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But a federal judge dismisses shareholder's suits against current and former directors.
Published Jul. 8, 2010

A federal judge on Wednesday gave WellCare Health Plans permission to pursue breach of duty claims against former CEO Todd Farha and two other ex-executives while dismissing pending shareholder claims against current and former directors.

In addition to Farha, WellCare can now seek claims against former chief financial officer Paul Behrens and former general counsel Thad Bereday, according to the ruling in the U.S. District Court for the Middle District of Florida in Tampa. Farha, Behrens, and Bereday resigned from the company in 2008, shortly after a raid by state and federal law enforcement authorities at its Tampa headquarters.

WellCare, which provides managed care services for government-sponsored plans, was subsequently accused of fraud in overcharging for its Medicaid and Medicare problems and then hoarding unwarranted profits.

The ruling focuses on federal and state shareholder suits filed in late 2007 accusing WellCare leaders with mismanagement after shares in the company plummeted.

A special litigation committee appointed by WellCare's board reviewed more than 600,000 documents and recommended the company pursue claims against Farha, Behrens and Bereday for breach of duty and breach of contract. The committee said it found no evidence supporting such claims against current and former WellCare directors who were named in shareholder suits.

"These are key legal developments," WellCare senior vice president and general counsel Timothy S. Susanin said in a statement. "WellCare can now pursue its claims and hold these former executives accountable for their conduct."

WellCare chief executive Alec Cunningham called the settlement "a logical next step" in the company's transformation. "This is another in a series of company efforts over the past two and one-half years to remediate past practices and forge a new future for members, associates and stockholders."

The company, however, still faces another major hurdle.

Wednesday's ruling does not affect a proposed $137.5 million settlement with the U.S. Department of Justice and other agencies to end pending civil litigation against WellCare. That settlement is being challenged for vastly understating the size of WellCare's fraud, which a recently unsealed whistleblower suit estimates at between $400 million and $600 million.