According to the Company’s FORM 10-Q For the Quarterly Period Ended September 30, 2002, the plaintiffs filed an appeal from the dismissal order and subsequently voluntarily dismissed their appeal, which ended the case.
As previously reported by the Company’s FORM 10-Q For the Quarterly Period Ended June 30, 2002, the complaint was consolidated with other subsequent complaints into a single proceeding. The complaints relate to the period between October 27, 1999 and October 10, 2000 and primarily allege that we made false projections about the Company’s financial performance in 2000. The complaints seek an unspecified amount of damages plus attorneys’ fees. A consolidated class action complaint was filed on April 23, 2001. On April 18, 2002, the court dismissed the Russ case against the Company with prejudice. The plaintiffs filed an appeal from the dismissal order on May 16, 2002.
The original complaint charges PacifiCare and certain of its officers, directors and one of its largest shareholders with violations of the Securities Exchange Act of 1934. The complaint alleges that PacifiCare's interim results were false and materially misstated due to its failure to properly record medical expenses, particularly its under-accrual of incurred but not reported costs ("IBNR"). In order to inflate the price of PacifiCare's stock, defendants caused the Company to falsely report its results for Q3 1999, Q4 1999, Q1 2000 and Q2 2000 by misstating its results through its deliberate under-accrual of medical expenses and its reserves for doubtful accounts receivable, all of which resulted in artificially inflating PacifiCare's earnings per share ("EPS"). The complaint further alleges that defendants misrepresented that the revenues PacifiCare was reporting were consistent with Generally Accepted Accounting Principles ("GAAP"), which, together with defendants' false representations that PacifiCare would post Q3 EPS of $1.90, operated to artificially inflate the price of PacifiCare stock to a Class Period high of $72-5/16 on June 16, 2000. While PacifiCare's shares were inflated, defendants sold approximately $50,000,000 worth of PacifiCare stock. On October 10, 2000, PacifiCare revealed that it was in fact suffering a huge decline in revenues, was not posting EPS growth as earlier represented, and contrary to defendants' repeated assurances, PacifiCare was forced to reveal the problems it had been experiencing during the Class Period in attempting to grow its business. This announcement caused its stock price to drop to as low as $14-5/8 (or over $18 per share) on record volume of 5.6 million shares on October 11, 2000, causing tens of millions of dollars in damages to members of the Class.