State Sues 3 Officers of FHP Over Buyout

The state attorney general’s office filed a civil lawsuit Tuesday seeking to force three officers of the Fountain Valley-based FHP Inc. health maintenance organization, as well as its accounting firm, to pay more than $80 million to charity.

In the complaint, filed in Los Angeles Superior Court, Atty. Gen. John Van de Kamp charged that FHP was “grossly undervalued” by insiders who then bought the nonprofit organization in November, 1985, for $38.5 million in cash and notes.

An analysis by Van de Kamp’s office placed the value of the company at the time of sale at up to $150 million--the same figure at which the company went public in a July stock offering.

FHP, in a prepared statement issued late Tuesday, called the charges “groundless and without validity.”

Under state law, trustees of a nonprofit health maintenance organization can convert it to for-profit status if they donate to charity an amount equal to the fair market value of the company.

Jim Shultz, an official with Consumers Union in San Francisco, which also sought to block FHP’s conversion last year, said: “This move is exactly what’s need to protect the public interest.”