract. For performance obligations related to the Company’s contracts with 

exclusively built inventory clauses, the Company typically satisfies its performance 

obligations evenly over the contract term as inventory is built. Such exclusively 

manufactured inventory has no alternative use and the Company has an enforceable 

right to payment for performance to date. The Company uses the input method to 

measure the manufacturing activities completed to date, which depicts the progress 

of the Company’s performance obligation of transferring control of exclusively 

built inventory. For the contracts with upfront and annual exclusivity fees, revenue 

related to those fees is recognized over the contract term following a consistent 

method of measuring progress towards satisfaction of the performance obligation. 

The Company uses the method and measure of progress that best depicts the 

transfer of control to the customer of the goods or services to date relative to the 

remaining goods or services promised under the contract. 

The Company permits returns of implants in accordance with the terms of 

contractual agreements with customers if the implant is returned in a timely manner, 

in unopened packaging, and from the normal channels of distribution. Allowances 

for returns are provided based upon analysis of the Company’s historical patterns 

of returns matched against the revenues from which they originated. 

The Company records estimated implant returns, discounts, rebates and other 

distribution incentives as a reduction of revenue in the same period revenue is 

recognized. Estimates of implant returns are recorded for anticipated implant 

returns based on historical distributions and returns information. Estimates of 

discounts, rebates and other distribution incentives are recorded based on 

contractual terms, historical experience and trend analysis. 

Other revenues consist of service processing, tissue recovery fees, biomedical 

laboratory fees, recognition of previously deferred revenues, shipping fees, 

distribution of reproductions of our allografts to distributors for demonstration 

purposes and restocking fees which is included in revenues. 

73. Regarding revenue from contracts with customers, the 2018 10-K stated, in relevant 

part: 

Revenue from Contracts with Customers—On January 1, 2018, the Company 

adopted a new accounting standard issued by the FASB on revenue recognition 

using the modified retrospective method. This new accounting standard outlines a 

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single comprehensive model to use in accounting for revenue arising from contracts 

with customers. This standard supersedes existing revenue recognition 

requirements and eliminates most industry-specific guidance from GAAP. The core 

principle of the new accounting standard is to recognize revenue to depict the 

transfer of promised goods or services to customers in an amount that reflects the 

consideration to which the entity expects to be entitled in exchange for those goods 

or services. In addition, the adoption of this new accounting standard resulted in 

increased disclosure, including qualitative and quantitative disclosures about the 

nature, amount, timing and uncertainty of revenue and cash flows arising from 

contracts with customers. The new accounting standard was applied to all contracts, 

apart from contracts for which all or substantially all revenue was recognized before 

January 1, 2018. Additionally, the Company elected to account for shipping and 

handling activities as a fulfillment cost rather than a separate performance 

obligation. 

The Company identified three contracts which previously resulted in revenue 

recognition occurring at the time of shipment; however, under the new revenue 

recognition standard, the Company is required to recognize revenue over time. The 

assessment of our January 1, 2018, consolidated balance sheet under ASC Topic 

606 resulted in a cumulative-effect adjustment to opening retained earnings, 

unbilled accounts receivable and costs incurred for inventory. 

74. The 2018 10-K further reported OEM revenues for the fiscal years ended December 

31, 2018 and 2017, respectively, as follows: 

OEM—Revenues from OEM increased $10.0 million, or 9.0%, to $120.7 million 

for the year ended December 31, 2018 compared to $110.7 million for the year 

ended December 31, 2017. OEM revenues increased primarily as a result of higher 

orders and due to timing of delivery to certain OEM distributors, primarily in the 

dental and trauma markets. 

75. The 2018 10-K stated that RTI’s “management believes that, as of December 31, 

2018, the Company’s internal control over financial reporting is effective.” Moreover, the 2018 

10-K contained SOX certifications signed by defendants Farhat and Singer, attesting to the 

accuracy of the financial statements contained therein, the disclosure of all fraud, and the 

effectiveness of the Company’s internal control over financial reporting. 

76. The statements in ¶¶ 72-75 were materially misleading because they failed to 

disclose: (1) that revenue was improperly recognized because certain customer orders, primarily 

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for OEM customers, were shipped early to customers without obtaining authorized approval; (2) 

that there were material weaknesses in the Company’s internal control over financial reporting, 

including with respect to the accuracy of journal entries and the accounting for sales returns; (3) 

that, as a result of the foregoing, RTI’s disclosure controls and procedures were not effective; and 

(4) that, as a result of the foregoing, RTI was reasonably likely to restate its financial statements. 

77. On May 7, 2019, defendants Farhat, Singer, McEachin, Selquist, Stolper, Sweeney, 

Thomas, Valeriani, and Weis caused RTI to file its quarterly report with the SEC for the period 

ended March 31, 2019 (the “1Q19 10-Q”). The report was signed by defendants Farhat and Singer. 

Therein, RTI reported revenue of $69.74 million and goodwill related to Paradigm of $248.55 

million. Specifically, regarding the allocation of the purchase price for Paradigm, the Company 

reported: 

78. The 1Q19 10-Q also stated that RTI’s CEO and CFO had “concluded that the design 

and operation of [the Company’s] disclosure controls and procedures were effective as of the end 

of the period covered by this report.” Regarding internal control over financial reporting, the report 

stated, in relevant part: 

We implemented ASU 2016-02 as of January 1, 2019. As a result, we made the 

following significant modifications to internal control over financial reporting, 

including changes to accounting policies and procedures and documentation 

practices: 

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 Updated our policies and procedures related to accounting for lease assets 

and liabilities and related income and expense 

 Modified our contract review controls 

 Added controls for reevaluating our significant assumptions and judgments 

on a quarterly basis. 

 Added controls to address required disclosures regarding leases, including 

our significant assumptions and judgments used in applying ASC 842. 

Other than the items described above, there have not been any changes in our 

internal control over financial reporting identified in management’s evaluation 

pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the three 

months ended March 31, 2019, that materially affected, or that we believe are 

reasonably likely to materially affect, our internal control over financial reporting. 

79. The statements in ¶¶ 77-78 were materially misleading because they failed to 

disclose: (1) that revenue was improperly recognized because certain customer orders, primarily 

for OEM customers, were shipped early to customers without obtaining authorized approval; (2) 

that RTI did not appropriately prepare preliminary estimates of the purchase price allocation for 

Paradigm, resulting in errors impacting intangible assets, acquisition contingencies, inventory, and 

goodwill; (3) that there were material weaknesses in the Company’s internal control over financial 

reporting, including with respect to the accuracy of journal entries and the accounting for sales 

returns; (4) that, as a result of the foregoing, RTI’s disclosure controls and procedures were not 

effective; and (5) that, as a result of the foregoing, RTI was reasonably likely to restate its financial 

statements. 

80. On August 5, 2019, Farhat, Singer, McEachin, Selquist, Stolper, Sweeney, Thomas, 

Valeriani, and Weis caused RTI to file its quarterly report for the period ended June 30, 2019 (the 

“2Q19 10-Q”), which was signed by defendants Farhat and Singer. Therein, the Company reported 

revenue of $82.31 million. Regarding the allocation of the purchase price for Paradigm, RTI 

reported: 

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81. Regarding the Company’s disclosure controls and procedures and its internal 

control over financial reporting, the 2Q19 10-Q was substantially similar to the statements 

identified with respect to the 1Q19 10-Q. The report also provided that RTI was “in the process 

of integrating Paradigm into [its] overall internal control over financial reporting processes.” 

