The Eastern District of Texas approved a $44 million securities settlement to resolve claims the nation’s largest free-standing emergency department operator misled investors about cash flow and liquidity, causing them to purchase Adeptus Health Inc. stock at inflated prices.
Allegations under the Securities Exchange Act included, among other things, that Adeptus misrepresented the profitability of joint ventures with hospitals and engaged in fraudulent billing practices, charging for higher levels of service than what were or should have been provided to certain patients.
Plaintiffs’ expert estimated maximum aggregate damages to be as high as $850 million but, according to class counsel, settling for 5.2% of the potential recovery was reasonable given the context. Not only was the settlement sizable relative to those reached in comparable securities class actions, but the risk of litigation was enhanced by the fact that Adeptus filed for bankruptcy in 2017, the plaintiff’s motion for settlement approval said.
The approved settlement class includes all entities and individuals who purchased or acquired Adeptus Class A common stock from June 25, 2014, to March 1, 2017.
The funds will be distributed pro rata among class members who will, in exchange, release the defendants from all claims, including unknown claims, that were or could have been raised in the lawsuit, according to the settlement.
Judge Amos L. Mazzant awarded 25% of the settlement fund, or $11 million, for attorneys’ fees, plus just over $1.38 million for expenses, which will be paid from the fund and allocated among class lawyers by lead counsel.
Lead plaintiffs Arkansas Teacher Retirement System and Alameda County Employees’ Retirement Association received an aggregate award of nearly $21,000.
The settlement resolves allegations against Adeptus, as well as private equity firm and shareholder Sterling Partners, named underwriters, and individual executives and directors.
Lead counsel for the class were Bernstein Litowitz Berger & Grossmann LLP and Kessler Topaz Meltzer & Check LLP. Adeptus Health was represented by McDermott Will & Emery LLP.
The case is Oklahoma Law Enforcement Retirement System v. Adeptus Health Inc., E.D. Tex., No. 4:17-cv-00449-ALM, 5/20/20.