Healthcare Services Group, Inc.

Case Details

Class Period:
April 11, 2017 – March 4, 2019
Date Filed:
March 22, 2019
Case Number:
Eastern District of Pennsylvania

Case Summary

The complaint alleges that throughout the Class Period, Defendants made materially false and misleading statements regarding the Company's business, operational and compliance policies. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: Defendants made false and misleading statements and engaged in a scheme to deceive the market and a course of conduct that artificially inflated the price of Healthcare Services securities and operated as a fraud or deceit on Class Period purchasers of Healthcare Services securities by misrepresenting the value of the Company's business and prospects by overstating its earnings and concealing the significant defects in its internal controls. On March 4, 2019, in a Form 8-K filed with the Securities and Exchange Commission ("SEC"), the Company disclosed that it had received a letter in November 2017 from the SEC regarding an inquiry that the SEC was conducting into EPS calculation practices and requesting that the Company voluntarily provide certain information and documents relating to its EPS rounding and reporting practices. The March 4, 2019 Form 8-K further disclosed that the Company also had received a subpoena in March 2018 from the SEC in connection with these matters and that it had been providing information and documents to the SEC. The March 4, 2019 Form 8-K also revealed to investors that, during the fourth quarter of 2018, the Company authorized its outside counsel to conduct an internal investigation, under the direction of the Company's Audit Committee, into matters related to the SEC subpoena. The Form 8-K acknowledged that, as a result of these circumstances, the Company was unable to file its Annual Report on Form 10-K for the year ended December 31, 2018 on time. Then, on March 4, 2019, Monocle published an article entitled 'Strategic Rounding' At Healthcare Services Group: A Subpoena From The SEC And An Internal Investigation (the "March 2019 Article"). The March 2019 Article referred back to a prior article published by Monocle in March 2017the allegations of which Healthcare Services categorically denied following its publicationclaiming, in pertinent part: "[I]t appeared that the company had been actively engaging FOR OVER A DECADE in aggressive accounting by fiddling with its revenues and/or expenses in order to ensure that its earnings per share rounded up to the nearest penny every quarter. This helped enable the company to meet or beat the consensus sell-side earnings expectation most quarters, which in turn helped the company achieve premium earnings multiple for the stock. Arguably, this allowed founder and Chairman Daniel McCartney to personally realize millions of dollars more for the stock that he sold to the public than he otherwise would have." Additionally, according to the March 2019 Article, Healthcare Services "dramatically amend[ed]" the way it managed its quarterly EPS following Monocle's publication of the March 2017 Article, as well as after Monocle informed the Company, the Company's sell-side analysts, and the SEC of its findings. The March 2019 article also noted how Healthcare Services' EPS continued to climb dramatically in the wake of Monocle's release of the 2017 article. Following these disclosures, the Company's stock price fell $4.96 per share, or 13.14%, to close at $32.78 on March 4, 2019.

Action Details

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