82. The statements in ¶¶ 80-81 were materially misleading because they failed to 

disclose: (1) that revenue was improperly recognized because certain customer orders, primarily 

for OEM customers, were shipped early to customers without obtaining authorized approval; (2) 

that RTI did not appropriately prepare preliminary estimates of the purchase price allocation for 

Paradigm, resulting in errors impacting intangible assets, acquisition contingencies, inventory, and 

goodwill; (3) that there were material weaknesses in the Company’s internal control over financial 

reporting, including with respect to the accuracy of journal entries and the accounting for sales 

returns; (4) that, as a result of the foregoing, RTI’s disclosure controls and procedures were not 

effective; and (5) that, as a result of the foregoing, RTI was reasonably likely to restate its financial 

statements. 

83. On November 7, 2019, Farhat, Singer, McEachin, Selquist, Stolper, Sweeney, 

Thomas, Valeriani, and Weis caused RTI to file its quarterly report for the period ended September 

30, 2019 (the “3Q19 10-Q”), which was signed by defendants Farhat and Singer. Therein, the 

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Company reported revenue of $79.13 million. Regarding the allocation of the purchase price for 

Paradigm, RTI reported: 

84. The 3Q19 10-Q stated that the Company’s CEO and CFO had “concluded that the 

design and operation of [RTI’s] disclosure controls and procedures were effective as of the end of 

the period covered by this report.” It also stated that there “have not been any changes to [its] 

internal control over financial reporting” during the period. 

85. The statements in ¶¶ 83-84 were materially misleading because they failed to 

disclose: (1) that revenue was improperly recognized because certain customer orders, primarily 

for OEM customers, were shipped early to customers without obtaining authorized approval; (2) 

that RTI did not appropriately prepare preliminary estimates of the purchase price allocation for 

Paradigm, resulting in errors impacting intangible assets, acquisition contingencies, inventory, and 

goodwill; (3) that there were material weaknesses in the Company’s internal control over financial 

reporting, including with respect to the accuracy of journal entries and the accounting for sales 

returns; (4) that, as a result of the foregoing, RTI’s disclosure controls and procedures were not 

effective; and (5) that, as a result of the foregoing, RTI was reasonably likely to restate its financial 

statements. 

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C. The Truth Begins to Emerge 

86. On March 16, 2020, after the market closed, RTI disclosed that it could not timely 

file its annual report on Form 10-K for fiscal 2019 due to ongoing investigations by the SEC and 

the Audit Committee regarding revenue recognition. Specifically, in a press release, the Company 

stated, in relevant part: 

[RTI’s Audit Committee] is in the process of conducting an internal investigation 

of current and prior period matters relating to the Company’s revenue 

recognition practices regarding the timing of revenue with respect to certain 

contractual arrangements, primarily with OEM customers, including the 

accounting treatment, financial reporting and internal controls related to such 

arrangements. The Audit Committee investigation was precipitated by an ongoing 

SEC investigation related to the periods 2014 through 2016. The Company will not 

be in a position to file its Form 10-K until the Audit Committee concludes its 

investigation and the Company and its independent auditor assess the results of that 

investigation. The Company is working to complete its analysis and file its Form 

10-K for the year ended December 31, 2019 within the extension period (through 

March 31, 2020), but no assurance can be given that it will be able to do so. 

87. On this news, RTI’s stock price fell $0.40 per share, nearly 15%, to close at $2.35 

per share on March 17, 2020, on unusually heavy trading volume. 

88. On March 20, 2020, RTI issued a press release to disclose receipt of a letter from 

The Nasdaq Stock Market LLC, “indicating that, as a result of the Company’s delay in filing its 

Form 10-K, the Company is not in compliance with the timely filing requirement for continued 

listing under Nasdaq Listing Rule 5250(c)(1).” 

89. The same day, the Company filed a Form 8-K with the SEC stating that “[o]n March 

17, 2020 the Company and Johannes W. Louw, Vice President Financial Planning and Analysis, 

agreed that Mr. Louw’s employment with the Company would end no later than April 8, 2020.” 

90. On March 30, 2020, in a Form 8-K filed with the SEC, RTI revealed receipt of a 

letter on March 28, 2020 from counsel for Montagu “stating, among other things, that the Company 

is in breach of Section 7.5(a) of the Purchase Agreement as a result of its failure to file a proxy 

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statement with the SEC within the time period set forth in the Purchase Agreement.” RTI had 

thirty days to cure the breach. In the same report, the Company announced that it had postponed 

the special meeting of shareholders, which was set to vote on various proposals necessary to close 

the sale of the OEM business, and the annual meeting of shareholders, which had been scheduled 

for May 13, 2020. 

91. On April 9, 2020, in a Form 8-K filed with the SEC, RTI disclosed certain findings 

from the Audit Committee’s ongoing investigation, including that certain financial statements 

would be restated. Specifically, the Company stated: 

On April 7, 2020, the Audit Committee of the Board of Directors concluded that 

the Company will restate its previously issued audited financial statements for the 

years ended December 31, 2014, 2015, 2016, 2017 and 2018 and its unaudited 

financial statements for the quarterly periods for 2016-2018 and the nine months 

ended September 30, 2019 (the “Relevant Periods”). Accordingly, investors should 

no longer rely upon the Company’s previously released financial statements as of 

and for the years ended December 31, 2018, 2017, 2016, 2015, and 2014, and the 

reports on the financial statements and internal control over financial reporting of 

the Company’s independent registered public accounting firm thereon; or the 

quarterly financial statements and other financial data released related to the 

Relevant Periods. 

The Company has concluded that revenue for certain invoices should have been 

recognized at a later date than when originally recognized. In response to binding 

purchase orders from certain OEM customers, goods were shipped and received by 

the customers before requested delivery dates and agreed-upon delivery windows. 

In many instances, the OEM customers requested or approved the early shipments, 

but the Company has determined that on other occasions the goods were delivered 

early without obtaining the customers’ affirmative approval. In addition, the 

Company has concluded that in July 2017, an adjustment was improperly made 

to a product return provision in the Direct Division. Accordingly, the Company 

will revise its financial statements to correct these errors and any others as it 

finalizes the Investigation. The Company and the Audit Committee of the Board of 

Directors have discussed these matters with Deloitte & Touche LLP, the 

Company’s independent registered public accounting firm. 

92. On April 29, 2020, the Company announced certain amendments to its agreement 

to sell the OEM business to Montagu, including, among other things, a $50 million reduction in 

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the purchase price, i.e. from $490 million to $440 million. The Company also agreed to an 

extension on the closing of the transaction and an extension to file its 2020 proxy statement and 

2019 annual report with the SEC. 

93. Moreover, in the same filing, RTI disclosed the terms of defendant Louw’s 

separation from the Company. Specifically, the Company stated, in relevant part: 

As previously announced, on March 17, 2020, the Company and Johannes W. 

Louw, Vice President Financial Planning and Analysis, agreed that Mr. Louw’s 

employment with RTI Surgical would end no later than April 8, 2020. In connection 

with his departure, on April 24, 2020, RTI Surgical entered into a Separation 

Agreement and Release of Claims (the “Separation Agreement”) and a Consultant 

Agreement (the “Consultant Agreement”) with Mr. Louw. 

Pursuant to the terms of the Separation Agreement, Mr. Louw agreed to release RTI 

Surgical as well as its past and current parents, subsidiaries and affiliated 

organizations (including the Company) from certain claims arising prior to April 

24, 2020, and reaffirm certain ongoing and post-employment obligations to RTI 

Surgical and the Company with respect to confidentiality. In exchange for such 

release and reaffirmation, RTI Surgical agreed to provide Mr. Louw with a 

separation payment in the amount of $195,294.00. 

