UNITED STATES DISTRICT COURT SANDS POINT PARTNERS, …securities.stanford.edu/.../PDX99/200024_r01c_99CV06181.pdf · 2014-06-05 · Case 0:99-cv-06181-JAG Document 35 Entered on FLSD

Case 0:99-cv-06181-JAG Document 35 Entered on FLSD Docket 02/04/2000 Page 1 of 69

UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF FLORIDA

CASE NO. 99-6181-Cl V-ZLOCH

SANDS POINT PARTNERS, L.P., et al., on behalf of themselves and all others similarly situated,

SECOND AMENDED Plaintiffs, CONSOLIDATED CLASS

ACTION COMPLAINT -against-

PEDIATRIX MEDICAL GROUP, INC., ROGER J. MEDEL, KARL B. WAGNER

TRIAL BY JURY DEMANDED

and LAWRENCE M. MULLEN g

Defendants.

'--' 1 L

-o

Lead Plaintiffs Florida State Board of Administration, Louisiana State Em1byee

Retirement Systems, Jacksonville Police & Fire Pension Fund and New Orleans Employee

Retirement System ("Plaintiffs"), individually and on behalf of all other persons similarly situated,

by their undersigned counsel, as and for their Second Amended Consolidated Class Action

Complaint ("Amended Complaint") allege the following:

JURISDICTION AND VENUE

This action arises under Sections 10(b) and 20(a) of the Securities Exchange Act

of 1934 (the "Exchange Act"), 15 U.S.C. §§ 78j(b) and 78t(a), and the rules and regulations

promulgated thereunder, including SEC Rule lOb-5, 17 C.F.R. 240.1Ob-5.

2. This Court has jurisdiction pursuant to Section 27 of the Exchange Act, 15 U.S.C.

§ 77v, 15 U.S.C. §78aa, and 28 U.S.C. § 1331.


3. Venue is proper in this District as many of the acts, transactions and wrongful

conduct alleged herein, including the dissemination to the investing public of the materially

misleading statements at issue, occurred in substantial part in this District.

4. In connection with the acts and conduct alleged in this Complaint, the defendants,

directly or indirectly, used the mails and instrumentalities of interstate commerce.

THE PARTIES

Lead Plaintiffs Florida State Board of Administration (an entity with constitutional

and statutory authority under Florida law for the investment and reinvestment of the Florida

Retirement System Trust Funds, for the benefit of the employees of the state of Florida),

Louisiana State Employee Retirement Systems Plaintiff (a public pension fund that invests funds

for the benefit of employees of the state of Louisiana), Jacksonville Police & Fire Pension (a

public pension fund that invests funds for the benefit of employees of the police and fire

departments of the city of Jacksonville, Florida), and New Orleans Employee Retirement System

(a public pension fund invests for the benefit of employees of the city of New Orleans, Louisiana)

each purchased the securities of Pediatnx Medical Group, Inc. ("Pediatrix" or the "Company")

during the Class Period and were damaged thereby by the conduct alleged herein.

6. The following additional non-lead plaintiffs (the "Non-Lead Plaintiffs")

purchased Pediatrix common stock on the open market and/or purchased calls to buy or sold

puts to sell Pediatrix common stock on the open market during the Class Period and were

damaged thereby and have filed complaints against defendants and/or submitted certifications

expressing their desire to be named Plaintiffs in this action: Tom Agostinelli, Snehel Amin,

Haifa Araten, Peter Au, Valery Ayzenberg, Arthur Baeckel, Jr., Jonathan P. Bottoms, Francis

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Bratberg and Raymond Bratberg, Napoleon Buenaventura, Carpenters & Millwrights Pension

Fund, David Dominguez, Eugene Dorfman, Juzer Essabhoy, Carol Feldman, Don Follandn,

Julie French, Michael Gann, Tracy Garrett, David Golden, Robert Gordon, Sidney Harper,

Stephen B. Hoe! SEP/IRA, Gary Jensen, Matthew Jensen, Alex Kalman, Larry L.angsbard,

John Maas, Michael Markis, Fred Miller, Paul Miller, Anthony O'Rourke, Richard Powers,

Joan Pusta, Dennis Rainy and Kathy Rainy, Barry Rifkin, James Ryan, Michael Sadler,

Edward Segal, Larry Shanker and Marcie Shanker, Mary Shearer, Edward Struzik, James

Tampellini, Rent Vogt and Rick Wise.

7. Defendant Pediatrix is a corporation duly organized and existing under the laws of

the State of Florida with its principal executive offices located at 1455 North Park Drive, Fort

Lauderdale, Florida. Pediatrix, founded in 1979, is the self-described nation's largest provider of

physician services to hospital-based neonatal intensive care units. During 1998, Pediatrix added

27 NTCUs by a combination of acquisitions and internal marketing efforts, and now provides

services to approximately 120 NTCUs nationwide. Obstetrix Medical Group, Inc. ("Obstetrix"), a

subsidiary of Pediatrix, specializes in the delivery of perinatal care. As of May 17, 1999, Pediatrix

had approximately 15.5 million shares of common stock outstanding. Its common stock is

actively traded on the New York Stock Exchange ("NYSE") under the symbol "PDX".

8. Defendant Roger J. Medel ("Medel") has been President, Chief Executive Officer

and a Director of the Company since he co-founded the Company in 1979. According to the

Company's Proxy Statement filed in May 1999, Medel beneficially owned more than 1.6 million

shares -- or 10.06% -- of the Company's common stock at that time. Medel is employed pursuant

to an employment agreement that paid him a base salary of $400,000 for 1998. Medel was

C]


granted 50,000 options by the Company in fiscal year 1998. In addition, Medel was eligible to

receive and did receive a performance cash bonus of $782,350, based upon, among other things,

an increase in the Company's reported revenues. Medel entered into a five year extension to his

employment agreement on or about November 16, 1998.

9. Defendant Karl B. Wagner ("Wagner") has been Pediatrix's Chief Financial Officer

since July 30, 1998. Prior to that date, Wagner served as the Company's Controller. Since May

1997, he has been responsible for all accounting and financial operations functions, including SEC

reporting. Prior to joining Pediatrix, Wagner was Chief Financial Officer of the East Region of

ColumbiafHCA's Ambulatory Surgery Division. According to Pediatrix's Proxy Statement filed

in May 1999, Wagner beneficially owned 15,036 shares of Pediatrix common stock at that time.

Wagner's compensation for 1998 included a salary of $105,000, a cash bonus of$ 450,000 plus

25,000 options.

10. Defendant Lawrence M. Mullen ("Mullen") has been Pediatrix's Vice President

and Chief Operating Officer since August 1998. Prior to his appointment as Chief Operating

Officer, Mullen served as the Company's Vice President and Chief Financial Officer. Prior to

that, Mullen was a consultant to ColumbiaIHCA from November 1994 until joining Pediatrix in

May 1995. According to the Company's Proxy Statement filed in May 1999, Mullen beneficially

owned approximately 190,760 shares of the Company's common stock at that time. Pursuant to

an employment agreement with the Company, Mullen was paid a base salary of $250,000 for

1998. Mullen received a cash bonus of $150,000 in 1998 and was granted 50,000 stock options

by the Company in fiscal year 1998, exercisable at $36.125.

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11. Defendants Medel, Wagner and Mullen are collectively referred to herein as the

"Individual Defendants." These Individual Defendants, as the senior officers and directors of the

Company, were privy to and participated in the drafting, reviewing and/or approving of the

materially false and misleading statements, releases, public filings, reports and other public

representations of and about Pediatrix, and had the ability to control and direct the Company's

billing and coding procedures.

SUMMARY OF ACTION

12. This action arises out of Pediatrix's unlawful billing practices. Those practices

resulted in Pediatrix's reported results of operations -- the Company's revenue, earnings and

accounts receivables -- being false and misleading. While Pediatrix reported impressive results of

operations during the Class Period, those results were the product of fraudulent billing practices.

Specifically, Pediatrix engaged in upcoding; balance billing; and, in some instances, billed for

services that were never provided. These practices were contrary to the Company's public

statements regarding their billing practices. The revenue that Pediatrix recognized as a result of

these practices was improperly recognized in violation of Generally Accepted Accounting

Principles ("GAAP"). Thus, throughout the Class Period, Pediatrix consistently overstated

revenue and earnings, which resulted in Pediatrix's stock price being artificially inflated. Now that

the scrutiny from state and federal investigators has curbed these unlawful practices, Pediatrix's

stock price has traded in a range of approximately six to ten dollars per share. In February of

1999, before the revelations giving rise to this lawsuit, the Company's stock price traded at over

$60 per share.

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13. Plaintiffs do not believe the pleading of sources is required under the law of this

Circuit. Nevertheless, in an effort to comply with the Court's Order of January 19, 2000,

plaintiffs have, in addition to providing further details in support of their allegations, identified

sources of information to the extent permissible under the attorney-client privilege, and the

confidentiality provided to certain unnamed sources who have come forward only on the

condition of anonymity. Plaintiffs are unable to provide further sources of their investigation

at this time without violating these confidences. In addition, all doctors who worked for

Pediatrix are subject to confidentiality agreements. While these agreements cannot and do not

preclude communications regarding Pediatrix's criminal billing practices, it has discouraged

numerous doctors who were formerly employed by Pediatrix from either discussing Pediatrix's

billing practices or from allowing their names to be used in this Amended Complaint. The

allegations in this Amended Complaint are sufficiently specific as to the conduct alleged to

enable the defendants -- who engaged in the wrongful conduct described herein -- to

adequately formulate a response. Further identification of names of sources would only permit

defendants to engage in harassment and retribution to those who provided such information.

CLASS ACTION ALLEGATIONS

14. Plaintiffs bring this action as a class action pursuant to Fed. R. Civ. P. 23(a) and

(b)(3) on behalf of themselves and all other persons who purchased Pediatrix common stock,

purchased Pediatrix call options, or sold Pediatrix put options between March 31, 1997 and April

2, 1999, inclusive (the "Class Period"). Excluded from the Class are Pediatrix, its subsidiaries and

affiliates, the Individual Defendants, members of the immediate families of each of the Individual

Defendants, any entities in which any of the defendants has a controlling interest, and the legal


representatives, heirs, successors, affiliates or assigns of any of the foregoing excluded persons

and entities.

15. Shares of Pediatrix common stock were actively traded on the New York Stock

Exchange, which is an efficient market, throughout the Class Period. The members of the Class,

as purchasers on that market, are so numerous that joinder of all members is impracticable. While

the exact number of Class members can only be determined by appropriate discovery, Plaintiffs

believe that class members number in the thousands. As of May 17, 1999, Pediatrix had more

than 15.5 million shares of common stock issued and outstanding.

16. Plaintiffs' claims are typical of the claims of the members of the Class. Plaintiffs

and all other members of the Class sustained damages as a result of defendants' wrongful conduct

complained of herein.

17. Plaintiffs will fairly and adequately protect the interests of the other members of

the Class and have retained counsel competent and experienced in class and securities litigation.

18. A class action is superior to other available methods for the fair and efficient

adjudication of this controversy. Because the damages suffered by individual class members may

be relatively small, the expense and burden of individual litigation makes it virtually impossible for

the plaintiff class members individually to seek redress for the wrongful conduct alleged herein.

19. The questions of law and fact common to the members of the Class predominate

over any questions affecting individual members of the Class. The questions of law and fact that

are common to plaintiffs and the Class include, among others:

a. Whether the federal securities laws were violated by defendants' acts as

alleged herein;

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b. Whether the documents, releases, reports and/or other public statements

disseminated to the investing public and to Pediatrix's common stock and/or related securities

holders during the Class Period omitted or misrepresented material facts about the financial

condition, business and income of Pediatrix;

C. Whether defendants have acted with knowledge or with reckless disregard

for the truth in omitting to state and/or misrepresenting material facts;

d. Whether, during the Class Period, the market price of Pediatrix common

stock was artificially inflated due to the non-disclosures and/or material misrepresentations

complained of herein;

e. Whether defendants participated in and pursued the common course of

conduct complained of herein; and

£ Whether the members of the Class have sustained damages and, if so, what

is the proper measure thereof.

20. Plaintiffs know of no difficulty that will be encountered in the management of this

litigation which would preclude its maintenance as a class action.

21. The names and addresses of the record owners of Pediatrix common stock

purchased during the Class Period are available from the Company's transfer agent(s). Notice can

be provided to such record owners via first class mail using techniques and a form of notice

similar to those customarily used in class actions.


