WellCare Health Plans, Inc. ("WellCare" or the Company) focuses primarily on providing government-sponsored managed care services to families, children, seniors, and individuals with complex medical needs primarily through Medicaid, Medicare Advantage, and Medicare Prescription Drug Plans, as well as individuals in the Health Insurance Marketplace. WellCare provides managed-care plans for 2.3 million Medicare and Medicaid participants nationwide.
The original Complaint charges Defendants WellCare, along with its Chief Executive Officer, President and Chairman of its Board of Directors, and its Chief Financial Officer and Senior Vice President with making a series of materially false and misleading statements related to the Company's business and operations in violation of the Securities Exchange Act of 1934.
On October 24, 2007, state and federal law-enforcement agents armed with a federal search warrant raided WellCare's Tampa, Florida headquarters. Agents from the Federal Bureau of Investigation, the Health and Human Services Department and the Florida attorney general's Medicaid fraud unit participated in the raid.
Specifically, the Complaint filed alleges that at all times during the Class Period: (1) it was not true that the Company was operating according to plan, when, in fact, throughout the Class Period, Defendants had propped up the Company's results by manipulating WellCare's accounting for revenues and income, and failed to report proper expenses and other material information about the Company; (2) unbeknownst to investors, Defendants had materially overstated the Company's profitability by failing to properly account for the Company's health care expenses and results of operations and by artificially inflating the Company's financial results; (3) it was also not true that WellCare contained adequate systems of internal operational or financial controls, such that WellCare's reported financial statements were true, accurate or reliable; (4) as a result of the foregoing, it also was not true that the Company's financial statements and reports were prepared in accordance with GAAP ad SEC rules. Accordingly, as a result of the aforementioned adverse conditions which Defendants failed to disclose, throughout the Class Period, Defendants lacked any reasonable basis to claim that WellCare was operating according to plan, or that WellCare could achieve guidance sponsored and/or endorsed by defendants.
Following the news of the raid on WellCare's headquarters, the New York Stock Exchange subsequently halted trading of shares in WellCare. The Company's shares fell $7.10, or 5.8%, to $115.17 per share at market close on October 24, 2007. Then, on October 25, 2007, when shares resumed trading, shares opened at approximately $64.00 per share, before reaching an intra day low of $27.50 and closing at $42.67.
On March 11, 2008, two similar class actions were consolidated and the Public Pension Funds was appointed lead Plaintiff and Bernstein, Litowitz, Berger & Grossmann, LLP and Labaton Sucharow LLP were appointed co-lead Counsel. On October 31, 2008, the lead Plaintiff filed a Consolidated Class Action Complaint. On January 23, 2009, the Defendants filed motions to dismiss the Consolidated Class Action Complaint. On September 28, 2009, Judge Virginia M. Hernandez Covington signed the Order denying the Defendants’ motions to dismiss the Complaint.
On April 26, 2010, the Plaintiffs filed a motion to certify the class. On July 19, 2010, the case was order administratively closed for 150 days from the date of the order.
According to a press release dated August 9, 2010, the Court-appointed lead Plaintiffs in the securities class action against WellCare (NYSE: WCG) and its former senior executives announced that they have reached a settlement with WellCare in which the total consideration to be paid is at least $200 million. The Court appointed lead Plaintiffs are Teachers' Retirement System of Louisiana, Public School Teachers' Pension & Retirement Fund of Chicago, Policemen's Annuity and Benefit Fund of Chicago, the New Mexico State Investment Council, and the Public Employees Retirement Association of New Mexico.
The settlement funds will be distributed to WellCare common stock purchasers included in a consolidated securities class action pending before the Honorable Virginia M. Hernande Covington in the United States District Court for the Middle District of Florida. Under the terms of the settlement, WellCare agreed to pay a total of $87.5 million in cash and $112.5 million in freely tradable, registration-exempt bonds with a maturity date of December 31, 2016 and a fixed coupon of 6%. WellCare further agreed to pay an additional $25 million in cash if, at any time in the next three years, WellCare is acquired or otherwise experiences a change in control at a share price of $30 or more after adjustments for dilution or stock splits. WellCare also agreed that, should it recover any sums from individual Defendants Todd S. Farha, Paul Behrens, and Thaddeus Bereday, it shall pay 25% of those proceeds to the Class. The settlement was subject to approval by the United States District Court.
According to a news article dated February 11, 2011, a federal judge in Tampa gave preliminary approval to a $200 million settlement between WellCare and Plaintiffs in a securities class action case stemming from allegations of health care fraud. The U.S. District Court for the Middle District of Florida scheduled a final approval hearing for May 4, a filing by WellCare with the Securities and Exchange Commission said. The settlement calls for WellCare to pay $87.5 million in cash and issue $112.5 million in bonds. A stipulation of the settlement includes the requirement that the Company pay $52.5 million into an escrow account within 30 business days following the entry of the preliminary approval order, which would be March 24, the filing said.
The settlement was approved on May 6, 2011, and the action is now dismissed with prejudice.
On June 3, 2011, a Notice of Appeal was filed as to the order on the motion for attorney fees. That appeal was later dismissed.
