Cyberonics, Inc. engages in the design, development, and commercialization of medical devices, which claim to provide therapy, Vagus Nerve Stimulation (VNS), for the treatment of epilepsy and other debilitating neurological and psychiatric disorders.

The Complaint alleges that Defendants violated the federal securities laws during the Class Period by failing to disclose and misrepresenting material adverse facts known to Defendants or recklessly disregarded by them, including that Defendants were engaged in serious violative manufacturing and quality practices that would have a serious negative impact on prospects for the Company's VNS product approval and that, while well aware of true nature of the serious issues facing FDA approval of the VNS system for the depression indication, Company insiders sold over $1.98 million of Company stock during the Class Period. As a result, the Complaint alleges, the value of the Company's stock was materially and artificially inflated during the Class Period.

According to a press release dated July 21, 2006, Cyberonics announced that on July 20, 2006, the United States District Court for the Southern District of Texas dismissed the Plaintiffs' consolidated Complaint against the Company and certain of its officers and directors in the putative securities class action lawsuit styled In re Cyberonics, Inc. Securities Litigation, Civil Action H-05-2121, described in the Company's Form 10-Q filed with the Securities and Exchange Commission on March 6, 2006. The Court ruled that the consolidated Complaint failed to state any claim under the federal securities laws because it failed to allege material misstatements with particularity, failed to allege facts sufficient to raise a strong inference of intent or severe recklessness, and failed to allege sufficiently the causal connection between the Plaintiffs' loss and the Defendants' actions. The Court noted that "the deficiencies in Plaintiffs' Complaint might well extend beyond the point of cure," but granted Plaintiffs the right to amend their Complaint in light of the strong legal presumption favoring a right to amend. Under the terms of the Court's Order, the Plaintiffs were given 30 days to file a further amended Complaint in an attempt to cure the deficiencies.

On August 17, 2006, the Plaintiffs filed a First Amended Complaint and the Defendants responded by filing a motion to dismiss the First Amended Complaint.

On October 4, 2007, the Court entered the Memorandum Opinion signed by U.S. District Judge Gray H. Miller granting the Defendants' motion to dismiss Plaintiffs' supplemented first amended Complaint. That day, the Court entered the Final Judgment and the case was terminated. On October 18, 2007, the Plaintiffs filed a Notice of Appeal. The appeal was then pending in the U.S. Court of Appeals for the Fifth Circuit.

According to a press release dated September 10, 2008, a federal appeals court has backed a district court's decision to dismiss with prejudice a securities class action against Cyberonics, which included allegations of stock option backdating following a drop in the Company's stock price.