A new complaint was filed against PACS Group, Inc. (PACS) by shareholder (plaintiff) Christopher Manchin on November 13, 2024, in the U.S. District Court for the Southern District of New York. The defendants in the complaint are the company and 14 other individual defendants, including company executives and book runners of the IPO (initial public offering) process.
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The plaintiff alleges that he 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 (the “Class Period”). The plaintiff is now seeking compensation for his financial losses. To learn more about the lawsuit, click here.
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 filed complaint alleges that during the Class Period, the defendants misled PACS Group investors in violation of Sections 10(b) and 20(a) of the Securities Exchange Act.
Plaintiff’s Allegations
According to the complaint, PACS intentionally misrepresented information presented in its financial statements and registration documents with the U.S. SEC (Securities and Exchange Commission). In particular, the defendants allegedly misled investors about Medicare claims that drove over 100% of its operating and net income between 2020 and 2023. Additionally, PACS allegedly engaged in a “scheme” to artificially bill thousands of respiratory and sensory integration therapies to Medicare, thus inflating its income.
The complaint alleges that both the underwriters and company executives failed to exercise proper oversight and control over the preparation of the financial and regulatory statements related to the IPO and allowed them to be published.
For instance, on April 12, 2024, when PACS filed its prospectus with the SEC, the company claimed $3.1 billion in revenue in 2023. This represented 63% CAGR (compound annual growth rate) over the past three years. The company allegedly presented a rosy picture of its financials, thus enticing investors to invest in the IPO. On the date of the listing, 21,428,572 PACS shares were offered at $21 each, generating $450 million in gross proceeds.
PACS shareholders received another blow recently. The company received a notice from the New York Stock Exchange on November 26, 2024, stating that it failed to report its quarterly report for the three months ending September 30, 2024, on a timely basis. PACS has six months to file the 10Q to regain compliance or risk delisting its stock.
PACS Group’s Misrepresentations
In contrast to the claims made by PACS and the defendants, the company had allegedly inflated its Medicare income as well as billed Medicare for unnecessary respiratory therapies and false documentation. All these falsely gave a picture of a healthy and growing business.
The truth became clear on November 4, 2024, when short seller Hindenburg Research published a report accusing PACS of fraudulent practices. The report noted that Hindenburg interviewed nearly 18 ex-employees of PACS who ascertained the claims. PACS was allegedly billing “fake RN hours” and other false documentation that led to inflated revenues and profitability expectations.
Soon after the short seller report, on November 6, 2024, PACS notified investors that it had received a Civil Investigative Demand (CID) from the federal government related to its reimbursement and referral practices. Following the news, PACS shares plunged over 38%.
To conclude, the defendants allegedly misled investors about PACS Group’s revenue and profitability prospects. Since its IPO, PACS shares have declined nearly 27.8%, leading to significant losses for shareholders.
