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Firing talk dents WellCare stock

A published report that three top executives are close to being let go shakes investors' nerves, sending shares tumbling.

By KRIS HUNDLEY, Times Staff Writer
Published January 25, 2008

Investors in WellCare Health Plans Inc. got nervous Thursday as they waited for heads to roll amid an ongoing investigation into fraud allegations.

The Wall Street Journal, citing an unnamed source, reported WellCare's board was negotiating departure terms with Todd Farha, chairman and chief executive, Paul Behrens, chief financial officer, and Thaddeus Bereday, general counsel.

The company declined to comment and shareholders took that as a reason to sell, with the stock closing at $42.25, down $8.69.

"It's just a lot of uncertainty right now that's created an information void being filled with a lot of erroneous rumors," said Brian Wright, an analyst with Jeffries & Co. in New York, who has a buy recommendation on the stock. "People are afraid to step up and buy."

Three months ago, federal investigators raided WellCare's Henderson Road headquarters after an ex-employee alleged the companydefrauded Florida's Medicaid program. WellCare has 2.3-million Medicare and Medicaid plan members, with Florida its top market. Last year, it reported nearly $4-billion in revenue, all from government sources.

WellCare's shares fell sharply in the wake of the raid, from a high of $128 to $20, then rebounded as investors gained confidence the impact of the investigation would be limited. But word that top executives would be ousted left some investors wondering if the damage might be more serious.

"That certainly is a concern," said Wright.

Stephen Meagher, a San Francisco attorney who represented whistleblowers in the government's fraud case against HCA hospitals a decade ago, said WellCare's board will accomplish two things if they clean house.

"They're trying to restore confidence in the company on Wall Street, and that's easier to do when there's a new group of top executives," he said. "It also makes it easier for investigators because there won't be people on top putting pressure on employees not to cooperate. So the investigation may take a matter of months, not years."

Among the WellCare directors reportedly engineering the departures are Ruben King-Shaw Jr., former head of Florida's Agency for Health Care Administration, and former Florida Sen. Bob Graham.

Graham, who received $500,000 in restricted stock and options when he joined the board in April, declined to comment on WellCare on Thursday. Asked how much time he'd been spending on board activities, he said, "We've been spending the kind of time the challenges of the company call for."

[Last modified January 24, 2008, 22:49:53]