WellCare is one of the country’s largest managed care services companies, which wins federal contracts to oversee and administer government-sponsored health-care programs.
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WellCare’s former chief executive, Todd Farha, Paul Behrens, former chief financial officer; and Thaddeus Bereday, former general counsel, were charged in the SEC’s complaint.
The SEC alleges that, from 2003 to 2007, the three former executives designed and carried out a fraudulent scheme that deceived the state of Florida’s Agency for Health Care Administration and another Florida agency, its “Healthy Kids Corp.,” by improperly retaining more than $40 million in health-care premiums, which the SEC says the company was statutorily and contractually obligated to spend on certain health services for low-income consumers, or refund to the state of Florida.
The three executives were unavailable for comment. WellCare did not return calls for comment.
Specifically, the SEC alleges the former executives funneled the premiums through an internal unit, and then offset those premiums with administrative expenses. In turn, the scheme cut the refunds back to the state by a total of about $41 million.
In turn, the SEC adds in its complaint that, as a result of this scheme, WellCare booked the retained amount as revenue, “materially inflating its net income and earnings in its public financial statements.”
Specifically, the SEC says WellCare materially misstated its net income and EPS in filings with the agency and in quarterly and annual earnings releases from 2004 to 2006 and the first two quarters of 2007.
On January 26, 2009, the SEC says WellCare filed its annual report for 2007 and restated its financial results for those time periods. The restatement reduced WellCare’s reported net income and earnings per share by approximately 14% for fiscal year 2004, 9% for fiscal 2005, 13% for fiscal 2006, and 9% for the first quarter of fiscal 2007.
The complaint also indicated the former executives sold a total of about 1.6 million WellCare shares, reaping about $91 million, on the basis of material, nonpublic information from designing this fraudulent scheme that boosted WellCare’s results. The SEC also says the three sold the shares in their corporate 10b5-1 plans as well as through three public stock offerings launched while the scheme was ongoing.
The SEC’s complaint was filed in the United States District Court for the Middle District of Florida in Tampa. It is seeking permanent injunctions against all three former executives, and is seeking former executives Farha and Behrens to pay back incentive-based and equity-based compensation. It also seeks officer and director bars for all three.