CHS fights securities fraud case: 'There is not a whiff of evidence'

Franklin, Tenn.-based Community Health Systems and Quorum Health say there is no evidence to support a lawsuit brought by shareholders alleging Quorum's stock was trading at an inflated price after its spinoff from CHS due to the companies concealing financial information.  

In April 2016, CHS spun off 38 hospitals and a management company to form Quorum. The lawsuit, filed in 2016 and amended in 2017, alleges investors were tricked into buying Quorum stock at inflated prices because CHS, Quorum and several company executives failed to disclose that Quorum's goodwill and long-lived assets were impaired prior to the spinoff. The plaintiffs, a class of investors who acquired Quorum stock after the spinoff, allege the companies' failure to disclose the impairment charges violated federal securities law.

In a motion for summary judgement filed Jan. 31, CHS and Quorum say the shareholders' case fails for several reasons. After years of discovery, "there is not a whiff of evidence to support plaintiffs' fable," states the motion. "No internal emails even remotely suggesting the existence of an impairment before the spinoff. No contradictory or dissembling statements by management. Not a piece of paper suggesting that Quorum's pre-spin impairment analyses were done in bad faith, or even violated GAAP."

CHS and Quorum argue that the shareholders who brought the lawsuit have failed to show that Quorum's stock price fell in response to the impairment charges. Quorum announced lackluster performance for the second quarter of 2016 and decreased its full-year guidance at the same time it disclosed the impairment charges. "Plaintiffs have made no effort whatsoever to show that the impairment charges, rather than the poor earnings results and lowered guidance were the cause-in-fact of their loss."

CHS began refining its portfolio in 2016 with the spinoff of Quorum. Over the next three years, CHS sold dozens of hospitals and closed a few others.

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