SUBSTANTIVE ALLEGATIONS

Pediatrix's Business Model

22. Throughout the Class Period, Pediatrix claimed to be "the nation's leading

provider of physician management services to hospital-based neonatal intensive care units

("NTCUs")." NICUs provide medical care to newborn infants with low birth weight and other

medical complications, and are staffed with specialized pediatric physicians, known as

neonatologists. The Company also provides physician management services to hospital-based

pediatric intensive care units ("PICUs"), units which provide medical care to critically ill children

and are staffed with specially-trained pediatricians.

23. Pediatrix is what has become known in its industry as a "physician management

organization." According to the Company, Pediatrix "provides physician management services to

NICUs and PICUs, [by] providing (i) a medical director to manage the unit, (ii) recruiting,

staffing and scheduling of physicians and certain other medical staff, (iii) neonatology and

pediatric support to other hospital departments, (iv) pediatric subspeciality services and (v) billing

and reimbursement expertise and services."

24. As described in the Company's S-i/A Registration Statement issued in connection

with its secondary public offering in August 1996, "[t]he Company's objective is to enhance its

position as the nation's leading provider of physician management services to NTCUs by adding

new units and increasing same unit growth." Two of the key elements of the Company's strategy

are to "[a]cquire well-established neonatal physician group practices" and increase revenues by

"increas[ing] same unit growth." Pediatrix would typically offer physicians a compensation

package of $350,000 plus annual bonuses, following the acquisition of their practices.


25. In order to generate as much revenue from operations as possible, pay doctors the

significant salaries needed to bring their practices to Pediatrix, and maintain certain financial

covenants required under the terms of its credit facility, it was necessary for Pediatrix to bill as

much as possible for every baby its doctors treated. Pediatrix did this through billing practices

that were excessive and fraudulent. As detailed herein, Pediatrix engaged in a systematic and

fraudulent practice of upcoding, billed for services that were never performed and, on occasion,

even tried to bill both the insurance carrier and patient for the same service. Pediatrix's growth

and earnings were driven by these practices throughout the Class Period.

Pediatrix's False and Misleading Statements About its Billin2 Practices

26. The Company represented in its Form 10-K for the year ended December 31, 1996

filed with the SEC on or about March 31, 1997 -- the first day of the Class Period -- and signed

by defendants Medel and Mullen (the "1996 Form 10-K"):

the Company assumes responsibility for all aspects of the billing, reimbursement and collection process relating to physician services. Patients and/or third party payors receive a bill from the company for physician services, and the hospital bills and collects separately for all other services. To address the increasingly complex and time-consuming process for obtaining reimbursement for medical services, the company has invested in both the technical and human resources necessary to create an efficient billing and reimbursement process, including specific claim forms and software systems. The Company begins this process by providing training to physicians that emphasizes a detailed review of and proper coding protocol for all procedures performed and services provided to achieve appropriate collection of revenues for physician services. (Emphasis added).

27. Pediatrix also touted its billing "expertise" as one of the reasons that it has been

and would continue to be successful. Specifically, the Company stated in the 1996 Form 10-K

that:

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the Company believes that hospitals will continue to outsource certain units, such as NICUs and PICUs, on a contract management basis. NICUs and PICUs present significant operational challenges for hospitals, including complex billing procedures, highly variable admissions rates, and difficulties in recruiting and retaining qualified physicians. These operational challenges generally make it difficult for hospitals to operate these units profitably. Traditionally, hospitals have staffed their NICUs internally, through affiliations with small, local physician groups or with independent practitioners. These small practices typically lack the necessary expertise and support services in billing and reimbursement, recruiting and effective medical management to operate NICUs on a cost-effective basis. Hospitals are increasingly seeking to contract with physician management services organizations that have the capital resources, information and reimbursement systems and practice management expertise that NICUs require to accept and manage risk in the evolving managed care market.

28. Pediatrix further represented in its 1996 Form 10-K that the "Company bills payors

for services provided by physicians based upon rates for the specific services provided."

(Emphasis added).

29. Finally, the 1996 Form 10-K also represented that the Company believed its billing

practices were not in violation of "state and federal civil and criminal statutes imposing substantial

penalties, including civil and criminal fines and imprisonment on healthcare providers which

fraudulently or wrongfully bill governmental or other third party payors for healthcare

services." (Emphasis added).

30. Each of the statements in the 1996 Form 10-K detailed above were also included

in the Company's Form 10-K for the year ended December 31, 1997 filed with the SEC on or

about March 31, 1998 and signed by defendants Medel and Mullen (the "1997 Form 10-K"), and

in the Company's Form 10-K for the year ended December 31, 1998 filed with the SEC on or

about March 24, 1999 and signed by defendants Medel and Wagner (the "1998 Form 10-K")

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31. Each of the foregoing statements about the Company's billing practices in the

1996 Form 10-K, 1997 Form 10-K and 1998 Form 10-K were materially false and misleading at

the time they were made. Contrary to what it claimed in the 1996 Form 10-K, 1997 Form 10-K

and 1998 Form 10-K, Pediatrix did not possess any special "expertise" in billing and

reimbursement and did not train its physicians in "proper coding protocol." Indeed, despite

representations that its bills were based on rates for "specific services provided," Pediatrix billed

payors for services that it did not provide, billed too much for services it did provide, and

committed other billing infractions that violated state and federal laws prohibiting healthcare

providers like Pediatrix from fraudulently or wrongfully billing governmental or other third party

payors for healthcare services.

32. In reality, according to physicians employed by Pediatnx at the time, defendants'

billing practices were the centerpiece of a scheme that enabled Pediatrix to systematically defraud

Medicaid, private insurers, and private pay patients (individually and collectively, the "payor(s)")

into paying Pediatrix millions of dollars of revenue that the Company had not actually earned.

This scheme involved at least three tactics, including: (i) illegal "upcoding" of patient billing

records; (ii) billing for services that had never been rendered; and (iii) "balance billing" patients for

unpaid balances in violation of insurance contracts. Each of these improper practices is discussed

in detail below.

A. Defendants' Illegal "Upcoding" Scheme

33. One of the most common methodologies employed by Pediatrix throughout the

Class Period in defrauding Medicaid, private insurance companies, and private pay patients

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involved the practice of illegally "upcoding" patient records in order to charge the payor for a

more expensive level of service than had actually been provided to the patient.

34. Throughout the Class Period, Pediatrix provided 24 hour doctor coverage to its

patients by having multiple doctors working within a Pediatrix practice group provide services to

its patients on a rotating-shift basis. As a result, patients were usually seen by several Pediatrix

doctors during the course of their hospitalization. Patient bills were based on the level of care

provided during a given treatment episode, with payors being charged correspondingly higher

amounts for increasingly complex treatments. Specifically, Pediatrix billed for the services

performed by its doctors based on the codes assigned to various medical procedures as developed

by the American Medical Association in a professional publication routinely relied upon by

doctors known as the Current Procedural Terminology, or "CPT." Included among the CPT

Codes that can be used for newborn babies are: (i) NICU first-day care, CPT Code 99295; (ii)

NTCU subsequent care - unstable, CPT Code 99296; (iii) NICU subsequent care - stable, CPT

Code 99297; (iv) complex first-day care, CPT Code 99223; (v) moderate care, CPT Code 99222;

and (vi) low first-day care, CPT Code 99221.

35. According to persons with personal knowledge of Pediatrix's fraudulent

"upcoding" practices both prior to and throughout the Class Period, including former Pediatrix

employees, Dr. Barry Yoss, Dylcia Cowan and Dr. William Powers, Pediatrix provided its

neonatologists with a "7 Day Billing Form" that was purportedly used to inform the Company of

the nature of the medical services rendered by a doctor for a particular patient during a given

seven day period. This 7 Day Billing Form set forth the various levels of "care" (with

corresponding CPTs) that could be provided by a neonatologist.

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36. Pediatrix's standard operating procedures required that doctors providing care to a

patient during a given seven day period complete the 7 Day Billing Form by simply checking off

the box that corresponded to the appropriate level of service that had purportedly been rendered

during a given treatment episode. Thus, a patient's 7 Day Billing Form contained entries that

purportedly reflected the level of care provided by each Pediatrix neonatologist who had provided

treatment to that patient.

37. According to physicians who worked with Pediatrix or who were familiar with

Pediatrix's practices, including Dr. Barry Yoss (while at Harrisburg Hospital in Pennsylvania), Dr.

William Powers (while medical director at Good Shepard Hospital in Barrington, Illinois) and Dr.

Larry Eggert (while at Phoenix Children's Hospital), beginning before the Class Period and

continuing throughout the Class Period, Pediatrix routinely pressured and encouraged

neonatologists rendering services to Pediatrix patients to illegally "upcode" patients' 7 Day Billing

Forms by fraudulently indicating that they had rendered a higher level of care than they had

actually rendered. For example, a neonatologist who had actually provided "Low" care

associated with CPT Code 99221, would be pressured to fictitiously complete the 7 Day Billing

Form to make it appear as though he or she had provided "Critical" care associated with CPT

Code 99291.

38. According to Drs. Yoss, Powers, Eggert and others, doctors employed by

Pediatrix were encouraged by management to illegally upcode to the highest level of care for

children who were under "subsequent hospital care," no matter what level of subsequent hospital

care these children needed. Brian Udell, Pediatrix's Vice President, Practice Integration until

October 1997, when he was appointed President of Pediatrix's Obstetrix subsidiary, chastised

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these and other doctors employed by Pediatrix for billing "too low" and for billing below the

nationwide standards that Pediatrix had established. An additional example of the pressure that

Udell and Pediatrix management brought to bear on doctors employed by Pediatrix was that

Pediatrix instituted a policy whereby the care for all babies in an N1CU weighing under 1,000

grams were to be automatically coded as "unstable" (CPT Code 99296), despite the fact that

doctors felt that these babies would be appropriately coded as the less expensive "subsequent

NICU - stable" (CPT Code 99297).

39. According to a doctor who was employed by Pediatrix for approximately one

year during the Class Period, and who spoke with plaintiffs' counsel on condition that he not

be identified, he and other doctors in his unit were subjected to enormous verbal pressure by

Company representatives to add codes that the Company said should be applied, even though

the doctors believed such codes were not appropriate. For example, doctors were encouraged

to annotate "critical" codes for patients as often as possible even if the babies were not in need

of critical care. The doctor stated that the Company was careful not to put such policies in

writing, and relied instead on bringing verbal pressure to bear. In early 1998, shortly after

learning of fees that Pediatrix was charging regarding patients at his unit, that doctor went so

far as to write a lengthy memo to Chris Bratberg, Pediatrix Vice President for Business

Development to complain that the fees being charged were improper and well above market

and, further, that Pediatrix was engaging in prohibited "balance billing" (see 1 58 below). At

a subsequent meeting at Pediatrix's Fort Lauderdale offices in early 1998, the doctor reiterated

these complaints in person to defendant Lawrence Mullen, Joyce Peabody, Fran McPherson

and Bratberg, among others. The doctor believed that if he had not been an experienced

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partner of the practice acquired by Pediatrix, he would likely have been terminated for his

protest.

40. Although Pediatrix encouraged its physicians to take part in its fraudulent scheme

by billing for higher levels of medical services than those that had actually been rendered,

defendants were unwilling to allow the success of their fraudulent scheme to remain entirely in the

hands of Pediatrix's neonatologists -- many of whom resisted management's pressure tactics.

Accordingly, defendants took other steps to insure that Pediatrix would be able to overcharge

payors even when the neonatologists providing the medical services refused to illegally "upcode"

their patients' 7 Day Billing Forms.

41. After each purchase of a new neonatology practice group, Pediatrix acted quickly

to gain insight into the personalities of each of the doctors in the newly acquired practice.

According to former Pediatnx employee, Dr. Yoss, and a current Pediatrix doctor who spoke

with plaintiffs' counsel only on condition his identity not be disclosed for fear of retribution, at

least in some, and possibly in many instances, Pediatrix did so by "installing" at least one

additional doctor to a newly acquired practice group at or shortly after the time Pediatrix

purchased the practice. The newly added doctor was often a Pediatrix "plant" who was well-

trained in the intricacies of"upcoding" and functioned as Pediatrix's "eyes" and "ears" at the

newly acquired practice. It was this doctor's job to instruct his or her new colleagues in the

fraudulent schemes employed by Pediatrix and to keep Pediatrix's management informed of those

doctors who refused to engage in the upcoding. According to Dr. Yoss, one such doctor was a

Dr. Kevin Lorah who was moved from Virginia to Harrisburg, Pennsylvania, to institute

Pediatrix's billing system in a practice that Pediatrix acquired in that city. Yoss and Lorah clashed

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over Yoss' refusal to succumb to the pressure to upcode. In May 1995, after several months

of conflict over Pediatrix's billing practices, Lorah informed Yoss and his colleague, Dr.

