Angela Braly, Wayne DeVeydt and the rest of the top brass at WellPoint Inc. face wrath over the company's recent stock
swoon from a new group: ex-employees.
Four former WellPoint workers have filed lawsuits against the Indianapolis-based health insurance giant over the losses its 401(k) retirement plan suffered in March when the company slashed its profit forecast for the year.
The announcement shocked Wall Street, sending the company's shares plummeting 28 percent in one day.
The lawsuits, filed between April 15 and May 29 in federal court in Indianapolis, allege that WellPoint's officers breached their duties by failing to alert 401(k) participants, as soon as they could, that the company's business was worsening.
"They monitored their performance on a daily basis, sometimes on an hourly basis. So I think they knew well, well in advance that the indications [of the company's performance] were going down," said Robert Harwood, a New York attorney representing Indianapolis resident Mary Alford, a former WellPoint claims processor and customer service clerk.
That failure, Harwood claims, cost 401(k) participants more than $100 million, since many had substantial amounts of money invested in WellPoint stock.
Plaintiffs' attorneys have asked U.S. District Court Judge David F. Hamilton to make Alford and another WellPoint alum, Paul West, the co-lead plaintiffs in the case. They are also seeking class-action status on behalf of the nearly 49,000 current and former employees who participate in WellPoint's 401(k) plan.
The suits name WellPoint CEO Braly, Chief Financial Officer DeVeydt, Chairman Larry C. Glasscock, the entire board of directors, and the current and former members of WellPoint's pension committee.
"We believe that all of the lawsuits are baseless, and we fully intend to defend ourselves," said WellPoint spokeswoman Cheryl Leamon. WellPoint has hired attorneys from Baker & Daniels LLP in Indianapolis and from O'Melveny & Myers LLP in Washington, D.C.
WellPoint's 401(k) plan holds more than $3.1 billion in assets, with nearly 16 percent of that money invested in WellPoint stock. The company matches employee contributions with cash, up to 6 percent of a worker's income. Employees can choose to invest in WellPoint stock or in various mutual funds.
WellPoint already has been sued by one non-employee shareholder. The case, which seeks class-action status, charges that WellPoint officers committed fraud by not promptly revealing the change in the company's performance.
After the markets closed March 10, WellPoint reported that its customers were submitting larger amounts of medical claims than the company had expected and that WellPoint had priced many of its 2008 policies too low to make its expected profit.
The company slashed its profit forecast for the year as much as 10 percent. The next day's plunge wiped out $9.8 billion of the company's stock market value.
Since then, WellPoint's shares have recovered about half of those losses.
WellPoint's officers and directors, West's lawsuit states, "issued a multitude of false and misleading statements through [securities] filings and press releases regarding the value of WellPoint stock and the financial health of the company."
Alford's lawsuit argues that these "improper activities" allowed WellPoint to "inflate and manipulate" its earnings. As overseers of the 401(k) plan, Well-Point's officers should have warned plan participants or even put a freeze on any additional purchases of WellPoint stock, the suit claims.
"Defendants knew or should have known that WellPoint stock was artificially inflated, and thus an imprudent investment for the [retirement] plan," states the lawsuit filed by Alford.
The former employees are suing WellPoint under the federal ERISA law, which stands for Employee Retirement Income Security Act of 1974. There's been a spike in such lawsuits since a famous one filed against Houston-based Enron Corp. in 2002.
That lawsuit, filed on behalf of 24,000 employees, has led to $220 million in settlement payments, according to the Web site of Hagens Berman Sobol Shapiro, a Seattle law firm that was co-lead counsel in the case.
But similar suits involving Indianapolis-area companies have not fared so well.
Retirement plan participants at IPALCO Enterprises Inc. sued the Indianapolis electric utility for $100 million in damages after its 2001 sale to Virginia-based AES Corp. AES' stock quickly lost 90 percent of its value. But in 2006, Hamilton, who is now handling one of the WellPoint suits, ruled in IPALCO's favor.
In 2002, a former employee of Conseco Inc. sued the Carmel-based insurer over a stock swoon induced by the company's restatement of earnings. In a settlement, Conseco agreed to pay $10 million to employees who had participated in the plan during a two-year period.
Conseco, which became a new legal entity after its 2003 bankruptcy reorganization, has changed how it handles its 401(k). It no longer offers company stock as an investment option, company spokesman Jim Rosensteele said.
When Conseco restated its earnings in 2000, its 401(k) plan had 51 percent of its assets in Conseco stock.
By contrast, WellPoint held 15.6 percent of its 401(k) assets in company stock at the end of 2006, the most recent figures available. One other large Indiana company, Columbus-based Cummins Inc., held 15.2 percent of its 401(k) assets in company stock.
Employees have gotten better at diversifying, said Chris Halter, a financial adviser and principal at Indianapolis-based Halter Ferguson Financial Inc.
"People are very much aware of what happened in Enron. That certainly opened up a lot of people's eyes," she said. But Halter said no one should keep more than 10 percent of their holdings in one company.
Experts in 401(k) litigation declined to take a position on whether the former employees have a strong case against WellPoint. But they said they certainly don't have as strong a case as the Enron plaintiffs.
"It doesn't sound like one of the more blatant cases," said Ted Benna, president of the 401(k) Association, a consulting firm in Jersey Shore, Pa. Benna helped create the first 401(k) plan in 1980 and has testified as an expert witness in 401(k) litigation.
"It comes down to strictly an issue of how much information should be disclosed and when," he added. "And that's a tough one."
Mark Maddox, a Fishers attorney who has represented plaintiffs in some retirement plan cases, said much the same.
"The whole question really is, at what point the company should make public the bad news. As long as it comes out that they came out with it in a reasonably prompt period of time," Maddox said, "they can certainly claim they were doing their due diligence and trying to get the story accurate."