October 27, 2007 / 12:07 AM / 12 years ago

WellCare says SEC joins probe

NEW YORK (Reuters) - WellCare Health Plans Inc (WCG.N), which manages health care for more than a million poor Americans, said on Friday that securities regulators had asked for information after the FBI raided the company’s Florida headquarters.

The U.S. Securities and Exchange Commission request was made public after the Connecticut attorney general said on the same day that he had been investigating WellCare’s affiliate.

The SEC requested unspecified information on Thursday, a day after more than 200 federal and state agents raided WellCare’s Tampa, Florida headquarters, the company said.

Shares in WellCare, which provides managed care services for government-sponsored healthcare programs, focusing on Medicaid and Medicare, are down 73 percent since the raid.

Also on Friday, a shareholder sued the company and two top executives, alleging they disseminated materially false and misleading statements and concealed adverse facts, according to the complaint.

The shareholder, Eastwood Enterprises LLC, is seeking class action status, covering buyers of WellCare stock between May 8, 2006 and October 24, 2007, according to the complaint.

The lawsuit, filed in U.S. District Court for the Middle District of Florida, names Chief Executive Todd Farha and Chief Financial Officer Paul Behrens besides WellCare.

WellCare spokeswoman Amy Knapp said the company had not yet received the suit, but based on what it had seen, believed the suit lacks merit.

WellCare attempted to soothe investors through several statements, noting that none of its employees had been charged with any crime and that it was financially sound.

It also said its board had formed a special committee to monitor developments in these investigations and to oversee the company’s response to them.

Few details have emerged from the company or the government about the probes into the company, which says it offers health plans for families, children, the aged, blind and disabled and has more than 2.3 million members nationwide. Its members are divided between the Medicaid program for low income Americans and Medicare, which covers the elderly and disabled.

Agents from the FBI, the U.S. Department of Heath and Human Services Office of the Inspector General, and the Florida attorney general’s Medicaid Fraud Control unit searched the company’s headquarters in Wednesday’s raid.

Robert Salcido, a former trial lawyer with the civil fraud unit of the U.S. Department of Justice, said government officials tend to turn to raids because they get the impression from a company insider that they cannot rely on the company to voluntarily provide the information they are seeking.

Salcido, speaking generally and without specific knowledge of the WellCare case, said a raid could mean that a whistle-blower lawsuit had been filed.

The probe into WellCare of Connecticut Inc is unrelated to the Florida investigation, but began after the state received a whistle-blower complaint, Connecticut Attorney General Richard Blumenthal said.

“My office is investigating transactions between WellCare and its affiliate companies — and their potential impact on the costs of our state’s Medicaid program,” Blumenthal said.

Blumenthal said his office had also looked at public reports by Wall Street analysts alleging that WellCare was hiding and misreporting profits earned through its Medicaid programs.

“Our state relies on factual reporting of company profits in order to properly and fairly set rates for our Medicaid program,” he said.

WellCare’s Knapp said the company would continue to fully and voluntarily cooperate.

“We believe we have done nothing to misstate earnings or profits,” she said, adding, “We believe we did not violate any provision of Connecticut law.”

In Connecticut, it is one of four managed care companies that administer the state’s Medicaid program, the AG said.

WellCare shares closed down $11.31, or 26.5 percent, at $31.36 on Friday on the New York Stock Exchange. The shares fell further in after-hours trading to $30.09.

Additional reporting by Lisa Baertlein

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