Pursuant to the terms of the Consultant Agreement, Mr. Louw agreed to provide 

certain services to RTI Surgical as a consultant from April 9, 2020 until the earlier 

of: (i) the consummation of the sale of the Company’s OEM business pursuant to 

the Purchase Agreement; and (ii) the termination of such agreement. In exchange 

for such consultant services, RTI Surgical agreed to pay to Mr. Louw the following 

compensation: (i) $23,741 per month; (ii) reimbursement for reasonable and 

documented out-of-pocked expenses incurred by Mr. Louw in connection with 

performance of such services; and (iii) reimbursement of actual travel expenses in 

accordance with RTI’s travel policy at the time of travel. Either party may terminate 

the Consultant Agreement at any time, with or without cause, by providing the other 

party 30 days’ advance written notice. 

D. The Truth Fully Emerges 

94. On June 8, 2020, the Company filed a Form 10-K/A for the year ended December 

31, 2018 (the “2018 Amended 10-K”) with the SEC to restate its financial results for prior periods 

because, among other things, “revenue for certain invoices should have been recorded at a later 

date than when originally recognized” and “adjustments [had been] improperly or erroneously 

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made to manual journal entry accrual/reserve accounts.” Specifically, regarding the background 

for the restatement, the report stated: 

Based on the results of the Investigation, the Company has concluded that revenue 

for certain invoices should have been recognized at a later date than when originally 

recognized. In response to binding purchase orders from certain OEM customers, 

goods were shipped and received by the customers before requested delivery dates 

and agreed-upon delivery windows. In many instances the OEM customers 

requested or approved the early shipments, but the Company has determined that 

on other occasions the goods were delivered early without obtaining the 

customers’ affirmative approval. Some of those unapproved shipments were 

shipped by employees in order to generate additional revenue and resulted in 

shipments being pulled from a future quarter into an earlier quarter. The revenue 

for those shipments is being restated, as well as for other orders that shipped earlier 

than the purchase order due date in the system for which the Company could not 

locate evidence that the OEM customers had requested or approved the shipments. 

In addition, the Investigation found that in July 2017 a $30,000 adjustment was 

improperly made to a product return provision in the Direct Division that 

increased the Direct Division’s revenue in the prior quarter. The July 2017 

adjustment prompted additional investigative steps. The Company has concluded 

that in the periods of the fourth quarter of 2015 through the fourth quarter of 2018 

certain adjustments were improperly or erroneously made to manual journal entry 

accrual/reserve accounts, including a July 2017 adjustment to a product return 

provision in the Direct Division. Accordingly, the Company has restated its 

financial statements to correct these errors. 

In addition to the correction of the errors discussed above, the Company has also 

made other immaterial corrections in all periods presented. Such immaterial 

corrections reflected in the restated periods and, together with the other corrections 

described above, are referred to herein as “Current and Prior Period Adjustments.” 

The corrections are included in these financial statements contained herein, which 

we refer to herein collectively as the “Restatement”. 

95. The 2018 Amended 10-K detailed the restatement as follows: 

a. Revenue – As noted above, the Company has concluded that in some instances 

revenue for certain invoices should have been recognized at a later date than when 

originally recognized. Under both ASC 605 and ASC 606, revenue on sales to OEM 

customers is typically recognized at a point in time upon shipment. The Company 

identified revenue from certain customer orders that was shipped early to customers 

without obtaining authorized approval, and thus was recognized in an incorrect 

period. There were also instances in which the Company could not locate evidence 

that the OEM customers had requested or approved the shipments. Correction of 

these errors, when including the rollover effect from the immediately preceding 

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periods, decreased revenue by $0.5 million in 2018, increased revenue by $0.8 

million in 2017, and increased revenue by $3.1 million in 2016. 

b. Costs of processing and distribution – Primarily as a result of the error corrections 

noted above, when including the rollover effect from the immediately preceding 

periods, costs of processing and distribution decreased by less than $0.1 million in 

2018, increased by $0.2 million in 2017, and increased by $2.1 million in 2016. 

c. Operating expenses – The Company corrected certain errors noted above, 

separate from the Investigation which increased operating expenses by $1.3 

million, less than $0.1 million and $0.6 million, as of December 31, 2018, 2017, 

and 2016, respectively. 

d. Accounts receivable – Primarily as a result of the error corrections noted above 

relating to the timing of revenue recognition, accounts receivable decreased by $0.3 

million, increased by $0.1 million, and decreased by $0.6 million, as of December 

31, 2018, 2017, and 2016, respectively. 

e. Inventories - net – Primarily as a result of the error corrections noted above 

relating to the timing of revenue recognition, inventories - net increased by $0.2 

million, less than $0.1 million, and $0.3 million as of December 31, 2018, 2017, 

and 2016, respectively. 

f. Prepaid and other current assets – The Company corrected certain errors noted 

above, separate from the investigation, which decreased prepaid and other current 

assets by $0.4 million, increased by $0.3 million, and decreased by less than $0.1 

million, as of December 31, 2018, 2017, and 2016, respectively. 

g. Property, plant and equipment – net – The Company corrected certain errors 

noted above, separate from the investigation, which increased property, plant and 

equipment – net by $0.1 million, as of December 31, 2016. 

h. Deferred tax assets – The Company corrected certain errors noted above, relating 

to the tax effects of changes to the timing of revenue recognition, which increased 

deferred tax assets by $0.3 million, decreased by $0.1 million, and increased by 

$0.1 million as of December 31, 2018, 2017, and 2016, respectively. 

i. Other intangible assets – net – The Company corrected certain errors, separate 

from the investigation, which decreased net other intangible assets – net by $0.8 

million and $0.5 million as of December 31, 2018 and 2017, respectively, and 

increased other intangible assets – net by less than $0.1 million as of December 31, 

2016. 

j. Accounts payable – The Company corrected certain errors, separate from the 

investigation, which decreased accounts payable by $0.1 million as of December 

31, 2018 and 2017, and by less than $0.1 million as of December 31, 2016. 

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k. Accrued expenses – The Company corrected certain errors noted above, separate 

from the investigation, which increased accrued expenses by $1.2 million, $0.1 

million, and $0.4 million, as of December 31, 2018, 2017, and 2016, respectively. 

l. Other long-term liabilities – As a result of the impact of the error corrections 

noted above, separate from the investigation, long-term liabilities increased $0.4 

million as of December 31, 2016. 

m. Payments for treasury stock – The Company corrected certain errors, separate 

from the investigation, which reclassified operating cash flows to financing cash 

flows for purchases of treasury stock by $0.5 million and $3.3 million as of 

December 31, 2018 and 2017, respectively. 

96. The 2018 Amended 10-K contained restatements of line items for the financial 

statements for the relevant periods. As to restatement for revenue, the report provided, in relevant 

part: 

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97. In addition, the 2018 Amended 10-K identified material weaknesses in RTI’s 

internal control over financial reporting. Specifically, the report stated, in relevant part: 

Based on this evaluation of our disclosure controls and procedures, our CEO and 

CFO have concluded that our disclosure controls and procedures were not 

effective as of December 31, 2018 because of certain material weaknesses in our 

internal control over financial reporting, as further described below. 

* * * 

Management, including our CEO and CFO, assessed the Company’s internal 

control over financial reporting and concluded that they were not effective as of 

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December 31, 2018 (“Evaluation Date”). In making this assessment, management 

used the criteria set forth by the COSO framework. Based on evaluation under these 

criteria, management determined, based upon the existence of the material 

weaknesses described below, that we did not maintain effective internal control 

over financial reporting as of the Evaluation Date. 

* * * 

We did not maintain an effective control environment based on the criteria 

established in the COSO framework. We have identified deficiencies in the 

principles associated with the control environment of the COSO framework.

