The torrents of legal woes troubling Centene Corp. CEO Michael Neidorff and the company’s top executives, stemming from the 2016 takeover of Health Net, seemed not going away anytime soon. Neidorff and his cohorts now face a lawsuit spearheaded by the Carpenters Pension Fund of Illinois, alleging that the senior Centene officials committed insider trading and violated federal securities laws.
Centene shareholders filed the case and accused the company and its board of breaching their fiduciary duties, violating the existing tax regulations in California, going against government regulations, and other serious misconducts. The complaint argues that the $6.8 billion merger with Health Net in March 2016 brought severe damages to Centene’s finances and reputation.
The suit named Iron Workers Local 11 Pension Fund, Cohen Milstein’s clients, and Peoria Police Pension Fund as co-plaintiffs.
Neidorff Profited From The Problematic Takeover
The plaintiffs argued that the purchase of Health Net proved to be a massive loss as Centene admitted following the merger deal that the California firm was indeed struggling with unpaid taxes and serious financial liabilities. Succeeding admissions made by Neidorff and his fellow executives indicated that Health Net’s total tax exposure prior to the takeover amounted to nearly $1 billion.
Also, when Health Net was added to Centene’s portfolio of businesses in 2016, the latter acquired the former’s liability of $390 million. The belated disclosure made by Centene led to a retreat of the company’s share value. In the end, Centene investors saw a market capitalization wipeout of over $1 billion, and they pin the blame on Neidorff and select directors of the board.
The damaging effects of the merger could have been avoided had Neidorff and his board performed the job entrusted to them. “Despite eight months of due diligence, Centene and its Board failed to fully disclose ongoing problems facing Health Net’s business to the SEC, California and Arizona state insurance regulators, and stockholders,” per the court filing.
Neidorff Hid The Truth And Profited From It
But what enraged the shareholders further was the fact that Neidorff and key Centene officials knew beforehand what they were buying into – that Health Net was unprofitable – and they still pushed through with the deal. For the investors, the mysterious decision made by Neidorff and co. was clarified when it became known that the union brought them a windfall.
“Defendants disposed of over $28 million in Centene common stock while in possession of propriety inside information. Neidorff sold nearly $20 million of his personal holdings and, in 2015 and 2016, he received total compensation of approximately $20.75 million and $21.97 million, respectively,” the suit indicated.
Following the Centene-Health Net merger, Succeeding revelations showed that the deal was negotiated and finalized at an inflated price. The lawsuit said Neidorff’s maneuverings resulted “in millions of dollars in damages to Centene, sales of stock by insiders, serious harm to its reputation, goodwill, and standing in the business community.”