Bludstein that they were terminated and had 24 hours to remove his belongings from the unit

that had been Yoss' professional home for many years.

42. The willingness of some neonatologists and the refusal by others to engage in

Pediatrix's illegal upcoding scheme was reflected in the 7 Day Billing Forms submitted to

Pediatrix's Coding Department. According to a doctor who worked for Pediatrix during the

Class Period and who spoke with plaintiffs' counsel on condition that he not be identified, many

doctors in practice groups simply refused to upcode patient records. As a result, patient billing

records routinely reflected uneven levels of "care" as having been provided by various doctors in a

practice group during a seven day period. Inexplicably, patients coded as "low" or "moderate"

care by one doctor would suddenly be coded as "critical" care in the same record on the next shift

without any change in their condition and without any additional level of service having been

provided. Some patients were coded as having received "critical" care throughout their stay

(notwithstanding that their condition had improved) until the day of discharge from the hospital,

prompting some neonatologists to question how a baby that was purportedly in "critical"

condition could suddenly recover so as to be discharged in one day. These forms, along with

feedback from the doctor that had been "installed" at a newly acquired practice, were utilized by

defendants to monitor the willingness of Pediatrix's neonatologists to engage in the illegal

"upcoding" scheme. Doctors who consistently refused to engage in Pediatrix's illegal scheme

were eventually terminated by Pediatrix. These included Drs. Yoss and Bludstein.

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43. In order to guarantee the success of Pediatrix's fraudulent "upcoding" scheme,

defendants went to great lengths to insure that the Company retained the ultimate ability to

"override" the procedure codes that had been entered on Pediatrix's 7 Day Billing Forms by

treating doctors who had refused to "upcode" or, in the Company's opinion, had not "upcoded"

frequently enough. This was accomplished by controlling the submission of the Billing Forms. In

order to insure that the Company retained the final word on "coding," Pediatrix's doctors were

prohibited from submitting their Billing Forms directly to Medicaid, private insurance companies,

or other private payors. Instead, Pediatrix doctors were required to forward the 7 Day Billing

Forms via overnight delivery to Pediatrix's Coding Department at centers in either Fort

Lauderdale, Florida or Orange, California.

44. Upon receipt of these Billing Form submissions, neonatal nurse practitioners

employed in the Company's Coding Departments in both Florida and California (which handled

patient records submitted by Pediatrix neonatologists in Arizona, California, Colorado and Texas)

reviewed the Billing Forms to insure that the doctors had in fact "upcoded" the patient billing

records as instructed. When patient Billing Forms had not been "upcoded" at all, or had not been

"upcoded" frequently enough in the Company's view, the nurse practitioners routinely performed

the "upcoding" themselves.

45. For example, Natalie Hoffman, a Pediatnx Nurse Practitioner in California who

primarily worked as a floor nurse but also did coding to earn overtime pay during the Class

Period, was responsible for reviewing the billing forms submitted to Pediatrix's California Coding

Departments by neonatologists in Texas. Ms. Hoffman was instructed, in accordance with

Pediatrix company practices, to change the codes on the billing forms she received to codes that

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would generate higher fees and that would be paid faster than the codes the doctors had originally

entered on the billing forms. Indeed, according to Ms. Hoffman, the coding on the majority of

billing sheets submitted from Texas during 1998 were changed in this manner.

46. Pediatrix nurse practitioners "upcoded" with such impunity that Francis

MacPherson, the individual in charge of Pediatrix's Coding Department in Florida, and defendant

Medel himself, frequently -- and openly -- boasted of this practice at meetings of the Company's

Medical Directors throughout the Class Period.

47. The fact that members of Pediatrix's corporate office who played no role in caring

for patients participated in coding was confirmed in Frances MacPherson's monthly column

entitled "Coding Clues" that appeared in the February 1996 edition of Pediatrix's monthly

newsletter entitled Progress Notes. The column stated in relevant part:

The first person to do the coding was Roger Medel. He developed the first billing worksheet, which was a one page sheet. He realized that he needed someone else to do the coding and that is when Cara Rhoads was brought in. Cara did the coding and developed the billing worksheet into what it is today. Cara continued to practice and was in the office as needed to code. As Cara's hats increased she needed help with coding. I started learning to code in February 1993 one day a week, then it was two days a week. Then April 1995 I became the full time coding person. Since then Pediatnx has grown tremendously and continues to grow. As new business increases there was a need to increase the staff of the Coding Department.

We feel it is essential to use Nurse Practitioners to code. Nurse Practitioners understand the clinical area and this helps in the coding process. . . . Beside Cara and myself, we have Gail Lim who is the Assistant Director of the Nurse Practitioner Program. Gail has been assisting with coding two days a week for the past year. . .

48. It was Pediatrix's practice to have personnel who did not care for the patient make

the final decision in coding. This practice was instituted by defendant Medel. Particularly

19


egregious is the fact that nurse practitioners that "upcoded" patient billing records did so without

consulting with the doctors who actually treated the patients and without even reviewing the

progress notes detailing the care received by the patients whose records they were coding. In

other words, Pediatrix nurse practitioners had no reasonable basis to change the code assigned by

the doctor who actually saw the patient and performed the treatment.

49. Pediatrix's "upcoding" practice was well known to the Individual Defendants and

throughout the Company. In fact, the practice was so wide-spread that a number of doctors

openly complained that patient billing records were being improperly changed without their

consent by nurse practitioners. In an attempt to pacify these doctors, management eventually

stated that patient billing records would no longer be "upcoded" without consultation with the

doctor who had rendered the service. As doctors soon learned, however, the practice of neonatal

nurse practitioners unilaterally "upcoding" patient billing records continued throughout the Class

Period despite management's internal assurances that this improper practice would cease. Indeed,

numerous doctors who worked for Pediatrix during the Class Period, including two doctors who

worked for a Pediatrix unit based at a hospital in Trenton, New Jersey, maintain that they were

never contacted by the Pediatrix Coding Department to discuss whether the billing form they had

completed was properly coded. Indeed, neither doctor recalls a single instance in which the

coding department contacted them to discuss a code entry made by either doctor.

50. Significantly, according to Dr. Powers, MacPherson acknowledged during a billing

dispute with an independent claims review organization representing numerous insurance carriers

in the Chicago area that Pediatrix's nurse practitioners changed the codes that doctors had initially

filled out or caused to be filled out on the billing sheets approximately 25% of the time. In order

20


to resolve one particular dispute with a payor represented by the organization, Pediatrix had

agreed in principle to submit its billing materials to an independent audit -- something it never

ended up doing.

51. Pediatrix's practice of improperly upcoding patient care resulted in Pediatrix

having a far higher rate of "critical care" coded patients than the national average of neonatology

patients. For example, in the Denver area, according to materials compiled by the Colorado

Attorney General's Office, Pediatrix coded as "critical care" 82% of the patients during a six-

month period in 1998, whereas another neonatology unit, unrelated to Pediatrix, coded as "critical

care" approximately 30% of its patient population. The information on the non-Pediatrix unit was

submitted to the Colorado Attorney General's Office by Dr. Daniel Hall, a neonatologist in

Denver, unrelated to Pediatnx. The Pediatrix audit was conducted under the direction of the

Colorado Attorney General's Office after Dr. Hall learned of Pediatrix's upcoding practice and

brought it to the attention of the Attorney General's Office.

52. Additional evidence of the wide-spread nature of Pediatrix's "upcoding" practices

throughout the Class Period is further demonstrated by the fact that, during the Class Period,

approximately 60-65% of all Pediatrix patient bills submitted to at least one nationwide insurance

company were coded "critical care," while the national average of neonatology patient bills coded

"critical care" by all other neonatal service providers was in the range of 30-35%.

53. In the course of their investigation, plaintiffs' counsel learned of an unrelated

litigation in which certain hospital charts and Pediatrix billing records had been produced in

discovery. These documents relate to treatment of a newborn by neonatologists at the

Pediatrix unit in Harrisburg Hospital in Harrisburg, Pennsylvania in 1994. Plaintiffs' counsel

21


were able to obtain excerpts of (a) the hospital chart showing the treatment provided by the

unit's neonatologists in August and September 1994, and (b) Pediatrix's subsequent bill for

that baby's stay in the unit. These documents were reviewed by Dr. Jeffrey Gerdes, Chief of

Newborn Pediatrics at Pennsylvania Hospital in Philadelphia at the request of plaintiffs'

counsel. Dr. Gerdes has concluded that the treatments described in the hospital chart do not

support some of the higher CPT codes (and concomitant higher billing rates) set forth in the

Pediatrix bill. Specifically, the level of care documented in the chart during the patient's

recovery phase (that is, the period immediately preceding the baby's discharge from the unit)

did not support the critical care codes that were billed by Pediatrix.

54. In addition to retaining the final word on how all medical procedures would be

"coded" and billed, the Individual Defendants endeavored to insure that they remained firmly in

control of their subordinates by hiring individuals willing to participate in and further the

fraudulent scheme. In this vein, only Pediatrix's "Medical Directors" were authorized to

communicate directly with the Company's Coding Department. All other neonatologists were

instructed to refer all billing questions to their Medical Directors and informed that he or she

would handle the matter with Pediatrix's Coding Department personally. Not surprisingly, all of

Pediatrix's Regional Medical Directors were hand picked by Pediatrix's management based on

their willingness to engage in fraud and to instruct others in how to do so as well. Defendant

Medel appointed his wife, Virginia Turnier, as the Regional Medical Director for Pediatrix's

Southeastern United States region.

22


B. Billing for Services Never Provided

55. Pediatrix employed other fraudulent schemes that were intended to and did permit

Pediatrix to grossly over-bill Medicaid, private insurance companies, and patients, or to bill them

for services that were not needed or had never been rendered at all. For example, Natalie

Hoffman, a Pediatrix nurse practitioner in California, who was personally present when babies

"coded" in several different instances, had occasion to call for the help of Pediatrix employee, Dr.

Shindu a number of times. Although Dr. Shindu would often not be available to assist Ms.

Hoffman to care for the baby during a particular crisis, Ms. Hoffman noticed later in the week that

the billing sheets for those babies included charges from Dr. Shindu for the very procedures that

Ms. Hoffman performed herself Pediatrix management was well aware of this practice as Ms.

Hoffman was so upset by it that towards the end of 1998, she personally spoke with Dr. Douglas

Cunningham, Pediatrix Medical Director for the West Coast, who dismissed Ms. Hoffman's

concerns that Dr. Shindu was lying by saying "it's not really lying, it's just an untruth."

56. Contrary to what was actually occurring, in its 1996 Form 10-K, 1997 Form 10-K

and 1998 Form 10-K, Pediatrix represented that it billed for physician services only "and the

hospital bills and collects separately for all other services."

57. Pediatrix also prescribed unnecessary treatments in order to enhance billings.

According to two former Pediatrix doctors, who spoke on condition that they not be identified,

the Pediatrix unit in Trenton, New Jersey, engaged in irregular treatment and billing practices both

before and during the Class Period. For example, patients were kept in NICU longer than

medically necessary, the Regional Medical Director, at the time, Dr. Carey Weiss, was extremely

aggressive about prescribed treatments in excess of what these doctors believed were medically

23


necessary (for example, placing all patients on seven-day programs of antibiotics), and doctors

were encouraged to do likewise. These two doctors left Pediatrix rather than continue to practice

in this environment.

C. Defendants' Illegal "Balance Billing" Scheme

58. Another fraudulent scheme employed by Pediatrix involved a practice known in the

medical community as "balance billing." Pediatrix entered into contracts with a number of private

insurance companies pursuant to which the Company was designated as a "participating provider"

of neonatal medical services. In accordance with the terms of such agreements, the insurance

companies agreed to pay a pre-determined negotiated discount fee for various neonatal medical

services and Pediatrix agreed to accept payment of such fees as payment in full for all services

rendered by its doctors to the insureds. Pursuant to the terms of the various insurance contracts

designating Pediatrix as a "participating provider," the Company was obligated to write-off any

uncollected balance due in such situations and was prohibited from billing the patient for any

uncollected amounts.

59. Pediatrix, however, routinely and -- in states which have statutes that prohibit

"balance billing" -- illegally billed patients for unpaid balances remaining after Pediatrix had

received reimbursement from various private insurance companies. This happened to one of Dr.

Barry Yoss' patients in Harrisburg, Pennsylvania, who had twins. Pediatrix attempted to collect

the "balance" from the patient after being paid by Pennsylvania Blue Cross Blue Shield.

