Two district courts recently reached different conclusions regarding whether investors may proceed on a securities fraud claim based in part on public statements touting the defendant’s compliance program. In City of Omaha Police and Fire Retirement System v. LHC Group, Inc., No. 12-1609 (W.D. La. Mar. 15, 2013), investors brought a securities fraud action against a provider of post-acute health care services, including home health care services. Medicare paid bonuses for home healthcare services when patients reached thresholds of 6, 14 and 20 visits. According to the complaint, the company systematically provided unneeded medical care in order to reach the bonus thresholds, while at the same time boasting of its compliance policies and procedures. The company allegedly told investors that it was in full compliance with all applicable laws, touted the quality and comprehensiveness of its compliance department, and claimed that its compliance program represented a competitive advantage. In denying a motion to dismiss the complaint, the court found that these allegations adequately alleged actionable misrepresentations or omissions of material fact. However, the court in In re Gentiva Securities Litigation, No. 10-5064, (E.D.N.Y. Mar. 25, 2013), reached a different conclusion based upon similar facts. There, investors filed a securities fraud class action against a home health services provider based on certain public statements that the company maintained a “robust” and “best-in-class” compliance department, which it made prior to disclosing that the SEC and Congress were investigating its practices that, similar to those alleged in LHC Group, allegedly led to inflated Medicare reimbursements. The plaintiffs claimed these representations about the compliance department were knowingly false in light of the company’s actual practices and that in fact the company’s compliance program was materially defective. The court found that the statements were too general to cause a reasonable investor to rely on them. They therefore constituted “corporate puffery” rather than actionable misrepresentations. Without addressing the LHC Group decision, the court granted the defendants’ motion to dismiss the complaint.
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Courts issue contrary rulings re statements touting compliance program
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