Ex-GC of WellCare Health Plans Charged with Fraud

The Securities and Exchange Commission on Monday filed fraud and insider trading charges against three former executives of WellCare Health Plans, Inc., including Thaddeus M.S. Bereday, the ex-general counsel. The three have denied wrongdoing.

WellCare is a Florida-based managed care services company that administers federal health care programs. The SEC charges allege [PDF] that from 2003 through 2007, CEO Todd Farha, CFO Paul Behrens, and GC Bereday improperly retained over $40 million in healthcare premiums that should have been spent on services for low-income participants or returned to state agencies.

Instead, WellCare recorded the retained amount as revenue, the commission said, inflating its net income and diluting earnings per share in public finance statements.

Bereday actively participated in some parts of the scheme to retain the money, and aided and abetted other parts, according to the complaint. He couldn’t be reached for comment.

For example, the complaint alleges that when an employee questioned the financial numbers in an email, Bereday sent out an email advising that the CEO wanted “fewer opinions rather than more,” and wished “to rely mostly on me and (CFO) Paul for this one.”

In another instance, the SEC said Bereday admonished WellCare employees not to submit information to a state agency until he and Behrens had “signed off” on it.

Bereday was WellCare’s senior vice president and general counsel from November 2002 until his resignation on January 2008. He was licensed to practice law in the State of Ohio, but his bar status is currently inactive.

The SEC also said after setting the scheme in motion, the defendants sold more than $91 million worth of company stock “on the basis of material non-public information that they were conducting a fraudulent scheme that impacted WellCare’s financial results.”

For each defendant, the commission seeks a judgment permanently enjoining them from violating securities laws, unspecified civil penalties, disgorgement of ill-gotten gains with interest, and bars to their being officers or directors of public companies.

The SEC action was filed in U.S. District Court in Tampa, where the Department of Justice, since March 2011, has been pursuing a criminal fraud action against five former WellCare employees, including Bereday, Farha, and Behrens. The defendants have pleaded not guilty.

That case has been delayed because of the complexity of issues and discovery, including 650 hours of secret tape recordings by an employee who filed a qui tam suit against WellCare. Most recently, the defendants demanded original versions of the tapes so they could determine if the recordings had been tampered with or edited.

See also: “ 'Massive' Discovery Delays Former WellCare GC's Criminal Trial,” CorpCounsel, September 2011.