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Case 2:10-cv-05064-ADS-WDW Document 57 Filed 04/16/12 Page 1 of 133 PageID #: 747

UNITED STATES DISTRICT COURT EASTERN DISTRICT OF NEW YORK

In re: GENTIVA SECURITIES LITIGATION

CASE NO. 10-CV-5064 (ADS)(WDW)

CONSOLIDATED CLASS ACTION COMPLAINT

JURY TRIAL DEMANDED

ELECTRONICALLY FILED

KAPLAN FOX & KILSHEIMER LLP Frederic S. Fox Joel B. Strauss Jeffrey P. Campisi Gwendolyn N. Cutini 850 Third Avenue, 14th Floor New York, New York 10022 Tel: (212) 687-1980 Fax: (212) 687-7714

KAPLAN FOX & KILSHEIMER LLP Justin B. Farar 11111 Santa Monica Blvd. Suite 620 Los Angeles, CA 90025 Tel: (310) 575-8604 Fax: (310) 575-8697

KAPLAN FOX & KILSHEIMER LLP Laurence D. King 350 Sansome Street, Suite 400 San Francisco, California 94104 Tel: (415) 772-4700 Fax: (415) 772-4707

Lead Counsel for Lead Plaintiff the Los Angeles City Employees Retirement System and the Proposed Class

Case 2:10-cv-05064-ADS-WDW Document 57 Filed 04/16/12 Page 2 of 133 PageID #: 748

Table of Contents

I. NATURE AND GENERAL OVERVIEW OF THE CLAIMS ............................................. 1

II. JURISDICTION AND VENUE ............................................................................................ 2

III. EXCHANGE ACT CLAIMS ................................................................................................ 2

A . The Exchange Act Parties ............................................................................................. 5

B. Overview of the Exchange Act Defendants Wrongful Conduct ................................ 7

1. Relevant Background on Home Health Care Eligibility Rules and Regulations, Medicares Prospective Payment System and Therapy Thresholds ............................. 7

a. Bonus Payments Based on Number of Visits ........................................................... 9

b. Recertifications ....................................................................................................... 10

c. LUPAs .................................................................................................................... 11

2. Statistics Suggest that Gentiva Provided Therapy Visits Based on Meeting Bonus Payment Criteria, Rather Than Patient Medical Needs ................................... 11

3. Lead Counsels Investigation Corroborates the Findings of the SFC......................... 18

4. The SEC is Investigating Gentiva ............................................................................... 35

C. The Exchange Act Defendants Materially False and Misleading Statements ........... 35

1. Second Quarter 2008 Financial Results and Representations about Compliance with Medicare Standards and Regulations .................................................................. 37

2. Third Quarter 2008 Financial Results and Representations about Compliance with Medicare Standards and Regulations .................................................................. 45

3. 2008 Financial Results and Representations about Compliance with Medicare Standardsand Regulations .......................................................................................... 50

4. First Quarter 2009 Financial Results and Representations about Compliance with Medicare Standards and Regulations .................................................................. 57

5. Second Quarter 2009 Financial Results and Representations about Compliance with Medicare Standards and Regulations .................................................................. 62

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6. Third Quarter 2009 Financial Results and Representations about Compliance with Medicare Standards and Regulations .................................................................. 66

7. 2009 Financial Results and Representations about Compliance with Medicare Standardsand Regulations .......................................................................................... 77

8. First Quarter 2010 Financial Results and Representations about Compliance with Medicare Standards and Regulations .................................................................. 78

9. Second Quarter 2010 Financial Results and Representations about Compliance with Medicare Standards and Regulations .................................................................. 81

10. Third Quarter 2010 Financial Results and Representations about Compliance with Medicare Standards and Regulations .................................................................. 87

11. 2010 Financial Results and Representations about Compliance with Medicare Standardsand Regulations .......................................................................................... 91

12. First Quarter 2011 Financial Results and Representations about Compliance with Medicare Standards and Regulations .................................................................. 96

13. Second Quarter 2011 Financial Results and Representations about Compliance with Medicare Standards and Regulations .................................................................. 97

D. Loss Causation/Economic Loss ................................................................................ 100

E. Fraud-On-The-Market Doctrine ................................................................................ 105

F. Additional Scienter Allegations ................................................................................ 106

G. No Safe Harbor ......................................................................................................... 108

H. Claims for Relief under the Exchange Act ............................................................... 108

IV. SECURITIES ACT CLAIMS ............................................................................................ 111

A. The Securities Act Parties ......................................................................................... 111

B. Gentivas False and Misleading Offering Documents .............................................. 112

1. The 2009 10-K .......................................................................................................... 113

2. The Q1 2010 10-Q .................................................................................................... 115

3. The Q2 2010 10-Q .................................................................................................... 116

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4 . The Q3 2010 10-Q .................................................................................................... 117

C. Claims for Relief Under the Securities Act .............................................................. 119

V. CLASS ACTION ALLEGATIONS .................................................................................. 121

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Lead Plaintiff, the Los Angeles City Employees Retirement System (LACERS), by its

attorneys, on behalf of itself and all others similarly situated, alleges the following based upon

the investigation by Lead Plaintiffs counsel, except as to allegations specifically pertaining to

Lead Plaintiff, which are based on personal knowledge. The investigation by counsel included,

among other things, a review of Gentiva Health Services, Inc.s (Gentiva or the Company)

public filings with the U.S. Securities and Exchange Commission (SEC), press releases issued

by the Company, public conference calls, media, analyst and news reports about the Company,

publicly available trading data relating to the price and volume of Gentiva securities, the Staff

Report on Home Health and the Medicare Therapy Threshold prepared by the Staff of the U.S.

Senate Finance Committee, including the Appendix of documents attached thereto, and Lead

Counsels interviews with former Gentiva employees.

I. NATURE AND GENERAL OVERVIEW OF THE CLAIMS

1. This is a securities class action brought under Sections 11 and 15 of the Securities

Act of 1933 (the Securities Act), 15 U.S.C. 77k, and 77o, and Sections 10(b) and 20(a) of

the Securities Exchange Act of 1934 (the Exchange Act), 15 U.S.C. 78j(b) and 78t(a); and

SEC Rules 10b-5, 17 C.F.R. 240.10b-5 (the Action).

2. The Action is brought on behalf of a class consisting of all persons or entities that

purchased the publicly traded securities of Gentiva between July 31, 2008 and October 4, 2011,

inclusive (the Class Period) against Gentiva and certain of its present and former officers,

executives, and directors for violations of the Exchange Act and the Securities Act.

3. The Exchange Act claims are alleged in Section III of this Consolidated Class

Action Complaint (the Complaint) and the Securities Act claims are alleged in Section IV of

the Complaint. The Class Action allegations are in Section V of the Complaint.

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II. JURISDICTION AND VENUE

4. This Court has jurisdiction over the subject matter of the Action pursuant to

Section 22(a) of the Securities Act (15 U.S.C. 77v(a)), Section 27 of the Exchange Act (15

U.S.C. 78aa), and 2