Wellcare Class Action Complaint 10-31-2008

UNITED STATES DISTRICT COURTFOR THE MIDDLE DISTRICT OF FLORIDATAMPA DIVISION

:EASTWOOD ENTERPRISES, LLCIndividually and on Behalf of All OthersSimilarly Situated,Plaintiff,vs.TODD S. FARHA, PAUL L. BEHRENS,THADDEUS BEREDAY, andWELLCARE HEALTH PLANS, INC.Defendants.::::::::::::Case No.: 8:07-cv-1940-T-33EAJCONSOLIDATED CLASS ACTIONCOMPLAINT FOR VIOLATIONS OFFEDERAL SECURITIES LAWS

JURY TRIAL DEMANDED

CONSOLIDATED CLASS ACTION COMPLAINTFOR VIOLATIONS OF FEDERAL SECURITIES LAWS

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TABLE OF CONTENTSPage

I. NATURE AND SUMMARY OF THE ACTION..............................................................2II. JURISDICTION AND VENUE.........................................................................................9III. PARTIES..........................................................................................................................10IV. LEAD PLAINTIFFS’ CLASS ACTION ALLEGATIONS.............................................13V. BACKGROUND FACTS AND THE NATURE OF THE FRAUD................................15A. WellCare’s Meteoric Rise.....................................................................................16B. Defendants’ Fraudulent Scheme...........................................................................181. Defendants Falsified the Proportion of Government Premiums thatWellCare Spent on Direct Medical Services............................................182. Illegal Marketing Practices and Denials of Care......................................273. As Analysts and Commentators Questioned WellCare’s FinancialStatements and Marketing Practices, the Company VehementlyDenied Any Improprieties.........................................................................324. The State and Federal Governments Execute an UnprecedentedRaid of WellCare......................................................................................395. Subsequent Events Confirm that: (a) the Company IntentionallyDefrauded the Government; (b) the Company’s FinancialStatements Were Materially Misstated throughout the ClassPeriod; and (c) Defendants Farha, Behrens, and Bereday WereResponsible for the Fraud.........................................................................43VI. DEFENDANTS’ FALSE AND MISLEADING STATEMENTS...................................49A. False And Misleading Statements Concerning Fiscal Year 2004.........................50B. False And Misleading Statements Concerning Fiscal Year 2005.........................54C. False And Misleading Statements Concerning Fiscal Year 2006.........................60D. False And Misleading Statements Concerning Fiscal Year 2007.........................66VII. WELLCARE’S FINANCIAL STATEMENTS WERE MATERIALLYMISSTATED IN VIOLATION OF GAAP......................................................................77A. WellCare Improperly Recognized Revenue That It Had Not Earned...................79

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iiB. WellCare Failed To Take A Charge To Income For The Premiums It WasRequired To Refund To The States......................................................................80C. The Company’s GAAP Violations Were Material...............................................81VIII. ADDITIONAL SCIENTER ALLEGATIONS.................................................................82A. Defendants’ Insider Stock Sales...........................................................................84B. Defendants’ Bonuses............................................................................................94IX. LOSS CAUSATION.........................................................................................................96X. APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE....................................................................................................97XI. NO SAFE HARBOR........................................................................................................98XII. FIRST CLAIM..................................................................................................................99XIII. SECOND CLAIM...........................................................................................................103XIV. THIRD CLAIM..............................................................................................................105XV. PRAYER FOR RELIEF.................................................................................................106XVI. JURY TRIAL DEMANDED..........................................................................................107

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