Smart hearing company Eargo is the target of a criminal investigation by the U.S. Department of Justice (DOJ), the company said in a Securities and Exchange Commission (SEC) filing Wednesday.
The DOJ is looking into Eargo’s insurance reimbursement claims that it submits on behalf of its customers when they purchase the company’s connected hearing aids.
The probe is part of an “ongoing claims audit” from Eargo’s largest third-party payer partner, the company said. As of September 21, the DOJ is the principal contact for the audit.
Eargo said it is cooperating with the investigation and is working with the government to validate its reimbursement claims submission process to avoid future issues.
Due to the investigation, Eargo will be withdrawing its financial guidance for the fiscal year ending December 31.
WHAT’S THE IMPACT?
Eargo sells connected hearing devices directly to consumers. Its devices sync to the Eargo app, where users can adjust their hearing preferences based on bass and treble levels, or by the setting.
The company’s stock (EAR) plunged yesterday after the SEC document was filed, falling by $14.77 as of Thursday morning below its previous closing price. The company is currently trading for $6.90 a share.
The investigation also has market analysts changing their tune on Eargo. Wells Fargo Securities analyst Lawrence Biegelsen lowered Eargo’s recommended price target from $52 to $10 and JPMorgan analyst Robbie Marcus reduced his recommendations from $44 to $11.
THE LARGER TREND
A number of other companies offer direct-to-consumer hearing aids, including Olive Union, which closed a $7 million Series B round earlier this year, and Whisper, which scored $35 million in its own Series B round last fall.
Audio equipment-maker Bose recently made its way into the space by releasing its FDA-cleared SoundControl hearing aids. The hearing aids were developed for adults with perceived mild to moderate hearing loss and are available direct-to-consumer without a prescription.