Specifically, these control deficiencies constitute material weaknesses, either 

individually or in the aggregate, relating to: (i) appropriate organizational structure, 

reporting lines, and authority and responsibilities in pursuit of objectives; (ii) our 

commitment to attract, develop, and retain competent individuals; and (iii) holding 

individuals accountable for their internal control related responsibilities. As 

disclosed in the consolidated financial statements included in Item 8. “Financial 

Statements and Supplementary Data”, these material weaknesses contributed to 

accounting errors. 

We did not maintain an effective control environment to enable the identification 

and mitigation of risks of accounting errors based on the contributing factors to 

material weakness in the control environment, including: The tone from executive 

management was insufficient to create the proper environment for effective 

internal control over financial reporting and to ensure that: (i) there were 

adequate processes for oversight; (ii) there was accountability for the 

performance of internal control over financial reporting responsibilities; (iii) 

personnel with key positions had the appropriate training to carry out their 

responsibilities; and (iv) corrective activities were appropriately applied, 

prioritized, and implemented in a timely manner. . . . 

We did not design and implement effective control activities based on the criteria 

established in the COSO framework. We have identified deficiencies in the 

principles associated with the control activities component of the COSO 

framework. Specifically, these control deficiencies constitute material weaknesses, 

either individually or in the aggregate, relating to: (i) selecting and developing 

control activities and information technology that contribute to the mitigation of 

risks and support achievement of objectives; and (ii) deploying control activities 

through policies that establish what is expected and procedures that put policies 

into action. 

The following were contributing factors to the material weaknesses in control 

activities: 

 Lack of consistently established controls to segregate the function of 

recording and approving journal entries, as well as preparation and review 

of reconciliations with appropriate supporting documentation. 

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 Inconsistent documentation and retention of support for the review and 

approval of manual journal entries. 

 Inconsistent documentation and application of accounting policies and/or 

practice for the sales returns reserve and certain accrual accounts. 

 Insufficient resources within the accounting and financial reporting 

department to review the accounting for non-recurring complex purchase 

accounting, contingent payment and segment reporting transactions. 

 Insufficient design and operation of certain control activities to respond to 

potential risk of material misstatements in the area of revenue recognition. 

In particular: (i) no controls requiring customer approval for early 

shipments outside of agreed upon shipping terms; (ii) no controls requiring 

centralized retention of proof of customer approval or request related to 

shipping outside of agreed terms; (iii) no formal process for offering or 

approving discounts to customers for early shipments; and (iv) no formal 

controls to ensure appropriate cut-off of direct revenue to customers at 

period ends in line with shipping terms. 

Deficiencies in control activities contributed to material accounting errors 

identified and corrected in 2018 and prior years. These design deficiencies in 

control activities contributed to the potential for there to have been material 

accounting errors in substantially all financial statement account balances and 

disclosures. 

98. The 2018 Amended 10-K also identified deficiencies in the Company’s risk 

assessment and monitoring activities. Specifically, the report stated, in relevant part: 

We did not design and implement an effective risk assessment based on the criteria 

established in the COSO framework. We have identified deficiencies in the 

principles associated with the risk assessment component of the COSO framework. 

Specifically, these control deficiencies constitute material weaknesses, either 

individually or in the aggregate, relating to: (i) identifying, assessing, and 

communicating appropriate objectives; (ii) identifying and analyzing risks to 

achieve these objectives; (iii) considering the potential for fraud in assessing risks; 

and (iv) identifying and assessing changes in the business that could impact our 

system of internal controls. 

A contributing factor to material weaknesses in the risk assessment included the 

fact that the Company’s formal SOX compliance program did not have sufficient 

scope and focus on the key financial reporting risks. 

* * * 

We did not design and implement effective monitoring activities based on the 

criteria established in the COSO framework. We have identified deficiencies in the 

principles associated with the monitoring component of the COSO framework. 

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Specifically, these control deficiencies constitute material weaknesses, either 

individually or in the aggregate, relating to: (i) selecting, developing, and 

performing ongoing evaluation to ascertain whether the components of internal 

controls are present and functioning; and (ii) evaluating and communicating 

internal control deficiencies in a timely manner to those parties responsible for 

taking corrective action. 

The following were contributing factors to the material weaknesses in monitoring 

activities: 

 Management did not properly evaluate the function and operating 

effectiveness of certain internal control activities, limiting its ability to 

detect and communicate deficiencies. 

 Internal audit activities were insufficient to keep pace with the size and 

complexity of our business structure and organization, which limited our 

ability to effectively monitor internal controls. 

 The Company’s formal SOX compliance program did not have sufficient 

scope and focus on the key financial reporting risks. 

 The Company did not have sufficient talent and resources with sufficient 

expertise to evaluate the risks and controls. 

 The Company did not have sufficient oversight and supervision of the 

internal control evaluation process. 

99. Also on June 8, 2020, RTI filed its annual report on Form 10-K for the period ended 

December 31, 2019 (the “2019 10-K”). With respect to the errors in the quarterly financial 

statements issued in fiscal 2019, the 2019 10-K summarized: 

a. Revenue – As noted above, the Company has concluded that in some instances 

revenue for certain invoices should have been recognized at a later date than when 

originally recognized. The Company identified revenue from certain customer 

orders that were shipped early to customers without obtaining authorized approval, 

and thus was recognized in an incorrect period. There were also instances in which 

the Company could not locate evidence that the OEM customers had requested or 

approved the shipments and therefore concluded revenue related to these shipments 

were an error. Correction of these errors, when including the rollover effect from 

the immediately preceding periods, increased revenue by $0.3 million in the quarter 

ended March 31, 2019, decreased by $0.8 million in the quarter ended June 30, 

2019 and increased by $0.6 million in the quarter ended September 30, 2019. 

 

b. Costs of processing and distribution – Based on the corrections to the above 

revenue errors, when including the rollover effect from the immediately preceding 

periods, costs of processing and distribution increased by $0.1 million in the quarter 

ended March 31, 2019, decreased by $0.2 million in the quarter ended June 30, 

2019 and increased by $0.1 million in the quarter ended September 30, 2019. 

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c. Accounts receivable – As a result of the errors corrections above, accounts 

receivable increased by $0.4 million in the quarter ended March 31, 2019, 

decreased by $0.3 million in the quarter ended June 30, 2019 and increased $0.3 

million in the quarter ended September 30, 2019. 

d. Inventories, net – As a result of the errors corrections above, net inventories 

decreased by $0.1 million in the quarter ended March 31, 2019, increased by $0.1 

million in the quarter ended June 30, 2019 and increased by less than $0.1 million 

in the quarter ended September 30, 2019. 

e. Deferred tax assets – As a result of the income tax impact of the errors corrections 

above, deferred tax assets decreased by $0.6 million in the quarter ended March 31, 

2019, decreased by $0.5 million in the quarter ended June 30, 2019, and decreased 

by $0.6 million in the quarter ended September 30, 2019. 

100. In addition to the errors identified in the 2018 Amended 10-K, the 2019 10-K stated 

that “[a]dditional errors were made in connection with the recording of the acquisition of Paradigm 

Spine, LLC in 2019.” Specifically, the report stated: 

The following errors in the Company’s quarterly financial statements were 

identified and corrected apart from the Investigation and related to accounting for 

our 2019 acquisition of Paradigm Spine, LLC for the first three quarters of 2019. 

ASC 805 Business Combinations states that if the initial accounting for a business 

combination is incomplete by the end of the reporting period in which the 

combination occurs, the acquirer shall report in its financial statements the 

provisional amounts for the items for which the accounting is incomplete. The 

acquisition occurred on March 8, 2019, before the end of the first quarter of 2019. 

