Healthcare Services Group, Inc.
- Company Name
- Healthcare Services Group, Inc.
- Stock Symbol
- Class Period
- April 11, 2017 to March 4, 2019
- Motion Deadline
- May 21, 2019
- Eastern District of Pennsylvania
The complaint charges Healthcare Services and its CEO with violations of the Securities Exchange Act of 1934. Healthcare Services provides management, administrative, and operating services to the housekeeping, laundry, linen, facilities maintenance, and dietary service departments of nursing homes, retirement complexes, rehabilitation centers, and hospitals in the United States.
The complaint alleges that throughout the Class Period, defendants made materially false and misleading statements and/or failed to disclose adverse information regarding the Company’s business and operations, including that the Company had been engaging in aggressive accounting practices, including manipulating its revenues and/or expenses in order to round up its quarterly earnings per share (“EPS”) results, which enabled the Company to meet or beat consensus earnings expectations and achieve a premium earnings multiple for its stock. As a result of this information being withheld from the market, Healthcare Services securities traded at artificially inflated prices during the Class Period, with its stock reaching prices of more than $55 per share.
On March 4, 2019, the Company disclosed in a Form 8-K that it had received a letter in November 2017 from the SEC regarding an inquiry the SEC was conducting into the Company’s 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 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 Form 8-K also revealed that the Company had authorized its outside counsel to conduct an internal investigation into matters related to the SEC subpoena and, as a result, the Company was unable to timely file its Annual Report on Form 10-K for the year ended December 31, 2018.
The same day, March 4, 2019, Monocle Accounting Research published an article regarding the SEC subpoena and internal investigation (the “March 2019 Article”). The March 2019 Article referred back to a prior article published by Monocle in March 2017, which claimed, in pertinent part, “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 a 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.” These allegations were categorically denied by the Company following the earlier article’s publication. 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 earlier article, and 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 more than 13%, to close at $32.78 per share on March 4, 2019.