60. Defendants were on notice of the balance billing even prior to the commencement

of the Class Period. Specifically, defendant Medel received a letter in January 1995 from

Pennsylvania BlueShield which confirmed that Pediatrix was illegally engaging in "balance

24


billing." Notwithstanding that the Pennsylvania BlueShield letter ordered the Company to

immediately stop its "balance billing" practice in Pennsylvania, the improper practice continued.

61. According to a former Pediatrix doctor who spoke on condition that he not be

identified, while employed at a Pediatrix unit in Trenton, New Jersey, he received a number of

calls from patients complaining about being billed large amounts purportedly owed to Pediatrix

even after their insurance company had paid its share. According to a doctor who was employed

by Pediatrix during the Class Period, who spoke on condition that he not be identified, he learned

in early 1998 that Pediatrix was improperly balance billing patients of his unit. Outraged by this

and other billing irregularities (including charging fees well in excess of usual and customary fees),

this doctor informed Pediatrix headquarters, in writing, in early 1998 that its balance billing

practice was improper and violated various contracts with third party payors. He subsequently

reiterated his concerns about these practices, including the balance billing, to defendant Mullen

and other senior Pediatrix personnel (including McPherson and Peabody) in person at Pediatrix

headquarters in early 1998.

D. Pediatrix's IHe2al Billing Practices Are Also Raised in a 1998 Lawsuit

62. As detailed above, defendants knew of and, indeed, established the policy of

fraudulent billing prior to the start of the Class Period. In addition to the above-mentioned

instances in which senior Pediatrix management was put on notice that its billing practices had

been called into question, on July 8, 1998, defendants were put on notice that their fraudulent

billing schemes had been discovered by another outside entity, and that the Company would

ultimately have to deal with the undisclosed liability it was creating, when Prospect Medical

Group, Inc. ("Prospect") filed and served a Cross-Complaint on Pediatrix in the Superior Court of

25


the State of California, County of Orange (Case No. 79 48 29) (the "Prospect Litigation")

Prospect alleged in its Complaint that Pediatrix had engaged in some of the unlawful billing

practices described above.

63. According to Prospect's Complaint, Pediatrix had an exclusive contract with St.

Jude's Hospital in Fullerton, California. This contract gave Pediatrix an effective monopoly on the

neonatal care of infants at St. Jude's Hospital leaving Pediatrix free to charge whatever price it

chose for the care or visitation of newborn babies. As alleged in the Prospect Litigation, St.

Jude's Hospital policy requires that all newborns be seen by a neonatologist. In most instances a

specialist was not required, yet because of St. Jude's policy, a Pediatrix physician would examine

the newborn for a brief period (sometimes as brief as twenty minutes) -- and that would be the

extent of Pediatrix's care. Pediatrix would then submit a bill for rates that exceeded $1,000.00

per hour. These rates exceeded the "customary and usual" fees published and accepted by health

care providers and were considered to be prohibitive and unconscionable.

64. In addition, Prospect charged that Pediatrix "balance billed" patients for amounts

allegedly due in violation of the Knox-Keane Health Care Act.

65. Pediatrix filed an answer to the cross-complaint on August 21, 1998 and,

according to sources familiar with the Prospect Litigation, is actively engaged in settlement

negotiations with Prospect.

66. Despite the fact that defendants were put on notice no later than July 8, 1998 that

aspects of their fraudulent billing scheme had been described in publicly available court

documents, their illegal practices continued. Significantly, as described in detail below, the

Company failed to create a reserve on its balance sheet to properly account for the material

26


contingent liability that had been created by the fact that Pediatrix would likely have to repay the

amounts it had collected as a result of its improper billing practices or would not be able to collect

the amounts it had billed but had not yet collected.

Defendants Report Impressive Revenue, Income and Accounts Receivables Growth Throughout the Class Period

67. Pediatrix's illegal and improper billing practices described above resulted in the

material overstatement of the Company's revenue, net income and accounts receivable throughout

the Class Period.

68. According to the 1996 Form 10-K, 1997 Form 10-K and 1998 Form 10-K,

Pediatrix accounts for its accounts receivable and revenues as follows:

Accounts receivable are primarily amounts due under fee-for-service contracts from third party payors, such as insurance companies, self-insured employers and patients and government-sponsored healthcare programs geographically dispersed throughout the United States and its territories. These receivables are presented net of an estimated allowance for contractual adjustments and uncollectibles which is charged to operations based on the Company's evaluation of expected collections resulting from an analysis of current and past due accounts, past collection experience in relation to amounts billed and other relevant information.

69. As described in detail below, the Company's method of recording its revenue and

accounts receivables violated generally accepted accounting principles ("GAAP") because its

revenue and accounts receivables included amounts that Pediatrix had not actually earned but

were recorded only as a result of its illegal and improper billing practices.

Pediatrix's Results for the Fourth Quarter and Year Ending December 31, 1996

70. Pediatrix's revenues consist almost entirely of net patient service revenue. The

1996 Form 10-K reported that net patient service revenue for the year was $80.8 million, an 84%

27


increase over prior year net patient service revenue of $43.9 million. Net income for the year was

$13.1 million as compared with net income of $6.7 million in 1995. Pediatrix's accounts

receivables as of December 31, 1996 were $23.4 million, up from $12.1 million a year earlier.

71. The 1996 Form 10-K included a report from Coopers & Lybrand, Pediatrix's

independent accountants, which represented that the financial statements contained in the 1996

Form 10-K were prepared in conformity with GAAP.

72. As described in detail below, however, the Company's reported revenues, income

and accounts receivable were materially overstated in violation of GAAP as a result of the

Company's illegal billing practices.

Pediatrix's First Quarter 1997 Results

73. On April 30, 1997, defendants issued a press release in which Pediatrix reported its

financial results for the first quarter of 1997. The press release, which was entitled, "Pediatrix

Growth Program Leads to Strong First Quarter Revenue, Earnings Growth," stated in relevant

part:

Pediatrix Medical Group, Inc., (NYSE: PDX) today reported record revenue and net income for the three months ended March 31, 1997 as the company continues to successfully integrate new group practice acquisitions into its existing operations.

Net patient service revenue for the first quarter of 1997 was $27.0 million, up 68 percent from $16.1 million for the same period of 1996. Net income for the three months ended March 31, 1997, increased by 65 percent to $4.3 million, compared with $2.6 million for the previous year. Net income per share increased by 47 percent to 28 cents, based on a weighted average of 15.5 million shares outstanding, up from 19 cents on a weighted average of 13.7 million shares outstanding in the previous year.

28


74. In that same press release, defendant Medel stated: "With this report, our

management team continues to demonstrate that we are able to simultaneously acquire group

practices across the country and effectively operate our existing network of neonatology units,

which now exceeds 80."

75. The Company's first quarter 1997 results were confirmed in Pediatrix's Form 10-Q

for the period ending March 31, 1997, filed with the SEC on or about May 13, 1997 and signed

by defendants Medel and Mullen (the "1997 First Quarter 10-Q"). The 1997 First Quarter 10-Q

also reported that accounts receivable as of March 31, 1997 were $27.9 million.

76. The 1997 First Quarter 10-Q contained a footnote which stated that "[i]n the

opinion of management, these financial statements include all adjustments, consisting only of

normal recurring adjustments, necessary for a fair presentation of the results of interim periods."

The 1997 First Quarter 10-Q also stated that:

The interim condensed consolidated financial statements should be read in

conjunction with the consolidated financial statements and footnotes thereto

included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1997.

Thus, the Company's representations in the 1996 Form 10-K, including those relating to its

accounting for accounts receivables and revenues, were incorporated by reference into the 1997

First Quarter 10-Q.

77. The market's reaction to defendants' first quarter 1997 performance as reported in

the April 30 press release and 1997 First Quarter 10-Q was dramatic. The price of Pediatrix's

common stock, which closed at $33 per share the day of the April 30, 1997 announcement,

increased sharply over the next few months, closing as high as $50 per share on July 17, 1997.

29


78. The market was unaware, however, that the Company's results for the first quarter

of 1997 as reported in the April 30, 1997 press release and 1997 First Quarter 10-Q were

materially overstated in violation of GAAP, as described below.

Pediatrix's Second Quarter 1997 Results

79. On July 29, 1997, defendants issued a press release announcing Pediatrix's

financial results for the second quarter of 1997. The press release, which bore the headline,

"Pediatrix Earns 30 Cents Per Share on Record Revenue, Net Income," stated in relevant part:

Pediatrix Medical Group, Inc. (NYSE: PDX) continues to generate consistent revenue and earnings growth with record financial results for the three months and six months ended June 30, 1997.

Net patient service revenue for the second quarter of 1997 was $30.6 million, up 72 percent from $17.8 million for the same period of 1996. Net income for the three months ended June 30, 1997, increased by 57 percent to $4.8 million, compared with $3.0 million for the previous year. For the 1997 second quarter, net income per share increased to 30 cents, based on a weighted average of 15.8 million shares outstanding, compared to 22 cents on a weighted average of 13.9 million shares outstanding in the previous year.

Through the first half of 1997, Pediatrix has posted net patient service revenue of $57.6 million, up 70 percent from $33.9 million for the six months ended June 30, 1996. Net income of $9.1 million is up 61 percent from $5.6 million reported a year ago. On a per share basis, Pediatnx has earned 58 cents on a weighted average of 15.7 million shares outstanding for the first half of 1997, which compares with per share earnings of 41 cents, on a weighted average of 13.8 million shares outstanding for the first six months of 1996.

80. The July 29, 1997 press release also quoted defendant Medel as stating "through

the eight consecutive reporting quarters since our initial public offering, Pediatrix has consistently

rewarded its shareholders with higher revenues, net income and earnings per share." (Emphasis

added). What Medel failed to tell the investing public was that these rapid increases in revenue,

income and earnings per share were the product of a pattern of fraudulent billing.

30


81. The Company's second quarter 1997 results were confirmed in Pediatrix's Form

10-Q for the period ending June 30, 1997, filed with the SEC on or about August 13, 1997 and

signed by defendants Medel and Mullen (the "1997 Second Quarter I0-Q"). The 1997 Second

Quarter 10-Q also reported that accounts receivable as of June 30, 1997 were $29.7 million.

82. The 1997 Second Quarter 10-Q contained a footnote which stated that "[i]n the



The 1997 Second Quarter 10-Q also stated that:

The interim condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on March 31, 1997.



Second Quarter 10-Q.

83. As detailed below, the Company's reported revenue, income and accounts

receivable as reported in the July 29, 1997 press release and 1997 Second Quarter 10-Q were

materially overstated in violation of GAAP

Pediatrix's Third Ouarter 1997 Results

84. On October 30, 1997, defendants issued a press release in which Pediatrix reported

it financial results for the third quarter of 1997. The press release stated, in relevant part:

Pediatrix Medical Group, Inc., (NYSE:PDX) continued to report steady and strong growth in revenue and net income for the three months and nine months ended September 30, 1997.

31


Net patient service revenue for the third quarter of 1997 was $34.4 million, up 54 percent from $22.4 million for the same period of 1996. Net income for the three months ended September 30, 1997, increased by 54 percent to $5.5 million, compared with $3.6 million for the previous year. Net income per share increased by 46 percent to 35 cents, based on a weighted average of 15.9 million shares outstanding, up from 24 cents on a weighted average of 15.0 million shares outstanding in the previous year.

For the nine months ended September 30, 1997, net patient service revenue was $92.1 million, up 63 percent from $56.3 million for the nine months ended September 30, 1996. Net income was $14.6 million, up 58 percent from $9.2 million for the comparable period of 1996. Net income per share was up 43 percent to 93 cents based on a weighted average of 15.7 million shares, compared to 65 cents based on a weighted average of 14.2 million shares outstanding in the previous year.

85. The October 30, 1997 press release also quoted defendant Medel as follows:

Our financial results continue to reflect the new efficiencies we are generating as we execute our strategy of consolidating neonatal practice groups across the country. . . . When backing out the non-cash amortization charges related to our acquisitions, our gross and operating margins continue to show marked improvement. As important, while our average revenue per day has declined as a result of our growth, our revenue per admission has increased over the prior year because we are taking care of more critically-ill babies. (Emphasis added).

86. Analysts were impressed with the Company's performance as announced in the

October 30, 1997 press release. For instance, an October 30, 1997 Oppenheimer & Co, Inc.

report lauded Pediatrix's "high-quality 3Q results" and rated the stock a "buy."

87. The Company's third quarter 1997 results were confirmed in Pediatrix's Form 10-

Q for the period ending September 30, 1997, filed with the SEC on or about November 14, 1997

and signed by defendants Medel and Mullen (the "1997 Third Quarter 10-Q"). The 1997 Third

Quarter 10-Q also reported that accounts receivable as of September 30, 1997 were $33 million.