Accordingly, based on the information known or knowable in the first quarter of 

2019, the Company should have performed a preliminary allocation of the purchase 

price to assets acquired and liabilities assumed. The Company did not appropriately 

prepare a preliminary estimates of the purchase price allocation resulting in errors 

impacting intangible assets, acquisition contingencies, inventory, and goodwill. 

The correction of the errors related to accounting for the acquisition of Paradigm 

Spine, LLC are as follows: 

a. Costs of processing and distribution – Based on the corrections to the inventory 

valuation and Paradigm purchase accounting, costs of processing and distribution 

increased by $0.3 million in the quarter ended March 31, 2019, decreased by $1.9 

million in the quarter ended June 30, 2019, and by $1.2 million in the quarter ended 

September 30, 2019. 

b. Marketing, general and administrative – Based on the corrections to the 

amortization related to the other intangible assets’ valuation and Paradigm purchase 

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accounting, marketing, general and administrative expenses increased by $0.7 

million in the quarter ended March 31, 2019 and increased $2.1 million in each of 

the quarters ended June 30, and September 30, 2019. 

c. Current inventories, net – Based on the corrections to the inventory valuation and 

Paradigm purchase accounting, net current inventories increased by $1.2 million in 

quarter ended March 31, 2019, and decreased by $12.6 million in the quarters ended 

June 30, and September 30, 2019. 

d. Non-current inventories, net – Based on the corrections to the inventory valuation 

and Paradigm purchase accounting, net non-current inventories increased by $10.3 

million in quarter ended March 31, 2019, decreased $11.2 million in the quarter 

ended June 30, 2019, and decreased by $10.0 million in the quarter ended 

September 30, 2019. 

e. Deferred tax assets – Based on the corrections to the Paradigm purchase 

accounting deferred tax assets increased by $0.2 million in quarter ended March 

31, 2019, increased by $0.3 million in the quarter ended June 30, 2019, and 

increased by $0.5 million in the quarter ended September 30, 2019. 

f. Goodwill – Based on the corrections to the Paradigm purchase accounting, 

goodwill decreased by $113.5 million in quarter ended March 31, 2019, decreased 

$76.4 million in the quarter ended June 30, 2019, and decreased by $41.7 million 

in the quarter ended September 30, 2019. 

g. Other intangible assets - net – Based on the corrections to the Paradigm purchase 

accounting, net other intangible assets increased by $78.3 million in the quarter 

ended March 31, 2019, increased $76.2 million in the quarter ended June 30, 2019, 

and increased $74.1 million in the quarter ended September 30, 2019. 

h. Acquisition contingencies – Based on the corrections to the contingent liability 

valuation and Paradigm purchase accounting, acquisition contingencies decreased 

by $22.8 million in each of the quarters ended March 31, and June 30, 2019 and 

increased $11.9 million in the quarter ended September 30, 2019. 

101. The 2019 10-K also identified certain “immaterial corrections in all periods 

presented.” Specifically, it summarized: 

a. Marketing, general and administrative – The Company corrected certain errors 

which decreased marketing, general and administrative expenses by $0.5 million in 

the quarter ended March 31, 2019 and less than $0.1 million in each of the quarters 

ended June 30, and September 30, 2019. 

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b. Accounts receivable – The Company corrected certain errors which decreased 

accounts receivable by $0.4 million for the quarter ended March 31, 2019, and by 

$0.3 million for the quarters ended June 30, and September 30, 2019. 

c. Prepaid and other current assets – The Company corrected certain errors which 

decreased prepaid and other current assets by $0.5 million for each of the quarters 

ended March 31, and June 30, 2019, and September 30, 2019. 

d. Deferred tax assets - net – The Company corrected certain errors which increased 

net deferred tax assets by $0.7 million for the quarters ended March 31, June 30, 

and September 30, 2019. 

e. Property, plant & equipment – The Company corrected certain errors which 

increased property, plant & equipment by $0.3 million for the quarters ended March 

31, June 30, and September 30, 2019. 

f. Other intangible assets - net – The Company corrected certain errors which 

decreased net other intangible assets by $0.8 million for each of the quarters ended 

March 31, June 30, and September 30, 2019. 

g. Other assets - net – The Company corrected certain errors which decreased net 

other assets by $0.3 million for the quarters ended March 31, June 30, and 

September 30, 2019. 

h. Accounts payable – The Company corrected certain errors which decreased 

accounts payable by $0.2 million for the quarters ended March 31, June 30, and 

September 30, 2019. 

i. Accrued expenses – The Company corrected certain errors which increased 

accrued expenses by $0.6 million for the quarters ended March 31, June 30, and 

September 30, 2019. 

j. Payments for treasury stock – The Company corrected certain errors which 

reclassified operating cash flows to financing cash flows for purchases of treasury 

stock by $0.1 million, $0.2 million, and $0.2 million for the quarters ended March 

31, June 30, and September 30, 2019, respectively. 

102. The 2019 10-K stated that RTI’s “disclosure controls and procedures were not 

effective as of December 31, 2019 because of certain material weaknesses in [its] internal control 

over financial reporting” substantially similar to those identified in the 2018 Amended 10-K. The 

report also stated that “[r]emediation of the identified material weaknesses and strengthening [the 

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Company’s] internal control environment will require a substantial effort throughout 2020 and 

beyond, as necessary.” 

E. The Director Defendants Caused the Company to Expend Significant Funds 

to Repurchase Its Stock 

103. The Director Defendants caused the Company to initiate repurchases of its common 

stock that substantially damaged the Company. In total, RTI spent an aggregate amount of over 

$4.5 million to repurchase approximately 1,006,318 shares of its own common stock at artificially 

inflated prices from August 2016 through March 2019. 

104. According to the 2016 10-K, during August 2016, the Company purchased 109,506 

shares of its common stock for approximately $362,464 at an average price of $3.31 per share. As 

the Company’s stock was actually worth only $2.35 per share, the price at closing on March 17, 

2020, the Company overpaid by $105,125 for stock repurchases during this period. 

105. According to the 2017 10-K, during January, February, and November 2017, the 

Company purchased 745,122 shares of its common stock for approximately $3.4 million at an 

average price of $4.65 per share. As the Company’s stock was actually worth only $2.35 per share, 

the price at closing on March 17, 2020, the Company overpaid by nearly $1.7 million for stock 

repurchases during this period. 

106. According to the 2018 10-K, during the months of January, April, May, July, and 

August 2018, the Company purchased 107,109 shares of its common stock for approximately 

$478,591 at an average price of $4.47 per share. As the Company’s stock was actually worth only 

$2.35 per share, the price at closing on March 17, 2020, the Company overpaid by approximately 

$226,885 for stock repurchases during this period. 

107. According to the 1Q19 10-Q, during the quarter ended March 31, 2019, the 

Company purchased 29,021 shares of its common stock for approximately $136,435 at an average 

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price of $4.70 per share. As the Company’s stock was actually worth only $2.35 per share, the 

price at closing on March 17, 2020, the Company overpaid by about $68,199 for stock repurchases 

during this period. 

108. According to the 2Q19 10-Q, during the quarter ended June 30, 2019, the Company 

purchased 7,748 shares of its common stock for approximately $38,032 at an average price of 

$4.94 per share. As the Company’s stock was actually worth only $2.35 per share, the price at 

closing on March 17, 2020, the Company overpaid by $19,825 for stock repurchases during this 

period. 

