This class action is being brought against PACIFICARE HEALTH SYSTEMS, INC., ALAN R. HOOPS, RONALD DAVIS, CRAIG SCHUB, PATRICK FEYEN, JEFFREY M. FOLICK, TERRY O. HARTSHORN, WAYNE LOWELL, WARREN E. PINCKERT, II, JON WAMPLER and JAMES WILLIAMS on behalf of all individuals who purchased or otherwise acquired the common stock of Pacificare Health Systems Inc. between February 3, 1997 and November 25, 1997, inclusive (the "Class Period").
This action arises from damages incurred by the Class as a result of a scheme and common course of conduct by defendants which operated as a fraud and deceit on the Class during the Class Period. Defendants' scheme included rendering false and misleading statements and/or omissions concerning the present and future synergies, cost savings and financial benefits that would enure to Pacificare and its shareholders as a result of its acquisition of FHP International Corporation ("FHP"). Contrary to numerous statements throughout the Class Period, relating to the promising outlook of the Company and the benefits to be derived from the FHP acquisition, defendants were aware that: (a) FHP operations in several states were in serious financial disarray; (b) that several Pacificare operations were also suffering significant losses; and (c) that the integration between the two companies' Information Systems had eliminated any possibility of receiving accurate information concerning FHP's operations. Thus defendants knew or recklessly disregarded that the Company could not fulfill analysts' earnings estimates or achieve the Company's historic 15-20% earnings growth, all which they publicly represented were attainable.
The Complaint further alleges that since the disclosure of these, and other, adverse facts would cause a severe collapse in the price of the Company's stock, defendants set out on a scheme to artificially inflate Pacificare's stock price so that they could dispose of their own holdings at inflated prices. As a result of this knowledge, defendants literally dumped over 85% of their own holdings at strategic points throughout the Class Period.
The Complaint further alleges that as a result of defendants' false statements, misrepresentations and omissions, the price of Pacificare's common stock was artificially inflated during the Class Period. In fact, the Company's common stock traded at an intra day high of $87 ½ on or about June 20, 1997. Pacificare's stock was then maintained at an artificially inflated level until the Company partially disclosed a limited number of adverse facts concerning FHP, on or about June 23, 1997. Although defendants disclosed some adverse facts, they failed to disclose the true extent of the company's problems until November 25, 1997, when defendants' final disclosures caused Pacificare's stock price to plummet.
The Complaint further alleges that due to defendants' deceptive and illegal conduct, plaintiff and the other class members purchased their Pacificare shares at grossly inflated prices. Had plaintiff and the other class members been aware of the truthful condition of Pacificare, FHP and the adverse impact the acquisition was having on the Company, they would not have purchased their shares, or at least not at the artificially inflated prices at which they purchased those shares.