Lawsuit Alleges That PacifiCare Misled Investors
A shareholder has sued PacifiCare Health Systems Inc., alleging that the biggest operator of Medicare health plans delayed disclosing bad earnings news so that officials could sell shares at a premium.
The shareholder lawsuit, which seeks class-action status, accuses PacifiCare of misleading investors between Oct. 27, 1999, and last Oct. 10, when the company said it would report a surprise third-quarter loss and miss its per-share earnings target for 2000.
The shareholder claims that officials issued false positive statements about company finances and sold $5.73 million in shares between December 1999 and last August.
PacifiCare shares fell 52% to $15.69 after the company’s warning. The shares hit a 52-week high of $72.31 on June 16.
The Santa Ana-based company “knowingly, or with conscious and deliberate recklessness, failed to disclose adverse material information,” shareholder Michael Russ claims in the suit filed Tuesday in U.S. District Court in Los Angeles.
The lawsuit alleges that the company and its officials were aware that PacifiCare’s earnings would be hurt as it shifted its business away from capitation.
Under that practice, the company paid doctors and hospitals a fixed fee per patient, allowing them to keep any amount remaining after treatment costs. The shift led to a rise in the use of medical services, causing companies such as PacifiCare to lose much of their control over costs.
PacifiCare officials said they were served with the lawsuit Wednesday and had not fully examined it. “Until we get a closer look at it, we really won’t have much to say,” said spokesman Ben Singer.
PacifiCare’s stock fell 50 cents to $14.63 a share Wednesday in Nasdaq trading. The shares have lost more than 72% of their value this year.
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Ailing Stock
PacifiCare Health Systems’ stock has tumbled since hitting a 52-week high in June. Daily closing prices:
JUNE 16--Rating agency upgrades outlook
OCT. 10--PacifiCare warns of surprise quarterly loss
Wednesday’s close: $14.63
Source: Bloomberg News
