Robbins Arroyo LLP: HCP, Inc. (HCP) Misled Shareholders According to a Recently Filed Class Action
Robbins Arroyo LLP announces that a class action complaint was filed against HCP, Inc. (NYSE: HCP) in the U.S. District Court for the Central District of California. The complaint is brought on behalf of all purchasers of HCP securities between March 30, 2015 and February 8, 2016, for alleged violations of the Securities Exchange Act of 1934 by HCP’s officers and directors. HCP is an independent hybrid real estate investment trust.
HCP Accused of Covering Up Its Client’s Billing Fraud Practices
According to the complaint, throughout the class period, HCP was highly dependent on ManorCare, a nursing home operator that served as HCP’s most significant client. ManorCare’s operations and business were critically important to HCP and its investors, as HCP had purchased substantially all of ManorCare’s real estate facilities and took a 10% equity stake in ManorCare, with 30% of HCP’s revenue derived from its leases with ManorCare. Furthermore, 40% of HCP’s real estate assets were subject to long-term leases with ManorCare. HCP represented to investors that ManorCare was a reliable “partner,” stating that ManorCare had “a long history of compliance with regulations” and that ManorCare’s billing practices were “to the standard one would want.” HCP also stated that its assets and revenue stream from its leases with ManorCare were secure and unimpaired.
However, according to the complaint, these representations could not be further from the truth, as HCP officials were allegedly aware that ManorCare was engaged in rampant billing fraud, generating over $6 billion in false claims for “reimbursement” submitted to government programs. To ensure it would receive the highest possible reimbursement rate from Medicare, ManorCare submitted false claims for reimbursement for therapeutic services that did not meet the requisite criteria. Specifically, ManorCare allegedly forced patients to remain in therapy for longer than necessary and subjected patients to harmful treatment. ManorCare’s billing fraud subjected it to three whistleblower lawsuits and an investigation by the U.S. Department of Justice (“DOJ”), which intervened in the whistleblower lawsuits.
The complaint alleges that HCP officials hid from investors that ManorCare was engaging in billing fraud in violation of federal and state laws, and as a result, ManorCare’s reported revenue and earnings were false, and its consolidated statements did not comply with Generally Accepted Accounting Principles. In addition, ManorCare’s billing fraud and the DOJ action put HCP’s revenue stream from its ManorCare leases in jeopardy, and called into question the value of HCP’s equity stake in ManorCare. Even after the whistleblower actions and DOJ action were revealed, ManorCare and HCP denied that any wrongdoing had occurred. HCP revealed the truth in a series of corrective disclosures, stating that it had recorded two impairment charges totaling $505 million involving ManorCare. On February 9, 2016, HCP disclosed that its equity stake in ManorCare had been written down to zero, revealing it could no longer rely on ManorCare to pay its rent, and noting high legal costs incurred by ManorCare in defending against the whistleblower and DOJ lawsuits. On this news, HCP stock dropped 17% to close at $28.33 per share on February 9, 2016.
HCP Shareholders Have Legal Options
Concerned shareholders who would like more information about their rights and potential remedies can contact attorney Darnell R. Donahue at (800) 350-6003, or you can complete the form below and we will contact you directly.