The Commission brought fraud and insider trading charges against three executives who are alleged to have implemented a massive financial fraud and then sold millions of shares through 10b-5 plans. SEC v. Farha, Civil Action No. 8/12-cv-00047 (M.D. Fla. Filed Jan. 9. 2012). The complaint names as defendants three former officers of WellCare Health Plans, Inc. They are the former CEO Todd Farha, former CFO Paul Behrens and former General Counsel Thaddeus Bereday.

From 2003 through 2007 the three former executives are alleged to have implemented a scheme to deceive the Florida Agency for Health Care Administration and the Florida Healthy Kids Corporation by improperly retaining over $40 million in health care premiums that were required by law and contract to be spent on certain health care services or reimbursed to state agencies. Each agency paid premiums that WellCare was required to spend on eligible healthcares services for low-income plan participants. If less was spent than a certain percentage, the company was required to refund the amount. The defendants, according to the complaint, devised a scheme to retain the premiums by funneling them through an internal subsidiary and applying administrative and other non-allowable expenses in their calculation of money spent. This permitted the company to improperly withhold over $40 million which went to the bottom line. During the course of the scheme the defendants sold about 1.6 million of WellCare stock. Those sales were made by fraudulently amending 10b-5-1 plans.

Ultimately the company uncovered the fraud after the initiation of a regulatory inquiry. An internal investigation resulted in a restatement of the financial statements.

The complaint alleges violations of Securities Act Section 17(a), Exchange Act Sections 10(b), 13(a0, 13(b)(2)(A) and13(b)(2)(B). It seeks a permanent injunction, disgorgement, prejudgment interest, civil penalties, an officer and director bar and the repayment of certain incentive based compensation under SOX Section 304(a). The case is in litigation.

Previously, the company settled with the SEC. SEC v. WellCare Health Care Plans, Inc., Civil Action No. 8:09 cv 00910 (M.D. Fla. Filed August 18, 2009).

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