By DOUG IBENDAHL • March 14, 2014
On October 22, 2013, Universal American Corp. (“Universal”) sued 10 defendants in U.S. District Court in Delaware. Five of the defendants are comprised of GTCR and its associated funds. Another defendant is David Katz who is sued individually – he is Managing Director of GTCR and co-head of the firm’s healthcare group.
Also named as a defendant is Partners Healthcare Solutions Holdings, L.P. (“APSLP”) which GTCR formed in 2007 to hold Partners Healthcare Solutions, Inc. (“APS”).
The plaintiff Universal collectively refers to the five GTCR entities and David Katz as the “GTCR Defendants.”
Universal completed its purchase of APS in March 2012. Universal is now suing because it alleges that sale was fraudulent and specifically claims that the GTCR Defendants “knew that APS’s business was disintegrating but nonetheless fraudulently induced Universal to purchase APS for $222.3 million through a systematic course of material misrepresentations and omissions calculated to camouflage the truth.”
Basically Universal alleges the “books were cooked” of the acquired company in such a way that Universal was tricked into spending nearly a quarter of a billion dollars on a company with severe problems which were deliberately hidden by the sellers.
Specific counts in the federal complaint against the GTCR Defendants include: Control Person Liability under Section 20(a) of the Exchange Act; Aiding and Abetting Fraud; Aiding and Abetting Fraud in the Inducement; Conspiracy to Commit Fraud; and Unjust Enrichment.
Bruce Rauner is not personally mentioned in the lawsuit. However at the time of the sale transaction at issue he was Chairman of GTCR. Rauner retired from that position in October 2012 in advance of his run for governor.
One obvious question raised is to what extent, if any, Rauner personally profited from the sale of APS. We do know for certain that GTCR received substantial monies while at the same time it got an apparently troubled asset off its books.
We know something else for certain. There is a very unhappy company out there right now which has severe buyer’s remorse after its dealings with Rauner’s former firm.
We have a strong suspicion that a lot of Republican voters are going to have some severe buyer’s remorse of their own soon after Tuesday’s Primary Election. Just like the buyer in the acquisition discussed here, many Republicans will be wishing they had known crucial facts.
It’s really a shame that so few media outlets chose to perform even cursory due diligence on a completely unvetted candidate.
Doug Ibendahl is a Chicago Attorney and a former General Counsel of the Illinois Republican Party.