88. The 1997 Third Quarter 10-Q contained a footnote which stated that "[i]n the


32



The 1997 Third Quarter 10-Q also stated that:




Third Quarter 10-Q.

89. As described in detail below, the Company's reported results for third quarter

1997 as reported in the October 30, 1997 press release and the 1997 Third Quarter 10-Q were

materially false and misleading in violation of GAAP as a result of the Company's illegal billing

practices. Moreover, contrary to Medel's statement in the October 30, 1997 press release that

Pediatrix's revenues per admission increased because the Company was taking care of more

critically-ill babies, in reality, the Company's revenues per admission increased as a result of

defendants' illegal billing practices.

Pediatrix's Fourth Quarter 1997 Results

90. On February 5, 1998, defendants issued a press releasing announcing Pediatrix's

financial results for the fourth quarter and twelve months ended December 31, 1997. The press

release stated in relevant part:

Pediatrix Medical Group, Inc. (NYSE: PDX), the nation's largest provider of neonatology physician services, today reported record revenue and earnings for the fourth quarter and 12 months ended December 31, 1997.

Net patient service revenue for the fourth quarter of 1997 was $36.8 million, up 50 percent from $24.5 million for the same period of 1996. Net income for the three

33


months ended December 31, 1997, increased by 62 percent to $6.3 million, compared with $3.9 million for the previous year. Net income per share increased by 60 percent to 40 cents, based on a weighted average of 15.9 million shares outstanding, up from 25 cents on a weighted average of 15.6 million shares outstanding in the previous year.

For the year ended December 31, 1997, net patient service revenue was $128.9 million, up 59 percent from $80.8 million for the year ended December 31, 1996. Net income was $20.9 million, up 59 percent from $13.1 million for the comparable period of 1996. Net income per share was up 48 percent to $1.33 based on a weighted average of 15.7 million shares outstanding, compared to 90 cents based on a weighted average of 14.5 million shares outstanding in the previous year.

91. The February 5, 1998 press release also quoted defendant Medel as follows:

Our continued strong financial performance is the result of our dedication to a business practice that emphasizes the delivery of the best possible care to newborns. . . . Throughout 1997 we saw dramatic increases in our net patient service revenue, coupled with both gross margin and operating margin improvements. Our focused approach continues to serve us well, and our acquisitions pipeline is filled with physician group practices that are interested in joining what has truly become a nationwide neonatology practice." (Emphasis added).

92. As a result of the Company's reported fourth quarter and year end 1997 earnings,

CIBC Oppenheimer ("CIBC"), formerly Oppenheimer & Co., Inc., raised its rating on Pediatrix

from "buy" to "strong buy" noting once again the Company's "high-quality 4Q results." The

CIBC report was followed by a February 9, 1998 report from BT Alex. Brown that rated the

stock a "strong buy," noting the Company's "strong cash flow from operations" would help fund

acquisitions in 1998.

93. The Company's fourth quarter and year end 1997 results were confirmed in the

1997 Form 10-K. The 1997 Form 10-K further reported that Pediatrix's accounts receivables as

of December 31, 1997 were $34.9 million, up from $23.4 million in 1996.

34


94. The 1997 Form 10-K included a report from Coopers & Lybrand, Pediatrix's

independent accountants, which represented that the financial statements contained in the 1997

Form 10-K were prepared in conformity with GAAP.

95. As described in detail herein, however, the Company's reported revenues, income

and accounts receivable were materially overstated in violation of GAAP as a result of the

Company's illegal billing practices. Further, contrary to Medel's statements in the February 5,

1998 press release that Pediatrix's strong financial performance was the result of a business

practice that emphasizes the delivery of the best possible care to newborns, the Company's strong

financial performance was really the result of Pediatrix's fraudulent billing practices.

96. The market was unaware of defendants' scheme, however, and the price of

Pediatrix's common stock rose to $50 per share in the days following the release of the 1997

Form 10-K, from $38-3/8 on the last trading day prior to the February 5, 1998 press release.

Pediatrix's First Ouarter 1998 Results

97. On April 28, 1998, defendants issued a press release in which Pediatrix reported its

financial results for the first quarter of 1998. The press release reported that revenue and net

income had grown 40 percent for the first quarter ended March 31, 1998, as compared with the

prior year. In addition, net patient service revenue for the first quarter of 1998 was $37.8 million,

up 40 percent from $27.0 million for the same period of 1997. Net income for the three months

ended March 31, 1998, increased by 42 percent to $6.1 million, compared with $4.3 million for

the previous year. Net income per share increased by 39% to 39 cents, up from 28 cents in the

previous year.

35


98. The market was encouraged by Pediatrix's reported results, as evidenced by a BT

Alex. Brown analyst report, issued the same day as defendants' April 28, 1998 announcement,

which rated Pediatrix a "Strong Buy." The report cited the "[p]otential to increase acquiree's

revenues through more efficient billing and collection" as a key investment theme.

99. A May 1, 1998 CIBC report was particularly impressed with Pediatrix's cash from

operations. CIBC stated that the Company's management expected 1998 cash generated from

operations to total $35 to $40 million and that "coupled with the company's $75 million available

line of credit, gives it considerable flexibility to meet its acquisition goals well into 1999."

100. On May 8, 1998, Interstate/Johnson Lane ("IJL") issued a research report

concerning Pediatrix that rated the Company's stock a "Long-Term Buy." That rating was

reiterated in a May 20, 1998 IJL Equity Research report.

101. The Company's first quarter 1998 results were confirmed in Pediatrix's Form 10-Q

for the period ending March 31, 1998, filed with the SEC on or about May 15, 1998 and signed

by defendants Medel and Mullen (the "1998 First Quarter 10-Q"). The 1998 First Quarter 10-Q

also reported that accounts receivable as of March 31, 1998 were $37.9 million.

102. The 1998 First Quarter 10-Q contained a footnote which stated that "[i]n the



The 1998 First Quarter 10-Q also stated that:


36




First Quarter 10-Q.

103. Despite the Company's encouraging performance, the price of Pediatrix shares

began to decline-- falling to a low of $32 50 per share by June 15, 1998. Significantly, the

decline in the market price of Pediatrix's shares was attributed by lit Equity research in a report

dated May 20, 1998 to "an overall decline in prices in the industry sector attributable to

continuing negative investor sentiment most recently related to poor financial performance on the

part of FPA Medical Management." IJL stated that with the stock at current levels, it continued

to rate the shares a "long-term buy."

104. Analysts and investors were unaware, however, that the Company's first quarter

1998 results as reported in the April 28, 1998 press release and 1998 First Quarter 10-Q -- and its

ability to continue its growth in the future -- was dependent on the Company's illegal billing

practices which, as described below, violated GAAP.

Pediatrix's Second Quarter 1998 Results

105. On July 30, 1998, defendants issued a press release in which Pediatrix reported its

financial results for the second quarter of 1998. The press release, which bore the headline,

"Pediatrix Medical Group Posts 50 Percent EPS Growth By Leveraging Both Neonatal and

Perinatal Services," stated in relevant part:

Pediatrix Medical Group (NYSE: PDX) reported earnings per share of 45 cents for the 1998 second quarter, demonstrating that its physician-driven business model continues to grow while achieving superior financial returns.

37


For the three months ended June 30, 1998, net patient service revenue increased by 51 percent to $46.1 million, compared to $30.6 million for the comparable 1997 period. Pediatrix's net income was $7.1 million for the three months ended June 30, 1998, up 49 percent from $4.8 million earned for the same period last year. Earnings per share increased by 50 percent to 45 cents on a weighted average 15.9 million shares for the 1998 second quarter, from 30 cents per share on a weighted average 15.7 million shares earned during the 1997 comparable period.

For the six months ended June 30, 1998, Pediatrix has generated net patient service revenue of $84 million, up 46 percent from $57.6 million for the same period of 1997. Net income of $13.2 million is up 46 percent from $9.1 million a year ago. On a per share basis, Pediatrix earned 83 cents on a weighted average 15.9 million shares outstanding in the first half of 1998, up 43 percent from 58 cents on a weighted average of 15.6 million shares outstanding for the first six months of 1997.

106. The July 30, 1998 press release quoted defendant Medel as follows:

For three years, since our initial public offering in 1995, we have either met or surpassed all expectations established by both the financial and medical communities. . . We are achieving these results because our business model resembles no other physician company. Pediatnx successfully attracts physicians who are interested in joining our national group practice. We are acquiring physician practices with cash, and retaining the physicians and hospital contracts because we are delivering on the promises that we make to those physicians and hospital administrators. (Emphasis added).

107. While it was literally accurate that Pediatrix was operating a business model unlike

any other company, Medel failed to disclose just what that model was: one that relied on

upcoding, overcharging, balance billing and fraud.

108. Defendants' materially false and misleading statements continued to have a strong

impact on financial market analysts. For example, a July 30, 1998 analyst report by BT Alex.

Brown commented that Pediatrix's revenues had exceeded their estimate by 13% as a result of

very strong same-unit growth and reiterated their "strong buy" investment rating on the shares.

38


On July 31, 1998, UL raised Pediatrix's rating from a "long-term buy" to a "strong buy" and

Piper Jaifray reiterated its "strong buy" rating as well.

109. Defendants' statements also had a powerful impact on the Company's stock price.

On July 29, 1998, the day before defendants reported Pediatrix's second quarter 1998 financial

results, Pediatrix common stock closed at $33-7/8. As a result of the Company's press release,

Pediatrix closed up $6 per share at $39-7/8 on July 30, 1998 and continued to climb in price in the

following weeks.

110. The Company's second quarter 1998 results were confirmed in Pediatrix's Form

10-Q for the period ending June 30, 1998, filed with the SEC on or about August 13, 1998 and

signed by defendants Medel and Wagner (the "1998 Second Quarter l0-Q"). The 1998 Second

Quarter 10-Q also reported that accounts receivable as of June 30, 1998 were $46.2 million.

111. The 1998 Second Quarter 10-Q contained a footnote which stated that "[un the



The 1998 Second Quarter 10-Q also stated that:




Second Quarter 10-Q.

39


112. As described in detail below, the Company's reported results for second quarter

1998 as reported in the July 30, 1998 press release and the 1998 Second Quarter 10-Q were

materially false and misleading in violation of GAAP as a result of the Company's illegal billing

practices.

Pediatrix's Third Ouarter 1998 Results

113. On October 29, 1998, defendants issued a press release announcing Pediatrix's

financial results for the third quarter of 1998. The press release stated in relevant part:

Pediatrix Medical Group, Inc., (NYSE:PDX) continued to report solid growth in revenue and earnings per share for the three months ended September 30, 1998, extending its history of meeting or exceeding expectations to 13 consecutive quarters as a public company.

For the three months ended September 30, 1998, net patient service revenue increased by 43 percent to $49.4 million, compared to $34.4 million for the comparable 1997 period. Pediatrix's net income was $7.6 million for the three months ended September 30, 1998, up 39 percent from $5.5 million earned for the same period last year. Earnings per share were 48 cents on a weighted average 16.0 million shares for the 1998 third quarter, up 37 percent from 35 cents on a weighted average 15.9 million shares during the 1997 comparable period.

For the nine months ended September 30, 1998, Pediatrix has generated net patient service revenue of $133.3 million, up 45 percent from $92.1 million for the same period of 1997. Net income of $20.9 million is up 43 percent from $14.6 million a year ago. On a per share basis, Pediatrix earned $1.31 on a weighted average 15.9 million shares outstanding in the first nine months of 1998, up 41 percent from 93 cents on a weighted average of 15.7 million shares outstanding through the first nine months of 1997.

114. The October 29, 1998 press release also quoted defendant Medel as follows:

Our operating margin continues to expand as we grow. . . . We're enjoying benefits from our ongoing acquisition program and from sustained healthy same-unit growth. With our long history of achieving superior financial results we continue to demonstrate that our national group practice model is a viable, growing methodfor adding value to physician group practices. (Emphasis added).


115. That same day, October 29, 1998, defendant Medel was interviewed on CNN by

Tony Guida. After reviewing the Company's reported financial results, Medel was asked to what

he attributed Pediatrix's success during the preceding quarter. He answered: "Well, we believe

that our operating model is such that it provides good reasons for physicians to want to be

affiliated with Pediatrix. And we continue to grow at a 40 percent annual growth rate because of

the model that we employ."

116. In that same interview, Medel was asked about managed care groups and

answered as follows: "We do think of managed care companies as our clients. And as such, we

try to put together programs for reimbursement and taking care of patients which meets their

objectives as well as ours. And so far, we've been successful in doing that."

