A federal class-action complaint filed May 30 alleges Franklin, Tenn.-based Community Health Systems and three top executives made false and misleading statements about the company's business that artificially inflated its stock price.
The complaint, pending in U.S. District Court for the Middle District of Tennessee, specifically alleges that between Feb. 20, 2017, and Feb. 27, 2018, CHS failed to disclose to investors that it had understated its contractual allowances and provision for bad debts, which caused the company to overstate its net revenue and understate its net loss. During that roughly one-year period, CHS and three of its executives — Chairman and CEO Wayne T. Smith, CFO Thomas J. Aaron and former CFO W. Larry Cash — allegedly made false and misleading statements that improperly propped up the company's stock price.
According to the complaint, CHS and the executives misled investors about the company's "financial well-being" and their omissions and misstatements came to light on Feb. 28, 2018, when the company announced its financial results for 2017. At that time, CHS allegedly reported a $591 million increase to contractual allowances and bad debt provision. On this news, the company's share price fell more than 17 percent to close at $5.12 per share on Feb. 28, according to the complaint.
The alleged misstatements and omissions of CHS and its top executives resulted in investors buying the company's securities at artificially inflated prices between Feb. 20, 2017, and Feb. 27, 2018.
Caleb Padilla filed the lawsuit on behalf of himself and all others similarly situated. He allegedly suffered damages in connection with his purchase of CHS shares at an artificially inflated price. Mr. Padilla is seeking an award of monetary damages proven at trial, in addition to attorney's fees and costs.
CHS did not immediately respond to Becker's request for comment.
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