A federal court has certified a securities class action against Tivity Health that accuses the Franklin-based company of misleading investors about UnitedHealthcare bringing its services in-house.
UnitedHealthcare has always been a significant client for Tivity, accounting for about 15 percent of its revenue. But in November 2017, the insurance giant announced the launch of its own fitness benefit program in 11 states. The move tanked Tivity shares more than 33 percent, undoing more than five months of gains.
Before the announcement, Tivity leadership had warned investors in Securities and Exchange Commission filings of the significant risk the company faces from insurers taking their services in-house. However, the suit says the company never disclosed to investors its knowledge that United already had entered the market.
According to the lawsuit, Tivity allegedly knew United was bringing services in-house in late 2016 but never indicated its wavering relationship or that the risks its executives were warning about were coming to fruition. Defendants say that, because of this misrepresentation, Tivity’s stock price was artificially inflated between March 6, 2017, and Nov. 6, 2017.
“By presenting a historical, material fact about which Defendants had actual knowledge as a mere possibility, and by failing to disclose that historical fact, Defendants knowingly, or at least recklessly, misled the investing public,” the complaint, filed by plaintiffs Eric Weiner and Oklahoma Firefighters Pension and Retirement System, reads. "Then, even as Defendants learned later in the Class Period that UHC would be intensifying its competitive efforts by expanding its competing program beyond New Jersey and Washington to nine additional states, Defendants not only continued to withhold that information from the investing public, but continued to tout Tivity’s relationship with UHC in unqualifiedly positive terms."
Tivity officials have denied all accusations in court filings and pointed to their regulatory disclosures as sufficient. Alongside Tivity, CEO Donato Tramuto, former CAO and current Quorum SVP Glenn Hargreaves and CFO Adam Holland are listed as defendants in the suit.