Brentwood, Tenn.-based Quorum Health Corp.'s board is probing whether the company gave adequate disclosures to its investors prior to its separation from Franklin, Tenn.-based Community Health Systems last year, according to Reuters.
According to a letter seen by Reuters and a person familiar with the matter, Quorum's board has hired outside counsel to assist in the investigation into the investor disclosures.
The probe comes after Q Investments LP, a Fort Worth, Texas-based hedge fund, sent a letter to Quorum's board last October, asking the board to conduct an independent investigation into potentially unlawful financial projections related to Quorum's spin-off from CHS. Q Investments claims CHS knew the initial guidance used to market Quorum to investors was wrong. According to the October letter, CHS provided inflated EBITDA guidance to potential Quorum investors in late March 2016 and used the guidance to attract equity investors and market Quorum's more than $1.2 billion of primary debt financings.
"We believe Community Health was desperate to raise cash, and they saw an easy path to do so by stuffing new investors in Quorum with inflated guidance and concealing costs within what they knew was a disintegrating business," the October letter states.
Q Investments was one of Quorum's top-10 investors with 1.3 million shares at the time of the spin-off, but the hedge fund has since reduced its stake in the company, according to Reuters.
In a statement to the Wall Street Journal last October, CHS said it rejects Q Investments' allegations that it committed any wrongdoing in connection with the Quorum spin-off.
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