Oct 22 Healthcare benefits provider Universal
American Corp sued private equity firm GTCR LLC on
Tuesday to undo a $222.3 million acquisition it said was induced
by fraud, a day after GTCR filed its own lawsuit to block
The dispute goes to the heart of the business of the private
equity industry, where firms buy companies and hope to sell them
later at a profit. Finding interested buyers and avoiding the
taint of fraud are crucial to a firm's ability to earn big
profits for itself and its investors.
In a complaint filed on Tuesday in the U.S. District Court
in Delaware, Universal claimed that GTCR misled it about the
finances and business prospects of APS Healthcare Inc ("APS"), a
healthcare management services provider it bought in March 2012.
Universal said "the ugly truth" emerged soon thereafter,
with APS being declared in default by its biggest customer and
losing some or all of its business with other large customers.
"Defendants engaged in a deliberate campaign to conceal the
truth about APS," Universal said. "The avalanche of bad news ...
the complete evaporation of APS's income within months, and the
sheer number of misrepresentations and omissions in the merger
agreement ... are all telltale signs of fraud."
The lawsuit was filed just 16 hours after Partners
Healthcare Solutions Holdings LP, the GTCR company that sold
APS, filed its own lawsuit in Delaware Chancery Court. It seeks
a declaration that Universal's claims are baseless and the
release of sums held in escrow after the merger closed.
While admitting that APS' earnings in 2012 "fell well short
of what both parties had hoped," the GTCR company called the
dispute "a straightforward case of buyer's remorse" that sought
"to turn the seller into its scapegoat."
Universal and APS are based in White Plains, New York, while
GTCR is based in Chicago.
A Universal spokeswoman declined to comment. GTCR did not
immediately respond to a request for comment.
The cases are Universal American Corp v. Partners Healthcare
Solutions Holdings LP et al, U.S. District Court, District of
Delaware, No. 13-01741; and Partners Healthcare Solutions
Holdings LP v. Universal American Corp, Delaware Chancery Court,