December 24, 2018

Two pension funds that own shares in Centene Corp. are suing the health insurer, claiming it acquired Health Net in 2016 without fully disclosing Health Net’s financial problems.

The suit, filed Dec. 14 in federal court in St. Louis, alleges that Centene's $6 billion, March 2016 acquisition of Health Net “resulted in millions of dollars in damages to Centene, in part, from the overpayment for Health Net in the merger, sales of stock by insiders, serious harm to its reputation, goodwill and standing in the business community, which have exposed the company to further potential liability for violations of the federal securities laws, California tax laws and government regulations."

The suit was filed by the Carpenters Pension Fund of Illinois and Iron Workers Local 11 Pension Fund of Chicago.
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The lawsuit also claims that Centene knew about but hid that Health Net owed nearly $1 billion in past tax liabilities to California and was involved in a Medicare fraud scheme under investigation by the U.S. Justice Department, Modern Healthcare reported. 

Carol Gilden, attorney for the pension funds, said the suit is based on breaches of fiduciary duty and tax liability, and not focused on the way the company is performing today.

“It is not about how things turned out, it is based on misconduct alleged,” said Gilden, with the Chicago office of the law firm Cohen Milstein Sellers & Toll PLLC.

The suit alleges that if the problems would have been reported, the value of Health Net would have declined and Centene would not have had to increase its reserves. Centene's actions are alleged to have led to a loss of $1 billion in stockholder value in July 2016 when the company disclosed previously unaccounted-for reserves.

The suit also claims that Centene directors and officers, including CEO Michael Neidorff, sold their own shares, based on insider knowledge, when the company's stock was artificially inflated. Neidorff sold shares worth $20 million in 2015 and 2016, according to the complaint. Centene struck its deal to buy Health Net in July 2015.

The complete article can be accessed here.