117. Medel was also asked about the Company's projected growth rate. His answer:

"Well, we believe that both acquisitions and internal growth will continue to fuel our growth. We

are experiencing, as I said before, 40 percent and higher growth rates. And we expect to continue

to see the 35 to 40 percent growth rate, going forward."

118. Once again, unaware of the true reason for Pediatrix's growth, analysts were

impressed with Pediatrix's reported results. According to an October 30, 1998 Piper Jaifray

report, Pediatrix's revenue growth remained impressive, causing Piper Jaifray to reiterate its

"strong buy" rating. CIBC followed with a report on November 2, 1998 in which it commented

on Pediatrix's "impressive 3Q results" and stated that "Pediatrix is largely immune to issues that

have plagued [similar] companies, in part because of its unique operating model and in part

because of its acquisition structuring techniques."

41


119. The statements by defendant Medel in the October 29, 1998 press release and

interview were false and misleading, however, because Pediatrix's 40 percent growth rate was not

due to a legitimate operating model. As evidenced by the Company's declining revenue and

earnings after the Class Period, the Company's rapid growth rate was fueled by adding physician

practices with significant amounts of the Company's revenue and earnings obtained from the

fraudulent billing practices described above. While the statement that this model was a "viable

growth model" was inherently false and deceptive, it also failed to acknowledge the contingent

liability that such a model created, and the ultimate cost to the Company and its shareholders from

conducting business in such a manner.

120. On November 3, 1998, Pediatrix announced the appointment of David Hoskinson

as Vice President, Managed Care and Network Development. Defendant Medel commented:

In addition to bringing a wealth of healthcare experience, David shares our philosophy that in order to effectively manage care, physicians and payors must work together to balance quality outcomes with cost efficiency. . . . Our national group practice model strengthens our position to serve managed care payors and allows us to receive reasonable compensation for our services. (Emphasis added).

121. Medel's statements in the November 3, 1998 press release were false and

misleading because Pediatrix was not receiving "reasonable compensation" for its services. To

the contrary, Pediatrix was fraudulently overbilling Medicaid, insurance companies and private

pay patients.

122. The Company's third quarter 1998 results were confirmed in Pediatrix's Form 10-

Q for the period ending September 30, 1998, filed with the SEC on or about November 16, 1998

and signed by defendants Medel and Wagner (the "1998 Third Quarter 10-Q"). The 1998 Third

42


Quarter 10-Q also reported that accounts receivable as of September 30, 1998 were $50.6

million.

123. The 1998 Third Quarter 10-Q contained a footnote which stated that "[i]n the



The 1998 Third Quarter 10-Q also stated that:




Third Quarter 10-Q.

124. On November 16, 1998, the same day that the 1998 Third Quarter 10-Q was

released, the Company announced in a press release that defendant Medel had signed a five-year

extension to his employment agreement. Medel was quoted as follows:

I look forward to continuing to lead the rapid rate of growth that Pediatrix has enjoyed over the past several years. . . . I am particularly excited about the opportunities that are available to Pediatrix. While we are the nation's largest neonatal and perinatal physician services company, both of these practice groups remain fragmented. There are tremendous opportunities to grow by expanding our national group practice model. As we have grown, we have remained committed to building an infrastructure that provides unprecedented support for the physician -- including continuing medical education and research. We remain dedicated to providing our physicians with the tools to achieve the best possible patient outcomes.

125. In the wake of the Company's third quarter financial results as reported in the

1998 Third Quarter 10-Q, the price of Pediatrix common stock immediately began trading in the

43


low to mid $50 range and reached $60-1/2 by December 30, 1998 before hitting its Class Period

high of $64-9/16 on January 29, 1999.

126. The market was unaware, however, that the Company's apparent success and

favorable results as reported in the October 29, 1998 press release and 1998 Third Quarter l0-Q

was the direct result of the Company's illegal billing practices which were accounted for in

violation of GAAP.

Defendants Reassure The Market In Response To Negative News About The Company

127. On February 10, 1999, defendants issued a press release announcing that Pediatrix

"expects to report earnings per share that will exceed consensus analyst estimates for the fourth

quarter and year ending December 31, 1998." The press release also reported that it had engaged

KPMG LLP ("KPMG") to conduct a concurrent audit of its 1998 financial statements as a result

of an SEC determination that the Company's auditors, PriceWaterhouse Coopers LLP (formerly,

Coopers & Lybrand), had violated the auditor independence rules.

128. On a positive note, the February 10, 1999 press release reported that:

For all of 1998, Pediatrix added a total of 27 NICUs through the combination of eight neonatal group acquisitions and internal growth. In addition, Obstetrix

acquired seven perinatal physician groups during the year. Obstetrix provides

service in eight markets in seven states.

During 1999, Pediatrix has acquired a neonatal physician group practice in Oklahoma City, and was awarded a contract to operate a newly-opened NICU at a suburban Kansas City hospital.

129. On February 12, 1999, Pediatrix announced that it had been informed by KPMG

that the Company needed to provide additional analyses regarding Pediatrix's accounts receivable

in order for KPMG to complete the audit but that "Pediatrix believes that its accounts receivable

44


are fairly staled." (Emphasis added). The press release also reported KPMG's view that

Pediatrix's accounting policy regarding the capitalization of certain acquisition costs would not be

acceptable to the SEC. Finally, the press release disclosed that "[p]ending resolution of these

issues, and completion of the 1998 audit of the Company's financial statements, the possibility

exists that Pediatrix will be required to restate previously reported earnings."

130. Contrary to the representation that Pediatrix's accounts receivables were fairly

stated, in fact, the opposite was true.

131. The market responded negatively to the Company's disclosure about a potential

restatement of its financial statements. Indeed, Pediatrix common stock closed at $28 on

February 12, 1999 down from $53-5/8 the day before and drifted down to $19-15/16 by March

24, 1999.

132. As a result of the Company's February 12, 1998 announcement, Hambrecht &

Quist lowered its rating on Pediatrix common stock from "strong buy" to "buy" in light of the

uncertainty surrounding the audit. Hambrecht & Quist expressed confidence, however, in the fact

that "[t]he company maintains that they believe accounts receivable are fairly stated."

133. On February 26, 1999, Pediatrix held a meeting for a group of analysts and

institutional investors. One of the issues addressed at the meeting was the Company's coding

practices that some investors had begun to publicly criticize. According to a March 2, 1999 Piper

Jaffiay report, which was based on discussions with Pediatrix management at the February 26,

1999 meeting:

Pediatrix's coding system is build around a four-part system: written guidelines, education, a coding department which checks every bill, and ongoing audit of utilization and application. By having a system and the ability to train all personnel

45


in how it works and the ability to monitor performance, Pediatrix is wildly different from most other neonatal groups.

Summing up on the Company's comments regarding coding, Piper Jaifray concluded that

Pediatrix's coding system is "state-of-the art."

134. Following the February 26, 1999 analyst meeting, the price of Pediatrix stock,

which had fallen as low as $ 19-7/16 on February 18, 1999, rose to $30-7/8.

135. The market was further reassured on March 25, 1999, when defendants issued a

press release announcing that it would not be restating its prior financial statements and that

KPMG's audit "revealed that Pediatrix's financial statements, including its accounts receivable,

were fairly stated." in addition, the press release reported Pediatrix's financial results for the

fourth quarter and full year ended December 31, 1998, stating:

For the three months ended December 31, 1998, net patient service revenue grew by 42 percent to $52.1 million from $36.8 million for the same period of 1997. Net income increased by 30 percent to $8.2 million, or 51 cents per share based on a weighted average 16.2 million shares outstanding for the 1998 fourth quarter, compared with $6.3 million, or 40 cents per share based on a weighted average 15.9 million shares outstanding for the 1997 fourth quarter.

For all of 1998, net patient service revenue grew by 44 percent, to $185.4 million, from $128.9 million for 1997. Net income improved 39 percent for the year, to $29.1 million, from $20.9 million in 1997. On a per share basis, Pediatrix earned $1.82 based on a weighted average 16.0 million shares outstanding for 1998, up 37 percent from $1.33 earned based on a weighted average 15.7 million shares outstanding during 1997.

"During this very difficult period for our company and our shareholders, we maintained our focused and disciplined strategy for consolidating neonatal and perinatal physician groups," said Roger J. Medel, M.D., President and Chief Executive Officer of Pediatrix Medical Group. "Our strong financial performance for 1998 continues to validate our mode/for acquiring and integrating physicians into a unified national physician group."

For the 1998 fourth quarter, same unit revenue at Pediatrix's neonatal intensive

46


care units grew by 6 percent compared with the 1997 fourth quarter. (Emphasis added).

136. Medel's statement regarding the Company's strong financial performance and its

validation of Pediatrix's business model for acquiring and integrating physicians was false and

misleading because it failed to disclose that its strong financial results were really derived from its

fraudulent billing practices.

137. Notwithstanding the Company's assurances that its accounts receivable were fairly

stated, during a March 25, 1999 conference call following the release of the Company's press

release (which was published on Bloomberg), an analyst asked defendant Medel whether

accusations that the Company was engaging in improper coding could be put to rest in light of

KPMG's audit. Medel responded to the question by stating that "I believe that we have the best

research and documented neonatology coding system in the country and, no the scope of a

financial audit as you probably know it has no, it doesn't have anything to do with coding."

When the analyst followed up by asking "okay, so KPMG would not have looked at that if it had

been any kind of a potential, mention, something they wouldn't have covered, is that right?"

Medel responded, "that's correct." Thus, the improper and fraudulent billing practices employed

by defendants were not within the scope of the KPMG audit and therefore remained

undiscovered.

138. Analysts were favorably impressed with the Company's March 25, 1999

announcement. Indeed, Piper Jaifray lauded the Company in a March 26, 1999 analyst report,

stating that although the past six weeks had been a turbulent period for Pediatrix's management

and investors, "the Company's financial statements have been given a clean bill of health." As a

47


result, Piper Jaifray increased its rating on Pediatrix common stock from "buy" to "strong buy."

CIBC also issued a positive analyst report on March 26, 1999, stating that the Company's

announcement "reinforced our belief that the company's accounting and financial policies are

sound."

139. The market responded enthusiastically to Pediatrix's apparent clean bill of health,

sending the stock soaring to $34 on March 25, 1999 from $19-15/16 on March 24, 1999 on

unusually heavy volume of 3.4 million shares. The market did not know, however, that the

Company's fourth quarter and year end 1998 revenue and earnings were materially overstated

because they were booked in violation of GAAP.

The Truth Begins to Emerge

140. On April 5, 1999, Pediatrix shocked the market by announcing that "it learned late

last week that government officials in Arizona and Colorado are seeking billing-related documents

and information from the Company." This information sent Pediatrix's stock reeling, falling to

$17-1/8 on April 5, 1999 from the prior day's close of $26-5/8. As of the filing of this Second

Amended Consolidated Class Action Complaint, these investigations are continuing.

141. Media reports filled in details about the Company's sketchy disclosure. For

instance, the April 6, 1999 Denver Rocky Mountain News disclosed that investigators from the

Colorado "attorney general's office last week began collecting Medicaid billing records from

physicians employed by Pediatrix." These records would subsequently reveal the huge

discrepancies between the Denver unit of Pediatrix and the billing records of Dr. Hall's group. ¶

51. The news article further disclosed that "[t]he investigation is being conducted by the office's

Medicaid fraud unit, which files civil and criminal cases. Pediatrix physicians across the state have

48


been asked for records." Finally, the article stated that "Pediatrix also is being investigated by

Medicaid officials in Arizona and Florida."

142. The April 6, 1999 Ft. Lauderdale Sun-Sentinel reported that, "Pediatrix shares

plunged $9.50, or 36 percent, to $17.13 after the company said government officials in two states

are looking into its billing practices." Christopher McFadden, an analyst at First Union Capital

Markets, was quoted in the article as saying that the investigation "clearly comes as somewhat a

surprise, and a disappointing surprise, to investors." According to the article, "CNBC reported

that Florida's Medicaid fraud control unit said it's investigating Pediatrix, and that three or four

other states may also be investigating the company."

143. Securities analysts were justifiably upset about Pediatrix's new disclosures. For

example, an April 6, 1999 First Union report stated that:

Yesterday, Pediatrix announced that two states, Arizona and Colorado, have requested billing-related information from the company, suggesting a potential review of the company's billing policies. We view this announcement with disappointment, as it follows assurances just ten days ago on the company's Q4 conference call that there were no further investigations occurring within the company. (Emphasis added).

As a result, First Union lowered their rating on Pediatrix from "buy" to "hold."

144. Pediatrix's stock fell even further in the wake of the news reports about the

investigations and the First Union report, sending the Company's stock to a low of $14-3/16 on

April 9, 1999.

