According to a press release dated February 6, 2007, a federal judge agreed Monday with an analysis by plaintiffs' attorneys that they probably lacked sufficient evidence to win a securities-fraud suit against Amerigroup. Judge Henry C. Morgan then approved a $5 million settlement in the suit filed by a group of shareholders against the Virginia Beach-based managed-care provider. When informed of the agreement that lead plaintiff Illinois State Board of Investment struck with Amerigroup in October, Morgan had not yet decided on an Amerigroup motion seeking a summary judgment, the judge said during a hearing to determine the fairness of their agreement. A summary judgment, which defendants often seek before a suit is scheduled to go trial, would have resolved the case in Amerigroup's favor. The motion "certainly was something the court would have considered," Morgan said. Attorneys for the Illinois investment board expressed doubt about being able to gather enough evidence to defeat Amerigroup's motion or to win at trial when they asked the court in January to approve the settlement.
In a press release dated January 24, 2007, Plaintiffs' attorneys who pursued a securities -fraud lawsuit against Amerigroup Corp. are seeking $500,000, a 10 percent share of the $5 million that Amerigroup agreed to pay to end the class - action case. Attorneys for the lead plaintiff, Illinois State Board of Investment, and Amerigroup, a Virginia Beach-based provider of managed care to the indigent, agreed to a settlement in October while sparring over access to additional Amerigroup documents.
In to a press release dated December 28, 2006, the action has been certified as a class action for settlement purposes only and that a Settlement valued at $5 million has been proposed. A hearing will be held before the Honorable Henry Coke Morgan, U.S.D.J., in the Walter E. Hoffman United States Courthouse, 600 Granby Street, Norfolk, Virginia 23510, at 11:00 a.m., on February 5, 2007 to determine whether the proposed Settlement should be approved by the Court as fair, reasonable, and adequate, and to consider the application of Lead Counsel for attorneys' fees and/or reimbursement of expenses.
In a press release dated October 27, 2006, Amerigroup Corp., citing the legal expense, inconvenience and distraction of continuing litigation, said Thursday that it agreed to settle a fraud suit brought by shareholders in U.S. District Court in Norfolk. The Illinois State Board of Investment and four other plaintiffs contended that they had been defrauded last year by relying on Amerigroup's financial projections before the company reported a loss for the third quarter of 2005 and its stock price plunged. The plaintiffs, led by the Illinois investment board, alleged that Amerigroup officers had excluded certain costs as a way to make the company's earnings appear stronger than they were. The plaintiffs had demanded a jury trial. Amerigroup, a Virginia Beach-based company that specializes in providing managed care to recipients of Medicaid and other government health care programs, said the settlement calls for creation of a $5 million fund to end all claims against the company. The agreement, it said, also calls for claims brought against individuals named in the suit to be dismissed. The settlement is subject to certain conditions, including execution of a definitive agreement and court approval, Amerigroup said. The cost, it said, will be borne by its insurer.
As disclosed by the Company’s Form 10-Q for the quarterly period ended September 30, 2006, beginning on October 3, 2005, five purported class action complaints (the Actions) were filed in the United States District Court for the Eastern District. On January 10, 2006, the Court issued an order (i) consolidating the Actions; (ii) setting Illinois State Board of Investment v. AMERIGROUP Corp., et al., Civil Action No. 2:05-cv-701 as lead case for purposes of trial and all pretrial proceedings; (iii) appointing Illinois State Board of Investment (ISBI) as Lead Plaintiff and its choice of counsel as Lead Counsel; and (iv) ordering that Lead Plaintiff file a Consolidated Amended Complaint (CAC) by February 24, 2006. On February 24, 2006, ISBI filed the CAC, which purports to allege claims on behalf of all persons or entities who purchased the Company’s common stock from February 16, 2005 through September 28, 2005. On October 25, 2006, the Company reached an agreement in principle to resolve the Actions by executing a memorandum of understanding (the MOU) with the Lead Plaintiff. Under the terms of the MOU, a settlement fund of $5,000,000 in cash is expected to be created by the Company’s insurance carrier to resolve all class claims against the Company. All claims asserted against the individuals named in the lawsuit have been dismissed. Accordingly, the Company is the only remaining defendant. On November 13, 2006, the Company and the Lead Plaintiff executed and filed the definitive settlement agreement with the Court. The definitive settlement agreement is subject to approval by the Court. There can be no assurance that the settlement will receive the Court’s approval.
The original complaint charges AMERIGROUP and certain of its officers and directors with violations of the Securities Exchange Act of 1934. AMERIGROUP operates as a multi-state managed healthcare company focused on serving people who receive healthcare benefits through publicly sponsored programs, such as Medicaid, State Children’s Health Insurance Program and FamilyCare.
Specifically, the complaint alleges that during the Class Period, defendants caused AMERIGROUP’s shares to trade at artificially inflated levels by issuing a series of materially false and misleading statements regarding the Company’s financial statements, business and prospects, specifically by failing to account for at least $23 million in medical costs incurred in prior quarters but not included in the results for those quarters. This caused the Company’s stock to trade as high as $49.30 per share during the Class Period. Defendants took advantage of this artificial inflation, selling 170,712 shares of their AMERIGROUP stock for proceeds of $6.1 million.
The complaint further alleges that on or around September 28, 2005, after the market closed, the Company issued a press release announcing that “it expects to report a third quarter 2005 loss of $0.06 to $0.08 per diluted share, as compared to current consensus earnings estimate of $0.48 per diluted share. As a result, the Company will not meet its 2005 annual earnings guidance of $1.73 to $1.78 per diluted share. The third quarter results will include additional estimated medical costs related to services performed in prior periods, primarily the first and second quarters of 2005, of approximately $23 million, or $0.26 per diluted share. . . . Third quarter earnings per diluted share, excluding the impact of the prior period development, are estimated to be $0.18 to $0.20 as compared to current consensus earnings estimate of $0.48 per diluted share.”
On this news, AMERIGROUP’s stock fell $14.70 per share to as low as $19.21 per share before closing at $19.81 per share on volume of 8.4 million shares, more than 12 times the daily average.