Cutera, Inc. designs, develops, and manufactures aesthetic medical devices used for a variety of laser and energy-based beauty treatments.

An underlying securities fraud class action complaint alleges that Cutera, via certain of its officers and directors, failed to monitor and maintain inventory and implement effective internal controls, while simultaneously rushing and failing to roll out Cutera’s new acne-treating laser device, AviClear. Cutera had long been known to the investing public as a company that provided laser-based and other aesthetic and dermatological solutions for medical practitioners, and the new AviClear initiative appeared to fit within that long-term paradigm.

It is alleged that the true primary motivation for the AviClear rollout, however, was an executive compensation plan—known internally as the “Acne Equity Grant”—that shunted Company stock to the Individual Defendants in direct relation to (i) the number of AviClear devices placed with customers, and (ii) the speed with which such placements occurred.

Moreover, it is alleged that at relevant times, and notwithstanding Defendants’ SOX certifications and other positive remarks about Cutera’s internal control environment, Cutera and its officers and directors consistently failed to control, monitor, and maintain inventory, largely related to problems associated with the failed AviClear rollout.

This undisclosed failure of instilling adequate internal controls ultimately required Cutera to restate its financial statements for multiple quarters, particularly financial figures relating to inventory, cost of revenue, gross profit, gross margin, and operating loss. In fact, Defendants eventually admitted that “we identified a significant issue with how the company has been managing inventory during 2023,” and “there was a shortfall of inventory relative to the Company’s system of record.”

Moreover, the internal controls weaknesses had a myriad of operational consequences, including an extended inventory audit-related plant shutdown (which further negatively impacted Cutera’s business) and rampant quality control, supply chain, and field service problems due to the Company’s inability to forecast and track inventory.

Relatedly, Defendants’ failure to execute the AviClear rollout not only exacerbated these problems, but also over-allocated the Company’s manufacturing and sales resources to AviClear at the expense of Cutera’s core business segments which, up to that point, had generated steady and reliable revenue. The failed rollout likewise increased product returns and excess AviClear inventory, which contributed to the Company’s overall inventory and internal control problems.

The aforementioned conduct ultimately culminated in the terminations, with cause, of Defendants Mowry and Plants, and the resignation of Defendant Seth. As Defendants themselves conceded, Cutera was managed by “suboptimal leadership.”

The underlying truth was ultimately revealed over a span of months during 2023 and 2024, whereby the Company disclosed: material weaknesses over financial reporting; multiple poor earnings results caused by its failure to properly roll out AviClear; that it had fired Mowry and Plants “with cause”; the departure of Defendant Seth; quality control problems leading to frequent equipment breakdowns and customer frustration; an extended plant shutdown caused by an inventory audit; poor AviClear utilization trends; numerous delays in making routine filings with the SEC; and restated financials for multiple quarters. In response, Cutera’s stock plummeted.

If you have held Cutera shares since prior to March 1, 2022 and would like to learn more at no cost to you, contact Joshua Grabar at jgrabar@grabarlaw.com or call us at 267-507-6085.