MAMSI accused of hiding costs Shareholder lawsuit says ** CEO benefited from elevated stock

November 14, 1996|By M. William Salganik | M. William Salganik,SUN STAFF

A stockholders' lawsuit charges that Mid Atlantic Medical Services Inc. concealed gloomy financial information, keeping the price of its stock up long enough for its chief executive to sell shares worth nearly $3 million.

Filed Tuesday in Montgomery County Circuit Court, the suit accuses MAMSI, the Rockville-based managed care company, with having "disseminated materially false and misleading information," particularly about medical costs, which "artificially inflated the price of MAMSI common stock," to the benefit of George T. Jochum, chairman of the board, chief executive officer and president.

Paul Dillon, senior vice president and treasurer of MAMSI, said yesterday that the company had not received a copy of the suit and could not comment on the allegations.

A similar series of lawsuits was filed last year and settled earlier this year for $3.75 million, according to documents filed by MAMSI with the Securities and Exchange Commission. The previous suits charged MAMSI with delaying public notification that it had failed an accreditation review.

In that case, Dillon said, MAMSI "vigorously fought" the suits, since the report it had not made public was only preliminary. In the settlement, it did not admit to wrongdoing.

The new lawsuit is a class action on behalf of stockholders who bought MAMSI stock between Feb. 29 and Aug. 14, 1996.

At the beginning of that period, the stock was trading at more than $20 a share, reaching a high of $24.75 on April 3.

In the largest series of transactions cited in the lawsuit, it claims Jochum sold at least 110,000 shares in March at prices ranging from $20.50 to $21.23 -- shares he acquired March 7 by exercising options for the stock at $5.92 a share.

On April 26, MAMSI announced that earnings would be about a third lower than expected, and the stock lost 17 percent of its value in one day.

MAMSI said in July that it expected to lose 5 cents to 10 cents a share -- its first losing quarter in years. When it announced final results in August, the loss per share was 14 cents, but the company said it expected the situation to improve. Last week, MAMSI announced it lost 10 cents a share in the third quarter.

Over that time, the stock price continued to slip, closing yesterday at $11.50, down 25 cents.

The plaintiffs are represented by Milberg Weiss Bershad Hynes & Lerach, a New York firm that specializes in stockholder lawsuits. Two Maryland firms, Tydings & Rosenberg and Stull, Stull and Brody, are also representing the plaintiffs.

MAMSI is the largest managed care company based in Maryland, covering 1.675 million people in the mid-Atlantic states in health maintenance organizations, preferred provider and other health plans.

Pub Date: 11/14/96

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