Suit Claims Maxicare Concealed Its Woes While Officers Sold Off Stock
An Orange County investor has sued ailing Maxicare Health Plans, charging that the company, its officers, directors and advisers misrepresented the company’s financial condition to artificially inflate the value of Maxicare’s stock and notes.
The lawsuit, which was filed July 15 by Maxicare shareholder Gerald D. Mirkin as a class-action lawsuit, also charges that several officers and directors, based on inside information, sold stock at artificially inflated prices since 1985, taking in more than $5 million.
A Maxicare spokesman declined to comment on the lawsuit, citing a company policy forbidding discussion of matters in litigation. Maxicare, the nation’s largest publicly held health maintenance organization, has been fighting severe financial problems for almost two years.
The suit names Maxicare and several officers and directors, including Peter J. Ratican, an outside director who was named Monday to replace Maxicare Chairman and Chief Executive Fred W. Wasserman and President Pamela K. Anderson.
Wasserman and Anderson also were named in the suit.
The suit alleges that Maxicare’s officers, directors and financial advisers between Oct. 17, 1985, and Feb. 29, 1988, made false statements about the prosperity of the company.
In addition, when the company began reporting losses in late 1986, Maxicare officers falsely stated that the company’s condition was improving and that the firm would return to previous levels of prosperity, the suit charged.
Because of disputes with its health-care providers, problems integrating two acquisitions of money-losing competitors in 1986--HealthCare USA and HealthAmerica--and “serious management and internal control problems . . . resulting from its uncontrolled growth,” Maxicare suffered “huge writeoffs and losses which brought Maxicare to the brink of bankruptcy and caused its securities to plunge in value,” the suit stated.
Maxicare “was suffering from significant management failures and shortcomings at the highest levels of its most important operations--financial reporting, accounting and marketing--because they had been unable to properly manage and control the company’s rapid growth, had been unable to solve Maxicare’s operating problems and had been unable to achieve the levels of earnings and revenue growth budgeted by the corporation without engaging in manipulative devices,” the suit charged. The lawsuit also accuses various officers and directors of trading on inside information to sell stock at artificially inflated prices.
For example, Wasserman sold 100,000 shares of stock since October, 1985, obtaining more than $2 million, the suit charged. Ratican was accused in the suit of selling 150 shares for $2,300.
Maxicare’s stock sold as high as $28.50 in mid-1986, before news of the company’s losses caused the stock price to plummet, the suit said. Maxicare’s stock closed Thursday at 93.75 cents in over-the-counter trading.
Investor Mirkin bought 200 shares of Maxicare stock in December, 1985, and purchased another 200 shares in January, 1986, according to the lawsuit. The stock was trading in the mid-$20 range when Mirkin bought it.
