A securities class action was recently filed against eHealth, Inc.
Company background
eHealth, Inc. provides individuals, families and small businesses with an internet-based health insurance marketplace. In addition, the company provides education materials for Medicare-related insurance plans such as Medicare Supplement, Medicare Advantage and Medicare Part D prescription drug plans.
Lawsuit basics
On Jan. 26, 2015, The Rosen Law Firm announced the filing of a lawsuit representing investors who bought eHealth's securities between Oct. 31, 2014, and Jan. 14, 2015. The legal motion, which was brought forth in the U.S. District Court for the Northern District of California, alleged that the company, as well as specific directors and officers, made materially false and misleading statements about the company's financial state and opportunities.
"The company cut its fiscal year 2014 revenue guidance to a new range between $178 million and $180 million. "
The lawsuit named CEO Gary Lauer and chief financial officer Steve Huizinga, stating that they provided the investing public with "unrealistic expectations" that eHealth would succeed in meeting its 2014 projections, according to Law360.
Legal investigation
The Rosen Law Firm filed the lawsuit after announcing Jan. 15, 2015, that it was investigating potential securities claims – which involved the possibility the company had provided the investing public with materially misleading business information – on behalf of the insurance marketplace's shareholders.
Financial shortfall
According to the suit, eHealth issued a press release containing second-quarter results in July 2014, which provided revenue guidance of between $185 million and $194 million or fiscal year 2014, Law360 reported. When the company released its third-quarter results in October 2014, it confirmed this projection.
On Jan. 14, 2015, eHealth announced that it was going to release results for the quarter ending Dec. 31, 2014, that would fall short of expectations. The company cut its fiscal year 2014 revenue guidance to a new range between $178 million and $180 million.
When explaining this shift, eHealth pointed to applications for its Individual & Family Plan that fell short of expectations. However, the securities class action claimed that the company had already mentioned these falling requests for coverage in its second – and third-quarter result, according to Law360.
The company also revealed that while analysts expected it to announce $52.6 million in revenue, the firm anticipated reporting top-line results between $43 million and $45 million. In addition, the insurance marketplace revealed that while analysts had forecast a loss of $0.11 for the quarter, eHealth actually anticipated a quarterly loss between $0.47 and $0.56.
According to the lawsuit, markets responded by pushing company shares down nearly 55 percent to close at $9.42 apiece Jan. 14, 2015. This sharp decline hurt investor holdings.
"Markets responded by pushing company shares down nearly 55 percent."
The securities class action claimed the company executives were well aware the timing of their individual and family plan enrollment period – which included both the last quarter of 2014 and the first quarter of 2015 – would undermine the 2014 bottom line, according to Law 360.
"Due to this overlap, and the fact that many people put off applying and enrolling in health insurance closer to the deadline, defendants were aware that revenues for the open enrollment period tended to be in the first quarter of the following year as opposed to the fourth quarter of the current year," the suit stated, the media outlet reported.
What shareholders should know
The Rosen Law Firm has informed eligible investors that the court system has not yet certified a class in the purported securities class action. As a result, shareholders can retain the counsel of their choice, but will lack representation unless they hire an attorney. In addition, the law firm revealed that investors interested in serving as lead plaintiff have until March 27, 2015, to move the court.