WellCare can sue former execs

By Jim Saunders
7//8/2010 © Health News Florida

WellCare Health Plans is now free to sue the three former executives who ran the Tampa-based company into a financial scandal, under a federal judge's ruling Wednesday. 

The ruling allows WellCare to pursue claims against former Chairman and Chief Executive Officer Todd Farha, former Chief Financial Officer Paul Behrens and former General Counsel Thaddeus Bereday. It also shields current and former members of the company's board of directors -- who include former Florida Governor and U.S. Sen. Bob Graham -- from potential liability in a lawsuit originally brought by shareholders.

A WellCare statement released Wednesday said that a special committee appointed by the board of directors recommended that the company sue the former executives on claims of breach of duty and breach of contract.

All three left the HMO in January 2008, three months after federal and state authorities raided company headquarters amid a wide-ranging investigation into fraud and wrongdoing.

"These are key legal developments for the company,'' Timothy Susanin, senior vice president and general counsel of WellCare, said in the statement. "WellCare can now pursue its claims and hold these former executives accountable for their conduct.''

Tampa-based attorneys for Farha, Behrens and Bereday could not be reached for comment.

The ruling by U.S District Judge Virginia Hernandez Covington comes two weeks after WellCare announced it had a preliminary agreement that would require it to pay $137.5 million to settle civil claims by the U.S. Justice Department and the state Attorney General's Office. Last year the company agreed to pay $80 million to avoid prosecution for fraud.

Those settlements are entirely separate from any potential WellCare claims against Farha, Behrens and Bereday.

Details of the fraud and abuse that allegedly took place became public two weeks ago when a judge unsealed a chief whistleblower's complaint. One example: The whistleblower, Sean Hellein, said WellCare tried to move high-cost patients, such as sick babies and terminally ill people, out of its health plans.

Along with the lawsuit from WellCare, the three former executives also could face other legal issues: Attorney General Bill McCollum's office confirmed last week an ongoing criminal investigation into former company officials. The attorney general's office did not disclose the names of people under investigation, and Farha, Behrens and Bereday have not been charged with any crimes.

The ruling Wednesday in U.S. District Court in Tampa stemmed from a shareholders lawsuit filed in 2007 against the company executives and members of the board of directors. Under a settlement with the original plaintiffs, WellCare will now pursue claims against the former executives, while board members will be dismissed from the case.

The shareholders alleged, in part, that company officials overstated income, had inadequate internal controls and took actions that artificially inflated stock prices. Meanwhile, the lawsuit alleged Farha, Behrens and Bereday made millions of dollars by selling company stock.

As a sign of how far the company crashed, the shareholders said WellCare's stock price dropped from $115.47 a share on the day before the 2007 raid to $42.67 the day after. WellCare's stock closed Wednesday at $23.15.

In the statement issued after the judge's ruling, however, Chief Executive Officer Alec Cunningham offered an upbeat view of the future.

"This is a logical next step in the company's transformation that began in October 2007,'' Cunningham said. "This is another in a series of company efforts over the past two and one-half years to remediate past practices and forge a new future for members, associates and stockholders.''

--Independent journalist Mike Wells contributed to this story. Capital Bureau Chief Jim Saunders can be reached at 850-228-0963 or by e-mail at jim.saunders@healthnewsflorida.org.