Luna Innovations declared this week that its former president and CEO, Scott Graeff, engaged in prohibited conduct in connection with a series of incorrect financial statements — triggering a claw back of severance and stock benefits payable to Graeff for his assisting the company after his March 24 retirement, according to the company.
A personnel shakeup continued as Luna leadership also fired Chief Technology Officer Brian Soller for cause Friday and accepted the resignation of the CFO George Gomez-Quintero on Monday. Officials further fired seven other employees, none identified by name.
The disclosures appeared in a late Wednesday afternoon filing with the U.S. Securities and Exchange Commission and triggered a temporary plunge in company stock to near $2 a share.
The personnel actions are the latest known ramification from a spate of reported accounting errors that disrupted the cycle of financial reporting and triggered a shareholder lawsuit against Luna, which provides advanced fiber-optic technology.
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Luna has also retained more outside advisers to walk it through the difficulties. One, the global investment bank Evercore, “will consider a wide range of options for the company including, among other things, a potential sale, merger or other strategic transaction,” officials said.
In terminating Soller, Luna discharged a 10-year employee who was active in the high-technology community serving on the board of the Roanoke-Blacksburg Technology Council.
Graeff had spent 21 years at Luna, seven as CEO and, based on Wednesday’s filing, the company had issues with Graeff’s performance. It provides no details, except to say that his leaving the company five weeks ago no longer comes with money and benefits.
On Friday, Graeff emailed a statement to The Roanoke Times: "Given the ongoing investigation, all I am able to say is that in my over 20 years in leadership roles with Luna, I strived to ensure each and every decision I made, and my conduct as a leader, was consistent with my values."
In an earlier filing, Luna disclosed that when Graeff said he planned to retire, company executives considered terminating him with or without cause but ultimately decided to accept his retirement and provide severance checks, paid health insurance and stock-related benefits “for his continued assistance” as officials examined the accounting issues.
Company leadership also said it would claw back those benefits if it later determined that Graeff had breached his duty to the company, acted in bad faith in the opinion of a court or engaged in any action identified in his employment contract as “cause” for termination. His contract listed acts of fraud, dishonesty or gross misconduct; a contract violation; misuse of confidential information; breach of fiduciary duty; refusal of a directive; or conviction of a felony or of a misdemeanor involving fraud, dishonesty or moral turpitude.
Without saying what Graeff did, the latest company statement declares that Graeff “ engaged in conduct that constituted ‘Cause’ under his employment agreement.”
In related news, Luna revealed new steps it has taken to investigate and manage the situation with the hiring of strategic advisers. They are Alex Davern, former CEO of National Instruments, and Kevin Ilcisin, also a former National Instruments executive and the co-founder of the advisory firm Juniper Strategies. They will work with Richard Roedel, the company’s interim top executive. National Instruments’ former chief accounting officer, John Roiko, will become CFO at Luna, Luna said.
The difficulty at Luna began when company officials first revealed issues with past financial statements March 12. The company has acknowledged “material weaknesses in its internal control over financial reporting” and said “revenue was recognized in the second and third quarters of 2023 that did not qualify for revenue recognition under U.S. generally accepted accounting principles.”
Those issues will require Luna to eventually restate its financial results for 2022 and 2023, the company has said.
Responding to Luna’s disclosure of accounting irregularities, attorneys working on behalf of Luna shareholders filed a proposed class-action lawsuit against the company April 1 in a California federal court, seeking compensation for losses sustained when share prices fell.
Those shares fell in early-morning trading Thursday to $2.03 before rebounding to close at $2.25. Shareholders paid more than $10 last summer for a share of Luna stock.