NORWALK, Conn. - The Public Employees' Retirement Association of Colorado, Denver, and the Florida State Board of Administration, Tallahassee, are suing Oxford Health Plans Inc., Norwalk, Conn., claiming securities fraud and insider trading.
Oxford's stock price plummeted in October after the company announced negative quarterly results, causing massive losses for shareholders such as the two public pension funds.
Colorado PERA has sustained a net loss of $25.6 million on its stake in Oxford, while Florida has lost $17.1 million.
The $21 billion Colorado pension fund wants to be lead plaintiff in a class-action suit that would consolidate the 40 shareholder lawsuits filed against Oxford. It has filed motions in both the Southern District Court of New York and the U.S. District Court, District of Connecticut.
Under a 1996 statute, the investor with the largest loss can become lead plaintiff in such a suit. Colorado has suffered the largest economic loss on its Oxford investment among all plaintiffs who have come forward, said Jay Eisenhofer, a partner at Grant & Eisenhofer, a law firm that is representing Colorado.
Florida, meanwhile, has filed a separate complaint in the District of Connecticut court.
"We determined that by suing on our own, we might recover more eventually than we would if we remained in the class," said Horace Schow, general counsel for the $70 billion pension fund.
George Kim Johnson, general counsel for Colorado PERA, said his fund decided to take an active role in the lawsuit because, "shareholders have suffered significant losses here, and we believe it's a basis for being involved in how the case is conducted. . . . It is a good idea for institutions to . . . take a leading role in situations like this."
Mr. Eisenhofer said Colorado would sue on behalf of investors who purchased the stock between Nov. 6, 1996, and Dec. 9, 1997.
Nicole Reilly, Oxford spokeswoman, said of the lawsuits: "We'll vigorously defend ourselves against these allegations. Any time a company's stock falls dramatically, it's common for shareholders to file suit."
Mr. Eisenhofer contended: "The company was having significant problems with its computer system, which it did not disclose until October 1997, even though it knew about them before."
"Company insiders misrepresented Oxford's financial condition so that the value of the stock would be artificially inflated, allowing them to reap tremendous profits by selling their stock during that time period."
When Oxford on Oct. 27 reported a $78 million loss - its first ever after a stellar track record of consecutive quarterly profits - it attributed the trouble to bugs in its new computer system. As a result, the stock plummeted 62%, falling to $25.87 a share, down from $68.75 the day before.
In December, Oxford announced it would lose as much as $120 million in the fourth quarter, causing the stock to drop another 16% for an overall drop of 78%. Recently, the stock has been trading at about $15 a share.
Colorado PERA bought 542,050 shares of Oxford between April 1 and Oct. 27, 1997, for $39.6 million, Mr. Johnson said. The shares were worth only $14 million after news of Oxford's loss hit Wall Street.
As of Dec. 31, Colorado still owned 158,200 shares in its internally managed midcap index fund, he said.
His goal is to recover a maximum reasonable amount of the fund's losses on the stock. Because Colorado is still a shareholder, he doesn't want to see the viability of the company affected by lawsuits.
Florida bought 804,600 shares of Oxford between Nov. 6, 1996, and Oct. 26, 1997, at an average price of $71.63, for a total of $57.6 million. It sold 510,400 shares during that period, but has retained 294,299 shares, which produced a net loss to the pension fund of $16.6 million, according to the complaint.
The fund still owns those shares, said Ken Menke, a portfolio manager at the pension fund. He said 80,000 of the shares are in an internal index fund that tracks the Wilshire 2500; the remaining shares are in a midcap growth fund managed by Denver Investment Advisors.
Colorado PERA and the other shareholders are charging that Oxford executives violated the Securities Exchange Act of 1934 by filing false and/or misleading reports with the Securities and Exchange Commission regarding the company's financial condition. They also allege they engaged in insider trading on the basis of the information available to them but not to the public.
The Colorado PERA motion also noted that Oxford reported in October that it would take a charge of $50 million because it couldn't collect premiums due to its faulty computer system. As a result, the State of New York has fined Oxford $3 million and has required it to pay $500,000 in restitution to customers it had overcharged.
In addition, Oxford is required to account for more than $200,000 it advanced to doctors and hospitals because of the computer problems involved.