109. According to the 3Q19 10-Q, during the quarter ended September 30, 2019, the 

Company purchased 7,812 shares of its common stock for approximately $31,908 at an average 

price of $4.11 per share. As the Company’s stock was actually worth only $2.35 per share, the 

price at closing on March 17, 2020, the Company overpaid by approximately $13,550 for stock 

repurchases during this period. 

110. In sum, the Company overpaid for repurchases of its own stock by over $2.1 

million. 

F. Defendant Singer Sold Nearly $45,000 in RTI Stock While in Possession of 

Material Non-Public Information 

111. Defendant Singer is the Company’s CFO with a highly sophisticated understanding 

of the Company’s results and their import. 

112. As set forth herein, defendant Singer possessed material negative information 

which he knew was being concealed from investors. Defendant Singer consciously acted to exploit 

his knowledge by selling nearly $45,000 of RTI stock to his substantial benefit, as follows: 

Date Shares Sold Price Proceeds 

2/26/2020 5,940 $4.05 $24,057 

2/28/2020 5,510 $3.70 $20,387 

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113. Defendant Singer thus used his fiduciary position to enrich himself and failed to 

discharge his duties by causing the Company to candidly reveal the truth of its business condition. 

VI. DAMAGES TO THE COMPANY 

114. As a direct and proximate result of the Individual Defendants’ conduct, RTI has 

been seriously harmed and will continue to be. Such harm includes, but is not limited to: 

a) Costs incurred in connection with the SEC’s investigation; 

b) Funds expended in connection with the stock repurchases; 

c) The price reduction for the sale of the Company’s OEM business; 

d) Fees for legal and professional fees incurred in connection with the Securities Class 

Action; 

e) Any funds paid to settle the Securities Class Action; and 

f) Costs incurred from compensation and benefits paid to the defendants who have 

breached their duties to RTI. 

115. In addition, RTI’s business, goodwill, and reputation with its business partners, 

regulators, and shareholders have been gravely impaired. The Company still has not fully admitted 

the nature of its false statements and the true condition of its business. The credibility and motives 

of management are now in serious doubt. 

116. The actions complained of herein have irreparably damaged RTI’s corporate image 

and goodwill. For at least the foreseeable future, RTI will suffer from what is known as the “liar’s 

discount,” a term applied to the stocks of companies who have been implicated in illegal behavior 

and have misled the investing public, such that RTI’s ability to raise equity capital or debt on 

favorable terms in the future is now impaired. 

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VII. DERIVATIVE AND DEMAND FUTILITY ALLEGATIONS 

117. Plaintiff brings this action derivatively in the right and for the benefit of RTI to 

redress injuries suffered, and to be suffered, by RTI as a direct result of breaches of fiduciary duty 

by the Individual Defendants, insider trading, violations of Section 10(b) and 14(a) of the 

Exchange Act, waste of corporate assets, and unjust enrichment. RTI is named as a nominal 

defendant solely in a derivative capacity. This is not a collusive action to confer jurisdiction on 

this Court that it would not otherwise have. 

118. Plaintiff will adequately and fairly represent the interests of RTI in enforcing and 

prosecuting its rights. 

119. Plaintiff has continuously been a shareholder of RTI at times relevant to the 

wrongdoing complained of and is a current RTI shareholder. 

120. When this action was filed, RTI’s Board of Directors consisted of defendants 

Farhat, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and Weis and non-party 

directors Jeffrey C. Lightcap and Stuart F. Simpson. Plaintiff did not make any demand on the 

Board to institute this action because such a demand would be a futile, wasteful, and useless act, 

as set forth below. 

Defendant Farhat 

121. Farhat serves as RTI’s CEO, and therefore is not independent under NASDAQ 

listing rules. As an employee, Farhat derives substantially all of his income from his employment 

with RTI, thus could not disinterestedly consider a demand for action that might require him to 

sue the directors that control his continued employment and/or fellow members of management 

with whom he works on a day-to-day basis. Farhat personally issued the misleading statements 

alleged herein. As a result, Farhat would be interested in a demand regarding his own wrongdoing, 

and demand is futile as to him. 

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Defendants McEachin, Stolper, and Weis 

122. McEachin, Stolper, and Weis served as the members of the Audit Committee at all 

relevant times. As such, they are responsible for the effectiveness of the Company’s internal 

controls, the integrity of its financial statements, and its compliance with laws and regulations. In 

their capacities as Audit Committee members, McEachin, Stolper, and Weis reviewed and 

approved the disclosures regarding the Company’s financial statements, including with respect to 

revenue recognition for OEM customers. As alleged herein, McEachin, Stolper, and Weis failed 

to ensure the integrity of the Company’s internal controls, allowing the materially misleading 

statements to be disseminated in RTI’s SEC filings and other disclosures. Thus, McEachin, 

Stolper, and Weis breached their fiduciary duties and are not disinterested, and demand is excused 

as to them. 

Defendants Farhat, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and Weis 

123. Farhat, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and Weis each 

are responsible for the issuance of the misleading disclosures and omissions in the Form 10-Ks for 

fiscal years 2015, 2016, 2017, and 2018, having signed and issued the 10-K. When Farhat, 

McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and Weis signed the Form 10-Ks, they 

knew that the Company had improperly recognized revenue with respect to OEM customers. By 

intentionally issuing disclosures that misrepresented the Company’s results, Farhat, McEachin, 

Selquist, Stolper, Sweeney, Thomas, Valeriani, and Weis breached their fiduciary duties and face 

a substantial likelihood of liability. 

124. Additionally, demand is excused as to Farhat, McEachin, Selquist, Stolper, 

Sweeney, Thomas, Valeriani, and Weis in connection with the insider selling of Singer. The 

material negative nonpublic information known to Singer when he sold his stock is the same 

information as was known to Farhat, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, 

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and Weis when they signed and issued the Form 10-Ks. Farhat, McEachin, Selquist, Stolper, 

Sweeney, Thomas, Valeriani, and Weis could not disinterestedly investigate allegations that Singer 

traded on nonpublic information because they are alleged to have concealed the same information, 

and finding that Singer had trading on such information would be admitting that indeed the 

information had been concealed, and was known by the Board and management when they issued 

the Form 10-Ks. As a result, demand is excused in connection with the Brophy claim alleged 

herein. 

125. Moreover, Farhat, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and 

Weis were directors at the time of the stock repurchases alleged herein and voted to conduct the 

stock repurchase. These defendants therefore by their intentional acts caused the Company to be 

harmed by over $2.1 million. They could not disinterestedly consider a demand for action or 

investigate their votes without being required to evaluate and make a decision on such topics as 

their states of mind, whether there was a reason to doubt they acted with business judgement. This 

they could not do disinterestedly and independently, and thus demand is excused. 

126. Farhat, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and Weis could 

not disinterestedly consider a demand to action in connection with the misleading proxy statement 

issued in 2018. These eight directors issued the proxy statement knowing that representations 

made in the Company’s SEC filings and other disclosures were misleading with respect to the 

Company’s revenue recognition, and they did not disclose the same prior to the issuance of the 

proxy statement or the shareholder vote in 2018. Had these eight directors truthfully and 

completely revealed the misleading nature of the Company’s public statements, Farhat, Gearen, 

McEachin, Stolper, Thomas, Valeriani, and Weis would not have been reelected as directors and 

the 2018 Plan would not have been approved. As a result Farhat, McEachin, Selquist, Stolper, 

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Sweeney, Thomas, Valeriani, and Weis would be interested in a demand regarding the misleading 

proxy statement, and demand is excused as to them on that basis as well. 

COUNT I 

Against All Defendants for Breach of Fiduciary Duty 

127. Plaintiff incorporates by reference and realleges each and every allegation 

contained above, as though fully set forth herein. 

