Oscar Health is facing a proposed class action lawsuit by shareholders alleging the insurance company covered up the negative impact of the COVID-19 pandemic on its business ahead of a $7 billion initial public offering.
Shareholder Lauryn Carpenter sued the company in U.S. District Court in New York’s Southern District Court on Thursday, alleging that the startup, its executives and the investment banks that backed its IPO violated federal securities law. The complaint says the proposed class could include thousands of shareholders who bought shares during the company’s public debut.
Oscar Health did not respond to a request for an interview.
“The application for registration was drawn up carelessly and, as a result, contained false information,” the lawsuit alleged.
Oscar Health went public in March 2021 by selling 31 million shares at $36 each, raising $1.2 billion from the offering. According to filings with the US Securities and Exchange Commission, the proceeds were to be spent on general corporate expenses and debt repayment.
The lawsuit alleges that these documents did not contain information or contained false statements about the rising costs of COVID-19 testing and treatment faced by Oscar Health and their impact on its finances.
The complaint also alleged that the startup failed to mention that the company is on track to increase its influx of new members during the special enrollment period that President Joe Biden opened during the first year of the pandemic and how those patients will impact the business.
Finally, Carpenter said Oscar Health failed to mention that federal auditors are in the process of reviewing their Medicare Advantage plans for inappropriate risk adjustment practices.
The misrepresentation of the company’s business, prospects or operations meant that any positive statements made prior to Oscar Health’s IPO were “without a reasonable basis,” as the lawsuit alleged, and resulted in significant shareholder losses.
At the end of September 2021, Oscar Health’s net loss increased 168% year-over-year to $212.7 million thanks to an influx of high-value new exchange members received during the special enrollment period, COVID-19 expenses, and a fine $20 million from the federal government. auditors for miscoding related to its Medicare Advantage members.
The lawsuit alleges that the startup’s share price has fallen more than 85% since its IPO to $5.76 per share.
Oscar Health CEO and co-founder Mario Schlosser, former CFO Siddhartha Sankaran, former CFO Ariel Fisher, and board members Joel Cutler, Joshua Kushner, Teri List, Charles Phillips Jr., David Pluff, Elbert Robinson Jr. and Vanessa Whitman are named defendants. Investment underwriters Goldman Sachs, Morgan Stanley, Wells Fargo, Credit Suisse Securities, Bank of America Securities, Cowen and Company, Liontree Advisors, Samuel A. Ramirez & Company and Siebert Williams Shank & Co. also named as defendants.