- Company Name
- WageWorks, Inc.
- Stock Symbol
- Class Period
- May 5, 2016 to March 1, 2018
- Motion Deadline
- May 8, 2018
- Northern District of California
The complaint charges WageWorks and certain of its officers with violations of the Securities Exchange Act of 1934. WageWorks provides tax-advantaged programs for consumer-directed health, commuter and other employee spending account benefits in the United States, including health and dependent care Flexible Spending Accounts, Health Savings Account, Health Reimbursement Accounts and transit programs.
The complaint alleges that during the Class Period, defendants issued a series of false and misleading statements and/or failed to disclose adverse information regarding WageWorks’ financial results, including that there were material weaknesses in the Company’s system of internal controls and its practices and controls were ineffective, that WageWorks failed to adequately manage and assess risk relating to certain complex transactions, and that WageWorks had improperly recognized revenue, thereby inflating its earnings and related financial metrics, and, as a consequence, WageWorks’ financial statements were materially false and misleading at all relevant times. As a result of defendants’ false statements and/or omissions, WageWorks securities traded at artificially inflated prices, with its stock price reaching a high of $80.20 per share during the Class Period.
On June 23, 2017, 2.5 million shares of WageWorks stock were sold in a secondary public offering at $69.25 per share. Of the 2.5 million shares sold, WageWorks sold approximately 1.95 million shares for net proceeds of $131 million, and WageWorks’ CEO, defendant Joseph L. Jackson, sold over 495,000 shares, nearly all of his holdings, for net proceeds of more than $31 million.
Then on March 1, 2018, WageWorks announced that it would delay the filing of its annual report on Form 10-K. On this news, the price of WageWorks shares fell $9.75 per share to close at $42.70 per share on March 1, 2018, a one-day decline of more than 18% and a decline of more than 38% from the price at which the Company and defendant Jackson sold WageWorks shares in the June 2017 secondary offering.
The next day, on March 2, 2018, the Company stated in a filing with the SEC that the delay was due to a material weakness in internal control over financial reporting as of December 31, 2017, and that its audit committee was conducting an investigation into the Company’s revenue recognition practices. According to the filing, among other matters, the investigation was reviewing ”certain issues, including revenue recognition, related to the accounting for a government contract during fiscal 2016 and associated issues with whether there was an open flow of information and appropriate tone at the top for an effective control environment” at the Company. WageWorks said that the investigation was ongoing and could result in the identification of other accounting issues, further material weaknesses, and/or require the restatement of the Company’s financial statements for previously reported periods.