A class action has been filed against Radiation Therapy Service, Inc., (NASDAQ: RTSX) and certain of its officers and directors by stockholders who purchased the company’s common stock between June 17, 2004 and September 8, 2004. The Company owns, operates and manages treatment centers, focused on providing comprehensive radiation treatment alternatives ranging from conventional external beam radiation to newer, technologically advanced options. The action claims that the defendants violated federal securities laws by issuing a series of material misrepresentations to the market over this time period, thereby artificially inflating the price of the company’s securities. The stockholders seek to recover compensatory damages for the loss of value of their stock.

On June 18, 2004, the Company announced an initial public offering (“IPO”) of 5.5 million shares of its common stock at $13 per share. The Company would offer 4 million newly issued shares of common stock in the IPO which would result in gross proceeds to the Company of approximately $52 million. In addition, certain shareholders would offer 1.5 million currently outstanding shares of common stock in the initial public offering at the same price.

According to the complaint, the Company failed to disclose and misrepresented the following material adverse facts which were known them:

• That Company's IPO was purely a liquidity event for management/owners–not a source of growth capital for the Company because 100% of the IPO proceeds went into the hands of the Company’s primary shareholders;
• That the numerous related party transactions by the Company increased the risk of its business model running afoul of State and Federal laws governing corporate practice of medicine, fee splitting and physician-referrals; and
• That organic revenue growth had slowed dramatically and could be further disrupted in January due to changes in the way medical oncologists run their businesses.

On September 9, 2004, Banc of America Securities (“Banc of America”) initiated coverage of Radiation Therapy Services with a "sell" rating and an $11 target price. Banc of America said the Company's IPO "was purely a liquidity event for management/owners--not a source of growth capital for the company." The research house noted that following the IPO management "gifted itself another 5% of the company via new option grants."

Banc of America also drew attention to the fact that in 2003, Radiation Therapy paid $6.6 million to outside companies controlled by senior management, underlining the increased regulatory risk of a business model that could "run afoul of State and Federal laws governing corporate practice of medicine, fee splitting and physician-referrals."

In addition, Banc of America said that, "We simply cannot recommend purchasing the stock until the company's board structure (currently four insiders, just three independent directors) and extensive related party relationships are materially overhauled." News of this announcement caused the Company’s stock to fall $1.66 per share, or 11.98 percent, to close at $12.20 per share.