NEW YORK, Feb. 20, 2022 — Pomerantz LLP notifies investors of eHealth, Inc. of a pending lawsuit against eHealth and certain of its officers.
The class action, In re eHealth Inc. Securities Litigation, No. 4:20-cv-02395-JST, is pending in the United States District Court for the Northern District of California on behalf of a class consisting of all persons and entities other than Defendants that purchased or otherwise acquired eHealth common stock between April 26, 2018 and July 23, 2020, inclusive.
If you are a shareholder who purchased eHealth stock during the Class Period, you have until March 18, 2022 to ask the Court to appoint you as Lead Plaintiff for the class. To discuss this action, contact Robert S. Willoughby at newaction@pomlaw.com or 888.476.6529 (or 888.4-POMLAW), toll-free, Ext. 7980. Those who inquire by e-mail are encouraged to include their mailing address, telephone number, and the number of shares purchased.
eHealth is a health insurance broker that focuses on selling Medicare-related policies on behalf of private insurers. Its main source of revenue is commissions from selling Medicare Advantage, Medicare Supplement, and Medicare Part D prescription drug policies. On January 1, 2018, eHealth adopted and implemented a new accounting standard for recognizing revenue. This standard, referred to herein as Accounting Standard Codification 606 or ASC 606, allowed eHealth to recognize immediately the entirety of the commissions it expected to receive over the expected life of the policies. Although eHealth sold annual policies that could be cancelled at any time by the consumer, it assumed that its policies would be renewed for several years. Consequently, for many of eHealth’s Medicare-related policies, it recognized between three and five years of commissions immediately upon the sale of the policy.
The Complaint in the Class Action alleges that the assumption that eHealth’s customers would renew its policies was unrealistic and contrary to eHealth’s recent experience of both cancellations and renewals. Beginning in 2017, eHealth started soliciting Medicare customers with television advertising. Late-night commercials boasting $0 monthly plan premiums effectively generated a surge in customers in a short period of time. Between 2017 and 2018, the number of Medicare-related insurance applications submitted to eHealth by applicants grew by 39%. These customers, however, were notorious for cancelling their policies in short periods of time, causing eHealth to experience sky-rocketing “member churn” ratios, i.e., the percentage of customers who cancel their policies within the first year. Notwithstanding, eHealth was able to provide analysts and investors with record-setting earnings due to the fact that it was able to recognize three- to five-years of commission revenue for these policies upfront and immediately.
The Complaint further alleges that Class members were materially harmed by eHealth’s false and misleading statements. As a direct result of Defendants’ materially false and misleading statements, eHealth’s stock price artificially increased from a relative steady price of around $15.32 per share of common stock on March 19, 2018 to $136.32 prior to April 8, 2020. It was on that day that Muddy Waters Capital, a well-known and highly respected research firm, published a report revealing eHealth’s accounting misconduct. The report disclosed, among other things, that eHealth’s “highly aggressive accounting masks [] a significantly unprofitable business,” “that the key driver of growth since 2018 has been EHTH’s reliance on Direct Response television advertising, which attracts an unprofitable, high churn enrollee,” “that EHTH’s persistence assumptions in its LTV model [under ASC 606] seem highly aggressive when compared to reality.” Muddy Waters report also disclosed that eHealth’s financial statements for 2019: (a) overstated revenue by $128 million; (b) overstated operating profit by $263 million; and (c) understated an operating loss of -$181 million. The Muddy Waters report resulted in a sharp decline in the price of eHealth’s stock, plummeting to $103.20 per share.
Subsequently, on July 23, 2020, when eHealth announced its earnings results for the second quarter of fiscal 2020, its stock price fell again as the information contained in its announcement confirmed substantive aspects of the “member churn” allegations previously asserted in the Muddy Waters report. In response, eHealth’s stock price declined from a closing price of $114 per share on July 23, 2020 to $79.17 per share on July 24, 2020.
Pomerantz LLP, with offices in New York, Chicago, Los Angeles, Paris, and Tel Aviv, is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, Pomerantz pioneered the field of securities class actions. Today, more than 85 years later, Pomerantz continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered numerous multimillion-dollar damages awards on behalf of class members. See www.pomlaw.com.
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