A class action lawsuit was filed against PACS Group, Inc. (PACS) by Levi & Korsinsky on November 13, 2024. The plaintiffs (shareholders) alleged that they bought PACS stock at artificially inflated prices on or about April 11, 2024 (the date of its IPO) and/or between April 11, 2024, and November 5, 2024 (Class Period) and are now seeking compensation for their financial losses. Investors who bought PACS Group stock during that period can click here to learn about joining the lawsuit.
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PACS Group operates in the healthcare sector. Its subsidiaries invest in post-acute care facilities, senior living communities, and related ancillary services and professionals.
The company’s claims about its billing practices and associated Medicare claims that drove over 100% of its operating and net income between 2020 and 2023 are at the heart of the current complaint.
PACS Group’s Misleading Claims
According to the lawsuit, PACS Group and two of its senior officers (Individual Defendants) repeatedly made false and misleading public statements throughout the Class Period. Particularly, they are accused of omitting truthful information about the Company’s billing practices, licensing and staffing documentation, and other issues from SEC filings and related material.
For instance, in a press release dated May 13, 2024, the company stated that the average Medicare and Medicaid rates grew by 11.0% and 5.3% year-over-year, respectively, in Q1 FY24. Furthermore, in a 10-Q report filed on the same day, the company noted that if its subsidiaries fail to adhere to the licensing practices and certification laws, among other things, the unit could lose its Medicare and Medicaid certification and/or its permission to operate in the state.
However, subsequent events (discussed below) revealed that PACS Group and its units had failed to comply with the required laws and wrongfully inflated its operating and net income figures.
Plaintiffs’ Arguments
The plaintiffs maintain that the Defendants deceived investors by lying and withholding critical information about the company’s business practices during the Class Period. Importantly, the Defendants are accused of misleading investors about their unlawful billing practices and the related government probe.
The information became clear in a series of events that occurred on November 4, 2024 and November 6, 2024. Initially, short-seller Hindenburg Research issued a report alleging that PACS Group had misused the COVID-era waiver and undertaken a fraudulent scheme to submit fake Medicare and Medicaid claims. This drove the robust operating and net income growth between 2020 and 2023 and also aided PACS Group to successfully pursue its IPO in 2024.
Following this, on November 6, 2024, before the market opened, PACS Group announced that it would not file its Q3 FY24 report as per schedule and would delay its filing. Additionally, the company mentioned that it received a Civil Investigative Demand (CID) from the federal government related to its reimbursements and referral practices. PACS stock collapsed 38.8% on the news.
To conclude, the defendants allegedly misled investors about PACS Group’s revenue and profitability prospects. Since its IPO, PACS shares have declined nearly 45%, leading to significant losses for shareholders.
