JEFFERSON CITY – A putative class-action lawsuit against a St. Louis health care company that allegedly failed to release accurate financial information has been moved from California to Missouri.
According to the suit, Centene Corp. didn't release the correct information on its expected losses over its multibillion dollar acquisition of Health Net Inc.
The case, until recently known as Israel Sanchez v Centene Corp., originally was filed Nov. 14 in the U.S. District Court for California's Central District. On March 1, California U.S. District Court Judge Andre Birotte Jr. approved Centene's motion to change the venue to U.S. District Court for the Eastern District of Missouri, saying the location of Centene's headquarters is relevant to the case.
"All defendants reside in the Eastern District of Missouri," court documents said. "Although the named plaintiff, Israel Sanchez, resides in this district (California), this is a class action, so his place of residence carries little weight."
The location of potential witnesses in the case also had bearing in the venue change, Birotte said in his ruling.
"Because the gravamen of this case is whether Centene made false and misleading statements in its quarterly report, Centene departments and personnel responsible for Centene's financial analysis and financial reporting will be key witnesses," Birotte said in the ruling. "The key witnesses are therefore all located in the Eastern District of Missouri."
On May 1, the U.S. district judge now overseeing the case, Audrey G. Fleissig, granted a motion by Louisiana Sheriffs' Pension & Relief Fund to be the named lead plaintiff in the case.
The lawsuit stems from Centene's acquisition last spring of Health Net. Centene, a multinational health care company that provides programs and services to the underinsured and uninsured in the United States, is headquartered in St. Louis.
The class action claims that Centene made false and misleading statements about Health Net's insurance programs. Centene failed to reveal that Health Net's programs were significantly underperforming and were generating losses while, at the same time, overstating Net’s financial future prospects, according to the lawsuit.
In April 2016, Centene released its first quarter financial results that included its $6 billion acquisition of Health Net.
"This strategic acquisition broadens our current service offerings, providing expansion in Medicaid and Medicare programs," Centene said in its announcement. "This acquisition provides further diversification across our markets and products through the addition of government-sponsored care under federal contracts with the Department of Defense and the U.S. Department of Veteran's Affairs, as well as Medicare Advantage. Our consolidated financial statements as of and for the three months ended March 31, 2016 reflect eight days of Health Net operations."
That sounded good to investors and resulted in artificially inflated prices for Centene shares, which were as high as $75.39 per share, according to the lawsuit.
"Plaintiff and other members of the Class purchased or otherwise acquired the company’s securities relying upon the integrity of the market price of Centene’s securities and market information relating to Centene, and have been damaged thereby," the lawsuit said.
Days later, Centene filed a report with the Securities and Exchange Commission (SEC) that it was reserving approximately $300 million for losses associated with Health Net’s insurance plan, according to the lawsuit. That news caused Centene’s shares price to fall more than 8 percent, closing at $68.87 per share on July 26, according to the lawsuit.
"Then on September 6, 2016, during the middle of the trading session, Leerink Partners, LLC (“Leerink”) issued a report downgrading Centene stock due to underperformance of the Health Net legacy insurance programs, including Health Net’s California substance abuse programs," the lawsuit said.
That caused Centene's shares price to fall another 5 percent, closing at $65.30 that same day, the lawsuit said.
The class action seeks to represent those who acquired Centene securities between April 26, 2016, and Sept. 6, 2016 for alleged violations of the Securities Exchange Act of 1934.