According to the law firm press release, Inovalon provides cloud-based data analytics platforms for health insurance plans, pharmaceutical companies, researchers and others in the healthcare industry.
On or about February 12, 2015, Inovalon issued over 25 million shares of common stock at $27 per share, raising more than $684 million in gross proceeds.
The complaint alleges that the Registration Statement issued in connection with the IPO contained untrue statements of material fact and omitted to state material facts both required by governing regulations and necessary to make the statements made not misleading. Specifically, defendants failed to disclose that Inovalon derives substantial revenues from sales in the City of New York and the State of New York, both of which were reforming their corporate tax schemes in order to capture more taxes from out-of-state businesses like Inovalon doing substantial business within their borders. Those corporate tax rate increases, which would take effect January 1, 2015, more than a month prior to Inovalon's IPO, significantly increased the Company's effective tax rate and thus lowered its 2015 earning potential. These material facts should have been disclosed in the Registration Statement, but were not, and the omission rendered false and misleading the Registration Statement's express claim that Inovalon's year-over-year "effective income tax rate . . . remained relatively stable at 39%."
As the market learned the truth following the IPO, the price of Inovalon common stock declined significantly. At the time of the filing of the complaint, Inovalon shares were trading at less than $18 per share, or more than 33% below the IPO price.