49


Defendants' Efforts to Cover-Up Their Illegal Billing Activities

145. Following the institution of the present Action as well as the announced fraud

investigations into Pediatrix by several states, Defendants sought to keep the Company's illegal

billing activities from coming to light.

146. For instance, Natalie Hoffman has represented to former Pediatrix employees that

Defendants issued a company-wide "gag order" prohibiting employees from speaking to anyone

about the Company's billing practices. Indeed, after Pediatrix management learned that Natalie

Hoffman might have been speaking with former Pediatrix employees -- specifically, Dylcia Cowan

-- Ms. Hoffman was summoned from California to Florida in or about the Spring of 1999, where

she was chastised about speaking about the Company and was told never to speak with Ms.

Cowan again.

147. According to a current Pediatrix doctor, who spoke with plaintiffs' counsel on

condition that he not be identified for fear of retribution, Pediatrix has also reacted to the

investigations by implementing changes to an internal company directory distributed to

Pediatrix units throughout the country. According to the doctor, after the investigations came

to light Pediatrix deleted the phone numbers listed for doctors, thereby hampering the ability

of doctors in various parts of the country to exchange information about the investigations, and

forcing more of the inter-unit communications onto the Company e-mail system, which this

doctor views as susceptible to Company monitoring.

148. As a result of the investigations by several states and the Defense Department,

Pediatrix has recently changed its practices to conform with the applicable laws. Not surprisingly,

Pediatrix acknowledged in its quarterly report for the third quarter ending September 30, 1999,

50


that same unit patient revenue declined 7.1% in the quarter. This decline was attributed to a

"lower activity level of patient service billed." No further explanation was provided, nor is there

any reason to suggest that Pediatrix's patients suddenly became healthier after subpoenas and

other inquiries regarding the Company's billing practices were received from three state attorneys

general. The effect on Pediatrix's earnings was even more pronounced, with net earnings for the

third quarter declining 34.7% from the third quarter of the prior year; confirming the extent to

which Pediatrix's earnings growth was driven by improper billing practices.

Pediatrix's Reported Revenues, Income and Accounts Receivable During the Class Period Violated GAAP

149. Each of the Company's financial statements and press releases reporting its

earnings during the Class Period were materially overstated in violation of GAAP. Regulation S-

X, 17 C.F.R. §210.4-01(a)(1), provides that financial statements filed with the SEC that are not

prepared in conformity with GAAP are presumed to be misleading, despite footnote or other

disclosure.

150. According to Pediatrix's accounting policy for revenue and accounts receivable,

"accounts receivables are presented net of an estimated allowance for contractual adjustments and

uncollectibles which is charged to operations based on the Company's evaluation of expected

collections resulting from an analysis of current and past due accounts, past collections experience

in relation to amounts billed and other relevant information." Thus, the Company records the

amount it bills as revenue and accounts receivable and then offsets both the accounts receivables

and its earnings by the amount that Pediatrix deems to be uncollectible.

51


151. Pediatrix's financial statements during the Class Period violated GAAP in at least

two ways. First, throughout the Class Period, the Company improperly recorded revenue on

services that were not provided (including the practices described above as billing for services not

provided and upcoding) and improperly recorded revenue in excess of the amounts that were

reimbursable by law or contract (described above as balance billing). Second, even though

Pediatrix represented that it offset its revenue and accounts receivable by uncollectible amounts, it

failed to deduct from its accounts receivables and revenue the amount that it knew should not

have been collectible once its illegal billing practices had been discovered by third parties. Indeed,

the allegations against Pediatrix in the Prospect Litigation should have caused the Company to

offset its revenue and accounts receivable in a greater amount than its past collection experience

may have suggested because management should have known, within a reasonable degree of

certainty, that once one third party described aspects of the Company's illegal billing practices in

publicly available court documents, the word would spread to other payors who would begin to

examine their bills with far more scrutiny.

152. Specifically, the Company violated the following provisions of GAAP:

a. Statement of Financial Accounting Concepts No. ("CON") 5, ¶ 83, which

states that revenues and gains generally are not recognized until they are realized or realizable and

earned, and that revenues are not considered to be earned until an "entity has substantially

accomplished what it must do to be entitled to the benefits represented by the revenues."

(Emphasis added). Pediatrix violated this provision since it booked as revenues amounts it was

not entitled to collect because, as described in detail above, it had not "substantially"

accomplished what it was supposed to in order to earn those revenues.

52


b. Statements of Financial Accounting Standards ("SFAS") No. 5,

promulgated by the Financial Accounting Standards Board ("FASB"), which states:

An estimated loss from a loss contingency shall be accrued by a charge to income if both of the following conditions are met:

a) Information available prior to issuance of the financial statement indicates that it is probable that an asset had been impaired or a liability had been incurred at the date of the financial statements. It is implicit in this condition that it must be probable that one or more future events will occur confirming the fact of the loss." (SFAS No. 5, ¶8).

b) The amount of the loss could reasonably be estimated.

Disclosure of the nature of an accrual made pursuant to the provision of ¶8, and in some circumstances the amount accrued, may be necessary for the financial statements not to be misleading.

If no accrual is made for a loss contingency because one or both of the conditions in 18 are not met, or if an exposure to loss exists in excess of the amount accrued pursuant to the provisions of 118, disclosure of the contingency shall be made when there is at least a reasonable possibility that a loss or an additional loss may have been incurred" (SFAS No. 5, ¶9-10.)

Pediatnx violated this GAAP provision by failing to record as a loss contingency the amounts it

was billing as a result of illegal billing practices that it knew, or should have known, would either

have to be returned to the payor or would never be collected once defendants' scheme was

uncovered. Thus, once the Prospect Litigation commenced during third quarter 1998 and

defendants knew that aspects of its illegal billing practices had been described in court documents,

it was probable that Pediatrix would no longer be able to collect the amounts it billed as it had in

the past and it therefore should have recorded the amount it overbilled as a reserve pursuant to

SFAS No. 5.

53


C. The principle that financial reporting should provide information that is

useful to present and potential investors and creditors and other users in making rational

investment, credit and similar decisions (CON 1, ¶34), which was violated because Pediatrix's

financial statements were presented in such a way as to lead the market to believe that its

revenues, earnings and accounts receivable was growing because of positive business trends

rather than illegal billing activity;

d. The principle of completeness, which means that nothing is left out of the

information that may be necessary to insure that it validly represents underlying events and

conditions (CON 2, ¶79), which was violated because the true reasons for Pediatrix's apparent

success -- its improper billing practices -- were not disclosed; and

e. The principle that information should be reliable (CON 2, ¶58-59), which

was violated because Pediatrix's financial statements did not represent its true results from legal

operations.

153. That Pediatrix's revenues, earnings and accounts receivable were materially

overstated in violation of GAAP is borne out by the impact that the disclosure of the Company's

improper billing practices had on Pediatrix's business after the Class Period. Specifically, on

August 3, 1999, the Company held a conference call during which it discussed its second quarter

1999 results. Defendant Medel admitted during the call that as a direct result of the investigations

into the Company's billing practices, physicians had begun coding more conservatively which, in

turn, resulted in same unit revenue decline of 3 1/2% during the quarter.

154. Defendant Wagner also reported on the August 3, 1999 conference call that the

Company's accounts receivable collections during the second quarter of 1999 were lower than

54


anticipated. The lower collections reflect the fact that its accounts receivables were overstated

during the Class Period and that payors who are now on notice that Pediatrix has overbilled them

are refusing to pay the full amount that they have been billed.

155. Pediatrix's third quarter 1999 results reflected an even greater impact. Pediatrix's

third quarter 1999 earnings were below anal yst estimates and down 34% from the third quarter of

the prior year. This was because physicians were billing for "treatment of less acute, noncritical

conditions, rather than for more costly procedures, thus reducing patient-service revenue" and

that the Company expected the trend to continue in the fourth quarter. In other words, the

Company's financial results have been and will continue to be below expectations because the

Company is seemingly no longer engaged in "upcoding."

156. Item 303(a)(3) of Regulation S-K provides, int er alia, that an annual report on

Form 10-K must contain certain disclosures in Management's Discussion and Analysis of

Financial Condition and Results of Operations, including, "significant components of revenues

or expenses that, in the registrant's judgment, should be described in order to understand the

registrant's results of operations." Clearly, in order to understand Pediatrix's significant

growth in revenue and earnings it was important to understand that a significant component of

those results were the fruits of fraudulent billing practices. However, this required disclosure

was not made.

SCIENTER ALLEGATIONS

157. While the allegations set forth in, inter alia, 118-11, 32, 37-39, 41-52, 54, 55,

57, 60-66, 119, 137, 140-143, 146-155 above, which are incorporated by reference here,

adequately plead that defendants acted with scienter, plaintiffs recount below those most

55


significant allegations establishing a strong inference that defendants acted, at a minimum, in a

severely reckless manner. Specifically, the following allegations demonstrate that the

Company and the Individual Defendants were on notice that Pediatrix was engaging in

improper billing practices in contravention to its public representations and in violation of

GAAP, and that defendants therefore either knew, or recklessly disregarded, those facts:

a. Medel received a letter in January 1995 that put him and upper

management on notice that Pennsylvania BlueShield was aware that Pediatrix was illegally

balance billing in its Harrisburg, Pennsylvania operation. 160.

b. In early 1998, a Pediatrix doctor informed senior Pediatrix management,

including defendant Mullen, in writing and in person, that the Company was engaging in

improper billing practices, including overcharging and balance billing. 161.

C. On July 8, 1998, defendants were put on notice that their fraudulent

billing schemes had been discovered when Prospect served its cross-complaint alleging that

Pediatrix had engaged in some of the unlawful billing practices described herein. Nevertheless,

the illegal practices continued and the Company failed to create a reserve on its balance sheet

to properly account for the material contingent liability defendants had created. 162-66.

COUNT I

AGAINST ALL DEFENDANTS FOR VIOLATIONS OF SECTION 10(b) OF THE EXCHANGE ACT AND RULE lOb-5

158. Plaintiffs incorporate the foregoing allegations as if fully set forth herein. This

claim is asserted against all defendants.

56


159. These defendants, and each of them, carried out a plan, scheme and course of

conduct which was intended to and did: (i) deceive the investing public, including Plaintiffs and

other Class members, as alleged herein; (ii) artificially inflate and maintain the market price of

Pediatrix common stock; (iii) allow the Company to complete acquisitions of physician practice

groups with its ill-gotten gains; and (iv) allow the Individual Defendants to receive significant

incentive compensation, including valuable stock options, as a result of the Company's apparent

financial success. In furtherance of this unlawful scheme, plan and course of conduct, these

defendants, and each of them, took the actions set forth herein. These defendants are sued either

as primary participants in the wrongful and illegal conduct charged herein or as controlling

persons as alleged below.

160. In addition to the duties of full disclosure imposed on defendants as a result of

their making of affirmative statements and reports, or participation in the making of affirmative

statements and reports to the investing public, defendants had a duty to promptly disseminate

truthful information that would be material to investors in compliance with the integrated

disclosure provisions of the SEC as embodied in SEC Regulation S-X (17 C.F.R. § 210.01, et

seq.) and S-K (17 C.F.R. § 229. 10, etseq.) and other SEC regulations, including accurate and

truthful information with respect to the Company's operations and performance so that the

market prices of the Company's publicly traded common stock would be based on truthful,

completed and accurate information.

161. Defendants individually and in concert, directly and indirectly, by the use of means

or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a

continuous course of conduct to purposely misrepresent the Company's business and financial

57


results, as specified herein, which operated as a fraud and deceit upon the purchasers of Pediatrix

common stock, purchases of Pediatrix call options, and sellers of Pediatrix put options during the

Class Period.

162. As alleged herein, defendants Medel, Wagner and Mullen acted with scienter in

that they knew or were reckless in not knowing that Pediatrix's (i) 1996 Form 10-K, 1997 Form

10-K and 1998 Form 10-K; (ii) April 30, 1997, July 29, 1997, October 30, 1997, April 28, 1998,

July 30, 1998, October 13, 1998, October 29, 1998, November 3, 1998, February 12, 1999, and

March 25, 1999 press releases; and (iii) First Quarter 1997 10-Q, Second Quarter 1997 10-Q,

Third Quarter 1997 10-Q, First Quarter 1998 10-Q, Second Quarter 1998 10-Q and Third

Quarter 1998 10-Q were materially false and misleading; knew that such statements or documents

would be issued or disseminated to the investing public; and knowingly and substantially

participated or acquiesced in the issuance or dissemination of such statements or documents. By

virtue of their receipt of information reflecting the true facts regarding Pediatrix and their failure

to take steps to I 'L.Ly *thesituation, the Individual Dcfcr'' '-r"'1 Iua,IL named III L1II .UUIIL participated III

the fraudulent scheme alleged herein.

