2 Class-Action Suits Allege Fraud by Care Enterprises

Care Enterprises has been named in a pair of class-action lawsuits which allege that the Laguna Hills nursing home operator violated federal and state laws as well as knowingly defrauded investors when it went public in May of 1983.

Filed in U.S. District Court in Los Angeles and in Orange County Superior Court, the suits claim that Care Enterprises withheld from its prospectus information concerning a pending lawsuit that resulted in a $2.9-million judgment against the company in September, 1983.

The suits, filed by William B. Weinberger of Florida, seek no specific damages but ask for “damages in amounts to be determined to have been sustained by class members,” as well as unspecified punitive damages and legal fees.

Neither Weinberger nor his attorney, William S. Lerach of San Diego, could be reached for comment Tuesday.

The 1983 judgment, handed down by a Riverside County Superior Court, arose from a dispute involving Care, J&S; Medical Group of Beaumont and a Hemet-based convalescent hospital that was the subject of a charge against Care of wrongfully retaining control of a leased nursing home.

As a result of setting aside a $1.5-million reserve against the judgment, Care posted a third-quarter 1983 net loss of $504,000 and its stock dropped from a high of $23 a share to $6.50 a share. Weinberger had purchased 246 shares of Care at $16.50 each during May, 1983.

Craig Carlson, an attorney representing Care, said Tuesday that at the time of the initial public offering, Care did not expect the court to award as high a judgment as it did. “It was unforeseeable at the time of the registration period,” he said.

Carlson, who said the company was served Tuesday afternoon, called the suits “very defensible.”

Also named in the suits were Prudential Bache Securities of New York and San Franciso-based Montgomery Securities, which jointly handled the $28-million public offering. The accounting firm of Touche Ross, which prepared the company’s financial statements before the offering, was also named.