This appeared on Bloomberg News today:
“WellCare Shares Jump After Analyst Calls Fraud Probe `Limited’
Nov. 20 (Bloomberg) – WellCare Health Plans Inc., the U.S. health insurer under investigation for possible government overpayments, rose the most in two weeks in New York trading after an analyst upgraded the company.
“The analyst, Carl McDonald of CIBC World Markets in New York, called the probe ‘limited’ and raised his rating of WellCare to ‘sector outperform-speculative’ from ‘sector perform.’ WellCare rose $2.38, or 6.8 percent, to $37.39 at 9:40 a.m. in New York Stock Exchange composite trading after touching $38.14.
“A U.S. government raid of WellCare’s Tampa, Florida, headquarters on Oct. 24 yielded thousands of records, including papers pulled from a shredder bin and files on offshore bank accounts, according to court filings. McDonald said the filings suggest the probe is focused on Florida’s Medicaid program for the poor.
“’It’s possible that the Florida Medicaid investigation spreads into other areas, but the document seems to rule out widespread, systemic fraud,’ the analyst said in a note to clients today.”
Bloomberg also reveals that: “The agents seized records from the desks of Chief Executive Officer Todd Farha and Chief Financial Officer Paul Behrens, according to the court records. From Behrens’ desk, agents grabbed a document called the ‘Stairway to Heaven Plan,’ according to the inventory.
“Also taken were wire transfers, tax returns, bank accounts in the Grand Cayman Islands, a calendar of political visitors and contributions, and phone lists. One seized document was labeled ‘Re: Possible Kickback,’ according to the court records”.
Yet none of this seems to bother the analyst who upgraded the stock or the many investors who followed his upgrade–pushing the share price up 6.8 percent this morning. The analyst predicts that “that WellCare [will] settle, pay a fine, but remain in all its businesses, rather than being put out of business.”
I’ve been following the stock market for more than two decades and I
know that he is probably right. The scandal represents a Buying
Opportunity for investors interested in WellCare. If they will jump in
while the price is low, the can make a bundle, and the stock will
From the company’s point of view, paying the fine is simply part of
the price of doing business. Its reputation will not be ruined on Wall
Street because the Street doesn’t care about the ethics of what the
company is doing; investors care about whether or not the company is
making a profit. As long as customers continue to buy the company’s
product—and they usually do—earnings will continue to flow.
Meanwhile, both companies and individuals in our for-profit health care industry continue to engage in criminal
activities. In one case, a device-maker knows that its defibrillator
may kill someone, but doesn’t disclose this knowledge to patients and
doctors. In another case, a drug-maker hides what it knows about the
risks of its newest “blockbuster” drug while spending millions to
advertise its product “direct to consumers.” In a third case,
orthopedists at some of our top academic medical centers take millions
from device-makers in exchange for teaching residents how to implant
the device-maker’s newest, most expensive artificial knee—and only that
No one goes to jail. And everyone makes money.