The original complaint charges Humana and certain of its officers and directors with violations of the Securities Exchange Act of 1934. The Company provides various health and supplemental benefit plans for employer groups, government benefit programs, and individuals in the United States.
According to the complaint, during the Class Period, defendants issued materially false and misleading statements concerning the Company’s anticipated earnings per share (“EPS”) for the first quarter of 2008 and full year 2008. As alleged in the complaint, these statements were materially false misleading because defendants failed to disclose: (i) that the Company was unable to properly calculate the prescription drug costs of its newly acquired members; (ii) that the Company’s costs associated with its prescription drug plans had dramatically increased; and (iii) that as a result of the foregoing, defendants’ statements concerning the Company’s anticipated EPS for the first quarter of 2008 and full year 2008 were lacking in a reasonable basis at all relevant times and were therefore materially false and misleading.
On March 12, 2008, the Company announced that it would be revising its earnings estimates because of, among other things, increased costs that it was experiencing with the Company’s prescription drug plans. Following this announcement, shares of Humana stock fell $6.50 per share, or approximately 13.7%, to close at $40.88 per share.
According to the Company’s FORM 10-Q for the quarterly period ended June 30, 2009, in March and April of 2008, Humana and certain of its officers (collectively, the “Class Action Defendants”) were named as defendants in three substantially similar federal securities class actions filed in the U.S. District Court for the Western District of Kentucky, Louisville Division (Capuano v. Humana Inc. et al., No. 3:08cv-162 M, filed on March 26, 2008; Lach v. Humana Inc. et al., No. 3:08cv-181-H, filed on April 4, 2008; and Dirusso v. Humana Inc. et al., No. 3:08cv-187-H, filed on April 8, 2008). On July 17, 2008, those cases were consolidated and captioned In re Humana Inc. Securities Litigation, No. 3:08-CV-162-JHM-DW, and the Alaska Laborers Employers Retirement Fund and three individuals were designated as lead plaintiffs. On September 16, 2008, the lead plaintiffs filed a consolidated amended class action complaint (the “Consolidated Class Action Complaint”), which alleged that, from February 4, 2008 through March 11, 2008, the Class Action Defendants misled investors by knowingly making materially false and misleading statements regarding Humana’s anticipated earnings per share for the first quarter of 2008 and for the fiscal year of 2008. The Consolidated Class Action Complaint alleged that the Class Action Defendants’ statements regarding Humana’s projected earnings per share were materially false and misleading because they failed to disclose that (i) Humana’s financial reporting lacked a reasonable basis due to significant material weaknesses in Humana’s internal controls, (ii) Humana could not properly calculate the prescription drug costs of its newly-acquired members, the mix of high and low cost members, and the correct pricing and discounts for its stand-alone Medicare Part D prescription drug plans (“PDPs”), and (iii) the assumptions underlying the earnings guidance that Humana issued in February 2008 were flawed. The Consolidated Class Action Complaint alleged that these actions violated Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 promulgated thereunder, and that the named officers were also liable as control persons under Section 20(a) of the Securities Exchange Act. The Consolidated Class Action Complaint sought the following relief: (i) certification of the action as a class action and designation of lead plaintiffs as class representatives; (ii) compensatory damages, including interest; (iii) an award of plaintiffs’ legal fees and expenses; and (iv) other relief that the court deemed just and proper. On November 14, 2008, the Class Action Defendants filed a motion seeking dismissal of the case. The plaintiffs filed their opposition to that motion on January 13, 2009, and the Class Action Defendants filed a reply brief in support of their motion on February 27, 2009. On June 23, 2009, the Court entered an order granting the Class Action Defendants’ motion and dismissed the Consolidated Class Action Complaint with prejudice. No appeal has been taken from that ruling, and the time to file such an appeal has expired.