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*Update* Amended Lawsuit Alleges Accounting Irregularities at Sabratek

But the company says the allegations in the latest Milberg Weiss suit are baseless.

Editor's Note: The following story has been updated to reflect the remarks of Sabratek's CEO.

An item

here a few weeks ago questioned whether the balance sheet of



, a maker of home-infusion pumps and disposables, would need some of its own infusion. Little did I know that

Milberg Weiss

, the class-action law firm, was about to amend an earlier suit against the company -- with more juice than your typical class-action suit.

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Before we get to the details, though, be aware that Sabratek's chief executive, Shan Padda, says that after reviewing the suit the company believes the allegations are without merit and, in keeping with the standard boilerplate, intends to vigorously defend itself.

The new allegations include charges that the company reported revenue on the sale of products "to entities" that hadn't ordered Sabratek products. The amended suit also alleges the existence of "inventory parking arrangements" under which Sabratek allegedly reported revenue on "phony" sales to distributors or "bogus" dealers who had placed orders for products they hadn't ordered. The suit, which is believed to be the reason Sabratek's stock was off more than 20% at midafternoon Tuesday, also alleges the company improperly recognized revenue on consignment sales. In addition, the suit alleges there was widespread stuffing of the distrubition channel to make revenue look better than it really was.

In one transaction, the suit alleges that Sabratek persuaded a national distributor to order 500 pumps worth more than $2 million "by promising it that it could return the pumps at the end of 1998 for credit." As a result, the suit says that Sabratek was able "to improperly book millions of dollars of sales and revenues" on transactions on which "there were no real purchases."

Then, in the second quarter of 1998, one senior Sabratek exec allegedly arranged to ship several dozen pumps worth at least $150,000 "to a front dealer in Ohio." According to the suit, the transaction was reported as revenue. However, the suit alleges "these pumps simply sat in the Ohio warehouse of Sabratek's dealer, pending further instruction from Sabratek as to how to ultimately dispose of these parked goods."

Another example of stuffing, according to the suit, occurred in December 1997 when the same exec offered a Florida distributor extended payment terms, of 90 days or more, if it would take 600 infusion pumps valued at more than $1.2 million by the end of the year. As part of the deal, the suit alleges the exec engaged in the above transaction promised the distributor that Sabratek would assist in leads in selling the pumps. Instead, according to the suit, within three months Sabretek directly sold 400 pumps directly to one of the distributor's prospective customers, "thereby flooding the Florida marketplace."

As this column previously pointed out, short-sellers have raised questions about Sabratek's unusually high level of inventories and receivables. According to the suit, however, the company tried to "deceive certain analysts who had expressed concerns" about its inventories by temporarily shipping some of the inventory back to vendors "just prior" to the end of the quarter. As an incentive, the suit says, Sabratek agreed to pay for shipping to and from Sabratek. And to evade detection, "the returns of these component parts were made without the standard paperwork and documents itemizing the contents of the return."

Herb Greenberg writes daily for In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at Greenberg also writes a monthly column for Fortune.