I can't say for 100% certain based on the article here, but it sounds like the lawsuit is over "phantom" contracts. It is sadly a far too prevalent practice amongst regional theatres where they will put various employees under an Equity contract, such as a marketing director, an assistant artistic director, etc. This accomplishes two things for the theatre. One is that that employee typically ends up qualifying for health coverage through the union, and also becomes vested into the pension plan (to become vested a member only needs two qualifying work weeks over a consecutive five year period).
It also is often used to bolster ratio numbers and, at least on paper, fulfill other contractual staffing requirements. For instance, they could say they have "Equity understudies" or are meeting a contractual requirement to have an Equity assistant stage manager, when the reality is that understudy or ASM is working in their office all day and is never expected by the theatre to actually do those jobs that they are under an Equity contract to do. This does constitute insurance fraud, and, quite frankly, it's been a widely known "secret" for a very long time that Gateway has done this (amongst a number of other companies), especially in regards to assistant stage managers. I personally know at least one stage manager who found out that they had a contracted Equity assistant only when the business rep mentioned it in an unrelated conversation. This was well into the run of the show, so clearly said ASM was not doing anything related to the position Equity had records of them being contracted for.
So it sounds like Equity finally received enough complaints about it and decided to actually investigate. Sadly its very underreported, because, despite anti-black listing clauses in all of Equity's contracts, there is still a very large culture of fear of not wanting to be the one to rock the boat on issues like this.