128. Each Individual Defendant owes and owed to the Company the duty to exercise 

candor, good faith, and loyalty in the management and administration of RTI’s business and 

affairs, particularly with respect to issues as fundamental as public disclosures. 

129. The Individual Defendants’ conduct set forth herein was due to their intentional or 

reckless breach of the fiduciary duties they owed to the Company. The Individual Defendants 

intentionally or recklessly breached or disregarded their fiduciary duties to protect the rights and 

interests of RTI. 

130. In breach of their fiduciary duties owed to RTI, the Individual Defendants willfully 

participated in and caused the Company to expend unnecessarily its corporate funds, rendering 

them personally liable to the Company for breaching their fiduciary duties. 

131. In particular, the Individual Defendants knowingly or recklessly made untrue 

statements and/or permitted the Company’s public filings, disclosures, and statements to 

misleadingly report revenue and the Company’s overall prospects. 

132. As a direct and proximate result of the Individual Defendants’ breaches of their 

fiduciary obligations, RTI has sustained and continues to sustain significant damages. Including 

direct monetary damages, exposure to liability from securities litigation and a loss of goodwill in 

the capital markets. As a result of the misconduct alleged herein, defendants are liable to the 

Company. 

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COUNT II 

Against Singer – Brophy Claim 

133. Plaintiff incorporates by reference and realleges each and every allegation 

contained above, as though fully set forth herein. 

134. As alleged herein, Singer is a fiduciary of RTI, possessed material, non-public 

information of RTI, and used that information improperly to profit from sales of RTI stock. When 

Singer directed the stock sales set forth above, he was motivated to do so, in whole or in part, by 

the substance of the material, non-public information he possessed and he acted with scienter. 

135. When Singer sold his RTI stock, he knew that the investing public was unaware of 

the negative material information that he possessed. He also knew that if the information were 

disclosed, the market price of RTI stock would be significantly lower. Singer timed his stock sale 

to take advantage of the investing public’s ignorance of the concealed material facts and obtain a 

higher price for the stock he sold. He thereby benefitted by misappropriating RTI’s non-public 

information. 

136. Plaintiff has no adequate remedy at law. 

COUNT III 

(Against Farhat, Hutchison, Singer, Jordheim, and Louw for Contribution 

For Violations of Sections 10(b) and 21D of the Exchange Act) 

137. Plaintiff incorporates by reference and realleges each and every allegation 

contained above, as though fully set forth herein. 

138. Defendants Farhat, Hutchison, Singer, Jordheim, and Louw are named as 

defendants in the related Securities Class Action. The conduct of these Defendants, as described 

herein, has exposed the Company to significant liability under various federal and state securities 

laws by their disloyal acts. 

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139. RTI is named as a defendant in related securities class actions that allege and assert 

claims arising under § 10(b) of the Exchange Act. The Company is alleged to be liable to private 

persons, entities and/or classes by virtue of many of the same facts alleged herein. If RTI is found 

liable for violating the federal securities laws, the Company’s liability will arise in whole or in part 

from the intentional, knowing, or reckless acts or omissions of all or some of the Defendants as 

alleged herein, who have caused the Company to suffer substantial harm through their disloyal 

acts. The Company is entitled to contribution and indemnification from these Defendants in 

connection with all claims that have been, are, or may be asserted against the Company by virtue 

of their wrongdoing. 

140. As officers, directors and otherwise, Defendants Farhat, Hutchison, Singer, 

Jordheim, and Louw had the power or ability to, and did, control or influence, either directly or 

indirectly, RTI’s general affairs, including the content of its public statements, and had the power 

or ability to directly or indirectly control or influence the specific corporate statements and conduct 

that violated § 10(b) of the Exchange Act and SEC Rule 10b-5. 

141. Defendants Farhat, Hutchison, Singer, Jordheim, and Louw are liable under § 21D 

of the Exchange Act, which governs the application of any private right of action for contribution 

asserted pursuant to the Exchange Act. 

142. Defendants Farhat, Hutchison, Singer, Jordheim, and Louw have damaged the 

Company and are liable to the Company for contribution. 

143. No adequate remedy at law exists for Plaintiff by and on behalf of the Company. 

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COUNT IV 

Derivative Claim for Violations of Section 10(b) of the Exchange Act and SEC Rule 10b-5 

Promulgated Thereunder Against Defendants Farhat, McEachin, Selquist, Stolper, 

Sweeney, Thomas, Valeriani, and Weis 

144. Plaintiff incorporates by reference and realleges each and every allegation 

contained above, as though fully set forth herein. 

145. This Count is asserted on behalf of the Company against Defendants Farhat, 

McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and Weis for violations of Section 

10(b) of the Exchange Act, 15 U.S.C. § 78j(b) and Rule 10b-5 promulgated thereunder, 17 C.F.R. 

§ 240.10b-5. 

146. At all relevant times, in connection with RTI’s repurchases of its shares, Defendants 

Farhat, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and Weis made, disseminated, 

or approved false or misleading statements about the Company specified herein, which they knew 

or deliberately disregarded were false or misleading and were intended to deceive, manipulate, or 

defraud. Those false or misleading statements and Defendants Farhat, McEachin, Selquist, 

Stolper, Sweeney, Thomas, Valeriani, and Weis’s course of conduct were designed to artificially 

inflate the price of the Company’s common stock. 

147. At the same time that the price of the Company’s common stock was inflated due 

to the false and misleading statements, defendant Farhat, McEachin, Selquist, Stolper, Sweeney, 

Thomas, Valeriani, and Weis caused the Company to repurchase millions of shares of its own 

stock at prices that were artificially inflated due to their false or misleading statements. Defendants 

Farhat, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and Weis engaged in a scheme 

to defraud the Company by causing it to repurchase its shares at inflated prices. 

148. Defendants Farhat, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and 

Weis violated Section 10(b) of the Exchange Act and Rule 10b-5 in that they (a) employed devices, 

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schemes, and artifices to defraud; (b) made untrue statements of material facts or omitted to state 

material facts necessary in order to make the statements made, in light of the circumstances under 

which they were made, not misleading; and/or (c) engaged in acts, practices, and a course of 

business that operated as a fraud or deceit upon the Company in connection with the Company’s 

purchases of RTI common stock at all relevant times. 

149. Defendants Farhat, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and 

Weis, directly and indirectly, by the use of means or instrumentalities of interstate commerce 

and/or of the U.S. mails, engaged and participated in a continuous course of conduct that operated 

as a fraud and deceit upon the Company; made or disseminated various false and/or misleading 

statements of material facts and omitted to state material facts necessary in order to make the 

statements made or disseminated, in light of the circumstances under which they were made or 

disseminated, not misleading; made or disseminated the above statements intentionally or with a 

deliberately reckless disregard for the truth; and employed devices and artifices to defraud in 

connection with the Company’s purchase of RTI common stock, which were intended to, and did 

deceive the Company regarding its performance and the effectiveness of its internal controls. 

150. Defendants Farhat, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and 

Weis were directors and senior management and of the Company, and were therefore directly 

responsible for, and are liable for, all materially false or misleading statements made at all relevant 

times, as alleged above. 

151. As described above, Defendants Farhat, McEachin, Selquist, Stolper, Sweeney, 

Thomas, Valeriani, and Weis acted with scienter at all relevant times, in that he acted either with 

intent to deceive, manipulate, or defraud, or with severe recklessness. The misstatements and 

omissions of material facts set forth herein were either known to Defendants Farhat, McEachin, 

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Selquist, Stolper, Sweeney, Thomas, Valeriani, and Weis or were so that they should have been 

aware of them. 