163. Specifically, the Individual Defendants knew or were reckless in not knowing that

the foregoing statements were false in light of the following facts: (i) the Individual Defendants,

by virtue of their responsibilities and activities as senior officers or directors of the Company,

were privy to and participated in the drafting, reviewing and/or approving the materially false and

misleading statements, releases, reports and other public representations of and about Pediatrix,

and the Individual Defendants signed the company's public filings with the SEC, which public

filings contained the allegedly materially misleading statements; (ii) the Individual Defendants

58


knew or had access to the material adverse non-public information about Pediatrix's illegal billing

practices, noncompliance with GAAP, financial results, business and operations which were not

disclosed during the Class Period, including the January 1995 letter from Pennsylvania BlueShield

and the allegations asserted in the 1998 Prospect Litigation; and (iii) the Individual Defendants

were aware of the Company's dissemination of information to the investing public which they

knew or recklessly disregarded was materially false and misleading.

164. Defendants had actual knowledge of the misrepresentations and omission of

material facts set forth herein, or acted with reckless disregard for the truth in that they failed to

ascertain and to disclose such facts, even though such facts were available to them. Such

defendants' material misrepresentations and/or omissions were done knowingly or recklessly and

for the purpose and effect of concealing Pediatrix's illegal billing practices, operations and the

financial impact of such improper practices on the revenue and earnings of Pediatrix from the

investing public and supporting the artificially inflated price of its common stock.

165. ifl addition to their actual knowledge, defendants Medel, Wagner and Mullen were

each motivated to falsify the Company's financial statements in order to realize the substantial

incentive bonus compensation which was paid to them as a result of Pediatrix's apparent success

during the Class Period.

166. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market price of Pediatrix common

stock was artificially inflated during the Class Period. In ignorance of the fact that market prices

of Pediatrix's common stock was artificially inflated, and relying directly or indirectly on the false

and misleading statements made by defendants, or upon the integrity of the market, Plaintiffs and


the other members of the Class acquired Pediatrix's common stock and purchased call options

and sold put options on Pediatrix's common stock during the Class Period at artificially inflated

prices and were damaged thereby.

167. Had Plaintiffs and the other members of the Class known the truth concerning the

misrepresented and omitted facts described above, they would not have purchased or otherwise

acquired their Pediatrix common stock, purchased call options or sold put options during the

Class Period, or, if they had acquired such securities during the Class Period, they would not have

done so at the artificially inflated prices which they paid.

168. By virtue of the foregoing, defendants have violated Section 10(b) of the Exchange

Act, and Rule lOb-5 promulgated thereunder.

COUNT II

AGAINST THE INDIVIDUAL DEFENDANTS FOR VIOLATION OF SECTION 20(a) OF THE EXCHANGE ACT

169. Plaintiffs incorporate the foregoing allegations as if fully set forth herein. This

claims is asserted against the Individual Defendants.

170. Medel was a control person of Pediatrix by virtue of his positions as President,

Chief Executive Officer and Director, and his ownership of 1.6 million shares-- or 10.06% -- of

the Company's common stock. Accordingly, Medel had the power to influence and control and

did influence and control, directly or indirectly, the decision making of the Company, including

the dissemination of the false and misleading statements and omissions contained in the

Company's financial statements disseminated throughout the Class Period.


171. Wagner was a control person of Pediatrix by virtue of his positions as Chief

Financial Officer and, prior to July 30, 1998, Controller, and his ownership of 15,036 shares of

the Company's common stock. Accordingly, Wagner had the power to influence and control and

did influence and control, directly or indirectly, the decision making of the Company, including

the dissemination of the false and misleading statements and omissions contained in the

Company's financial statements disseminated throughout the Class Period.

172. Mullen was a control person of Pediatrix by virtue of his positions as Vice

President and Chief Operating Officer and, prior to August 1998, Chief Financial Officer, and his

ownership of 190,760 million shares of the Company's common stock. Accordingly, Mullen had

the power to influence and control and did influence and control, directly or indirectly, the

decision making of the Company, including the dissemination of the false and misleading

statements and omissions contained in the Company's financial statements disseminated

throughout the Class Period.

173. As set forth above, defendants Medel, Wagner and Mullen each violated Section

10(b) and Rule lOb-5 by their acts and omissions as alleged in this Complaint. By virtue of their

positions as controlling persons, Medel, Wagner and Mullen are liable pursuant to Section 20(a)

of the Exchange Act. As a direct and proximate result of defendants' wrongful conduct, plaintiffs

and other members of the Class suffered damages in connection with their purchases of the

Company's securities during the Class Period.

61


PRAYER FOR RELIEF

WHEREFORE, plaintiffs, on their own behalf and on behalf of the other members of the

Class, respectfully request that this Court enter judgement in their favor and against defendants as

follows:

a. Declaring this action to be a proper class action maintainable pursuant to

Fed. R. Civ. P. 23(a) and (b)(3) on behalf of the Class defined herein and declaring plaintiffs to be

proper Class representatives;

b. Awarding plaintiffs and the other members of the Class rescission of their

shares or the appropriate measure of damages;

C. Awarding plaintiffs and the other members of the Class prejudgment and

post-judgment interest, as well as their reasonable attorneys' fees, expert witness fees and other

costs and expenses; and

d. Awarding such other relief as this Court may deem just and proper.

62


JURY DEMAND

Plaintiffs demand a trial by jury.

Dated: February 3, 2000

Burt & Pucillo, LLP

By: Michal J. PucilloJ Fla. Bar No. 261033 Wendy H. Zobermari Fla. Bar No. 434670 515 North Flagler Drive Suite 1701 West Palm Beach, FL 33401 Tel: 561/835-9400 Fax: 561/835-0322 E-mail: law@burt-pucillo. corn

and

John P. Coffey Lisa Buckser Bernstein Litowitz Berger

& Grossmann LLP 1285 Avenue of the Americas New York, NY 10019 Tel: (212) 554-1400 Plaintiffs' Co-Lead Counsel

Marian P. Rosner, Esq. Paul 0. Paradis, Esq. Wolf Popper LLP 845 Third Avenue New York, New York 10022-6689 Tel: (212) 759-4600 Fax: (212) 486-2093


Julian H. Kreeger Jack Reise Milberg Weiss Bershad Hynes & Lerach,

LLP 5355 Town Center Road, Ste. 900 Boca Raton, FL 33486 Tel: 561/361-5000 Fax: 561/367-8400

Horace Schow II, Esq. Florida State Board of Administration Office of the General Counsel 1801 Hermitage Blvd. Suite 100 Tallahassee, FL 32308

Robert David Klausner, Esq. 6565 Taft Street Suite 200 Hollywood, FL 33024-4000 Tel: 954/981-1222

George G. Mahfood Leesfield Leighton Rubio & Mahfood 2350 South Dixie Highway Miami, FL 33133 Tel: 305/854-4900

Glen DeValerio Jeffrey C. Block Berman, DeValerio & Pease LLP One Liberty Square, 8th Floor Boston, MA 02109 Tel: (617) 542-8300 Fax: (617) 542-1194

Todd S. Collins Jacob A. Goldberg Berger & Montague, P.C. 1622 Locust Street Philadelphia, PA 19103 Tel: 215/875-3000 Fax: 215/875-5715

64


Paul J. Scarlato Mark S. Goldman Weinstein, Kitchenoff, Scarlato & Goldman 1608 Walnut Street Suite 1400 Philadelphia, PA 19103 Tel: 215/545-7200 Fax: 215/545-6535

Kurt Olsen The Olsen Law Firm 2121 K Street, N.W. Suite 800 Washington, DC 20037 Tel: 202/261-3553

Seth B. Marks, Esq. 3637 Green Road Cleveland, OH 44144 Tel: 216/292-2600

Bruce G. Murphy, Esq. 265 Llwyd's Lane Vero Beach, FL 32963-3252 Tel: 561/231-4202 Fax: 561/231-4042

Charles Lilley & Associates Charles W. Lilley, P.C. 707 Seventeenth Street Suite 2900 Denver, CO 80202 Tel: 303/293-9800

Pete Petroski, Esq. Vahldiek, Cano, Grayson, Hovenkamp

& Petroski 3850 One Houston Center 1221 McKinney Houston, TX 77010 Tel: 713/650-3200

65


Stanley M. Grossman Marc I. Gross Patrick V. Dahlstrom Pomerantz Haudek Block Grossman & Gross LLP 100 Park Avenue New York, NY 10017

David R. Scott Neil Rothstein Kerry Knoblesdorff Scott & Scott, LLC 108 North Avenue Colchester, CT 06415

Leo W. Desmond, Esq. Law Offices of Leo W. Desmond 2161 Palm Beach Lakes Blvd. Suite 204 West Palm Beach, FL 33409 Tel: 561/712-8000

Brian Murray Joseph V. McBride Rabin & Peckel, LLP 275 Madison Avenue 34tb Floor New York, NY 10016 Plaintiffs' Counsel

CERTIFICATE OF SERVICE

I HEREBY CERTIFY that a true and accurate copy of the foregoing has been furnished

via U.S. Mail this 3rd day of February, 2000, to all counsel on the attached Service List.

A I L ~\(; ~ - ~)

Michael Pucillo—`,~

H:\Judy\55 I 12'coInplainL22md


Michael J. Pucillo

John P. Coffey, Esq. Wendy H. Zoberman

Lisa K. Buckser, Esq. Burt & Pucillo, LLP

Bernstein Litowitz Berger 515 North Flagler Drive

& Grossmann LLP Suite 1701

1285 Avenue of the Americas West Palm Beach, FL 33401

New York, NY 10019

Julian H. Kreeger Jack Reise Milberg Weiss Bershad Hynes & Lerach,

LLP 5355 Town Center Road, Ste. 900 Boca Raton, FL 33486

Horace Schow II, Esq. Florida State Board of Administration Office of the General Counsel 1801 Hermitage Blvd. Suite 100 Tallahassee, FL 32308

Robert David Klausner, Esq. 6565 Taft Street

George G. Mahfood Suite 200

Leesfield Leighton Rubio & Mahfood Hollywood, FL 33024-4000

2350 South Dixie Highway Miami, FL 33133

Marian P. Rosner, Esq. Paul 0. Paradis, Esq. WOLF POPPER LLP 845 Third Avenue New York, New York 10022-6689

Glen DeValerio Jeffrey C. Block Michael T. Matraia Leslie R. Stern Berman, Devalerio & Pease LLP One Liberty Square, 8th Floor Boston, MA 02109

Todd S. Collins

Paul J. Scarlato Jacob A. Goldberg

Mark S. Goldman Berger & Montague, P.C. Weinstein, Kitchenoff, Scarlato & Goldman 1622 Locust Street

1608 Walnut Street Philadelphia, PA 19103

Suite 1400 Philadelphia, PA 19103


Kurt Olsen The Olsen Law Firm 2121 K Street, N.W. Suite 800 Washington, DC 20037

David R. Scott Neil Rothstein Kerry Knoblesdorff Scott & Scott, LLC 108 North Avenue Colchester, CT 06415

Seth B. Marks, Esq. Bruce G. Murphy, Esq. 3637 Green Road

265 Llwyd's Lane Cleveland, OH 44144

Vero Beach, FL 32963-3252

Charles Lilley & Associates

Pete Petroski, Esq. Charles W. Lilley, P.C. Vahldiek, Cano, Grayson, Hovenkamp 707 Seventeenth Street

& Petroski Suite 2900

3850 One Houston Center Denver, CO 80202

1221 McKinney Houston, TX 77010

Stanley M. Grossman Marc I. Gross Patrick V. Dahlstrom Pomerantz Haudek Block Grossman & Gross LLP 100 Park Avenue New York, NY 10017

Leo W. Desmond, Esq. Law Offices of Leo W. Desmond 2161 Palm Beach Lakes Blvd. Suite 204 West Palm Beach, FL 33409

Brian Murray Joseph V. McBride Rabin & Peckel, LLP 275 Madison Avenue 34th Floor New York, NY 10016

Barry Rodney Davidson Gaye Lon Huxoll Coll Davidson Smith Salter &

Barkett 201 South Biscayne Blvd. Suite 3200 Miami Center Miami, FL 33131-2312


Robert F. Wise, Jr. Davis Polk & Wardwell 450 Lexington Avenue New York, NY 10017

UNITED STATES DISTRICT COURT SANDS POINT PARTNERS, …securities.stanford.edu/.../PDX99/200024_r01c_99CV06181.pdf · 2014-06-05 · Case 0:99-cv-06181-JAG Document 35 Entered on FLSD

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