152. As a result of Defendants Farhat, McEachin, Selquist, Stolper, Sweeney, Thomas, 

Valeriani, and Weis’s misconduct, RTI has suffered damages in that it paid artificially inflated 

prices for RTI common stock as part of the repurchase program and suffered losses when the true 

facts became known. The Company would not have purchased RTI common stock at the prices it 

paid, or at all, but for the artificial inflation in the Company’s stock price caused by the false or 

misleading statements made by Defendants Farhat, McEachin, Selquist, Stolper, Sweeney, 

Thomas, Valeriani, and Weis. 

153. As a direct and proximate result of Defendants Farhat, McEachin, Selquist, Stolper, 

Sweeney, Thomas, Valeriani, and Weis’s wrongful conduct, the Company suffered damages in 

connection with its repurchases of RTI common stock during the relevant period. By reason of 

such conduct, Defendants Farhat, McEachin, Selquist, Stolper, Sweeney, Thomas, Valeriani, and 

Weis are liable to the Company pursuant to Section 10(b) of the Exchange Act and SEC Rule 10b5. 

154. Plaintiff brought this claim within two years of its discovery of the facts constituting 

the violation and within five years of the violation. 

COUNT V 

Against Defendants Farhat, Gearen, McEachin, Selquist, Stolper, Sweeney, Thomas, 

Valeriani, and Weis for Violation of Section 14 of the Exchange Act 

155. Plaintiff incorporates by reference and realleges each and every allegation set forth 

above, as though fully set forth herein. 

156. Rule 14a-9, promulgated pursuant to §14(a) of the Securities Exchange Act of 

1934, provides that no proxy statement shall contain “any statement which, at the time and in light 

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of the circumstances under which it is made, is false or misleading with respect to any material 

fact, or which omits to state any material fact necessary in order to make the statements therein 

not false or misleading.” 17 C.F.R. §240.14a-9. Specifically, the Company’s proxy statement filed 

on March 26, 2018 violated §14(a) and Rule 14a-9 because: (i) it misrepresented the actual 

activities of the Board, as well as the Audit Committee, with respect to risk management and 

oversight while soliciting votes to reelect and compensate directors who were breaching their 

fiduciary duties; and (ii) it failed to disclose that each of the non-employee directors were 

interested in their own grants of discretionary compensation. 

157. In the exercise of reasonable care, defendants should have known that the 

statements contained in the proxy statement were materially false and misleading. 

158. The misrepresentations and omissions in the proxy statement were material to 

Company shareholders in voting on the proxy statement. The 2018 proxy statement solicited 

shareholder votes for: (i) director nominees; (ii) the 2018 Incentive Compensation Plan; and (iii) 

executive compensation. The proxy statement was an essential link in the accomplishment of the 

continuation of defendants’ continued violation of their fiduciary duties. 

159. The Company was damaged as a result of the defendants’ material 

misrepresentations and omissions in the proxy statement. 

COUNT VI 

Against the Individual Defendants for Waste of Corporate Assets 

160. Plaintiff incorporates by reference and realleges each and every allegation 

contained above, as though fully set forth herein. 

161. The Individual Defendants breached their fiduciary duties and, thereby, caused RTI 

to waste its assets, expend millions of dollars of corporate funds, and impair its reputation and 

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credibility for no legitimate business purpose, as a result of which the Company has been and 

continues to be substantially damaged. 

162. As a direct and proximate result of these breaches of their fiduciary duties, RTI has 

sustained and will continue to sustain significant damages, as alleged herein. As a result of the 

misconduct alleged herein, the Individual Defendants are liable to the Company. 

COUNT VII 

Against All Defendants for Unjust Enrichment 

163. Plaintiff incorporates by reference and realleges each and every allegation 

contained above, as though fully set forth herein. 

164. By their wrongful acts and omissions, the Individual Defendants were unjustly 

enriched at the expense of and to the detriment of RTI. The Individual Defendants were unjustly 

enriched as a result of the compensation and director remuneration they received while breaching 

fiduciary duties owed to RTI. 

165. Plaintiff, as a stockholder and representative of RTI, seeks restitution from these 

defendants, and each of them, and seeks an order of this Court disgorging all profits, benefits, and 

other compensation obtained by these defendants, and each of them, from their wrongful conduct 

and fiduciary breaches. 

166. Plaintiff, on behalf of RTI, has no adequate remedy at law. 

PRAYER FOR RELIEF 

WHEREFORE, plaintiff, on behalf of RTI, demands judgment as follows: 

A. Declaring that plaintiff may maintain this action on behalf of RTI and that plaintiff 

is an adequate representative of the Company; 

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B. Against all of the defendants and in favor of the Company for the amount of 

damages sustained by the Company as a result of the defendants’ breaches of fiduciary duties, 

waste of corporate assets, and unjust enrichment; 

C. Declaring that Defendants have breached and/or aided and abetted the breach of 

their fiduciary duties to RTI; 

D. Directing RTI to take all necessary actions to reform and improve its corporate 

governance and internal procedures to comply with applicable laws and to protect RTI and its 

stockholders from a repeat of the damaging events described herein, including, but not limited to, 

putting forward for stockholder vote, resolutions for amendments to the Company’s Bylaws or 

Articles of Incorporation and taking such other action as may be necessary to place before 

stockholders for a vote of the following corporate governance policies: 

1. a proposal to strengthen the Company’s controls over financial reporting; 

2. a proposal to strengthen the Board’s supervision of operations and develop 

and implement procedures for greater stockholder input into the policies and guidelines of the 

Board; 

3. a proposal to strengthen RTI’s oversight of its disclosure procedures; 

4. a provision to control insider transactions; and 

5. a provision to permit the stockholders of RTI to nominate at least three 

candidates for election to the Board; 

E. Extraordinary equitable and/or injunctive relief as permitted by law, equity, and 

state statutory provisions sued hereunder, including attaching, impounding, imposing a 

constructive trust on, or otherwise restricting the proceeds of defendants’ trading activities or their 

other assets so as to assure that plaintiff on behalf of RTI has an effective remedy; 

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F. Awarding to RTI restitution from defendants, and each of them, and ordering 

disgorgement of all profits, benefits, and other compensation obtained by the defendants; 

G. Awarding to plaintiff the costs and disbursements of the action, including 

reasonable attorneys’ fees, accountants’ and experts’ fees, costs, and expenses; and 

H. Granting such other and further relief as the Court deems just and proper. 

JURY DEMAND 

Pursuant to Fed. R. Civ. P. 38(b), plaintiff demands a trial by jury. 

Dated: July 7, 2020 By: s/Marvin A. Miller

 Marvin A. Miller 

 Andrew Szot 

MILLER LAW LLC 

 115 S. LaSalle Street, Suite 2910 

 Chicago, IL 60603 

 312.332.3400 

mmiller@millerlawllc.com

aszot@millerlawllc.com

Matthew M. Houston 

Benjamin I. Sachs-Michaels 

GLANCY PRONGAY & MURRAY LLP 

712 Fifth Avenue 

New York, New York 10019 

Telephone: (212) 935-7400 

E-mail: bsachsmichaels@glancylaw.com 

 -and- 

 

Robert V. Prongay 

Pavithra Rajesh 

GLANCY PRONGAY & MURRAY LLP 

1925 Century Park East, Suite 2100 

Los Angeles, California 90067 

Telephone: (310) 201-9150 

E-mail: rprongay@glancylaw.com 

 

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Frank R. Cruz 

THE LAW OFFICES OF FRANK R. CRUZ 

1999 Avenue of the Stars, Suite 1100 

Los Angeles, CA 90067 

Telephone: (310) 914-5007 

Attorneys for Plaintiff Dominick De Filippis 

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