CLASS ACTION COMPLAINT
UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF TEXAS
________________, Individually and on
Behalf of All Others Similarly Situated,
Plaintiff,
v.
NOBILIS HEALTH CORP., CHRIS
LLOYD, ANDY CHEN, and KENNETH
KLEIN,
Defendants.
Case No.: DRAFT
CLASS ACTION COMPLAINT FOR
VIOLATIONS OF THE FEDERAL
SECURITIES LAWS
JURY TRIAL DEMANDED
CLASS ACTION COMPLAINT
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Plaintiff _________ (“Plaintiff”), by and through his attorneys, alleges the following
upon information and belief, except as to those allegations concerning Plaintiff, which are
alleged upon personal knowledge. Plaintiff’s information and belief is based upon, among other
things, his counsel’s investigation, which includes without limitation: (a) review and analysis of
regulatory filings made by Nobilis Health Corp. (“Nobilis” or the “Company”), with the United
States (“U.S.”) Securities and Exchange Commission (“SEC”); (b) review and analysis of press
releases and media reports issued by and disseminated by Nobilis; and (c) review of other
publicly available information concerning Nobilis.
NATURE OF THE ACTION AND OVERVIEW
1. This is a class action on behalf of purchasers of Nobilis securities between March
23, 2015 and October 9, 2015, inclusive (the “Class Period”), seeking to pursue remedies under
the Securities Exchange Act of 1934 (the “Exchange Act”).
2. Nobilis was incorporated on March 16, 2007 under the name “Northstar
Healthcare Inc.” pursuant to the provisions of the British Columbia Business Corporations Act.
On December 5, 2014, Northstar Healthcare Inc. changed its name to Nobilis Health Corp.
3. Nobilis owns and manages healthcare facilities in Texas and Arizona; including
hospitals and ambulatory surgery centers (“ASC”), referred to as the “Nobilis ASCs.” The
Nobilis ASCs are licensed ASCs that provide scheduled surgical procedures in a limited number
of clinical specialties. In December 2014, the Company expanded its services to health care
marketing and factoring of receivables. The Nobilis ASCs do not offer the full range of services
typically found in traditional hospitals, but instead focus on certain clinical specialties, including
orthopedic surgery, podiatric surgery, ENT, pain management, gastro- intestinal, gynecology,
and general surgery.
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4. October 9, 2015, seekingalpha.com published a report on Nobilis shedding light
on issues within the Company, including multiple instances of “accounting red flags” such as: 4
CFO changes in a handful of years, along with recent auditor resignations; potentially overstated
revenues; and newly acquired acquisitions with Accounts Receivable issues. The report also
accused the company of “questionable marketing, with paid studies touting inappropriate success
rates for its medical procedures.”
5. On this news, shares of Nobilis fell $1.57 per share, or almost 30%, over two
trading days, to close at $3.67 on October 12, 2015, on unusually heavy trading volume.
6. Throughout the Class Period, Defendants made false and/or misleading
statements, as well as failed to disclose material adverse facts about the Company’s business,
operations, and prospects. Specifically, Defendants made false and/or misleading statements
and/or failed to disclose: (1) that the AccuraScope procedure was not as safe and/or effective as
the company represented; (2) that the Company’s claimed AccuraScope procedure success
and/or safety rates were not backed up by solid data and research; (3) that most large insurers do
not cover the AccuraScope procedure; (4) that the Company overrepresented its Nobilis Facility
Net Patient Service Revenue associated with the “KIRBY” and “MSID” facilities; (5) that the
company lacked adequate internal controls; and (6) that, as a result of the foregoing, Defendants’
statements about Nobilis’s business, operations, and prospects, were false and misleading and/or
lacked a reasonable basis.
7. As a result of Defendants’ wrongful acts and omissions, and the precipitous
decline in the market value of the Company’s securities, Plaintiff and other Class members have
suffered significant losses and damages.
JURISDICTION AND VENUE
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8. The claims asserted herein arise under Sections 10(b) and 20(a) of the Exchange
Act (15 U.S.C. §§78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the SEC (17
C.F.R. § 240.10b-5).
9. This Court has jurisdiction over the subject matter of this action pursuant to 28
U.S.C. §1331 and Section 27 of the Exchange Act (15 U.S.C. §78aa).
10. Venue is proper in this Judicial District pursuant to 28 U.S.C. §1391(b) and
Section 27 of the Exchange Act (15 U.S.C. §78aa(c)). Substantial acts in furtherance of the
alleged fraud or the effects of the fraud have occurred in this Judicial District. Many of the acts
charged herein, including the preparation and dissemination of materially false and/or misleading
information, occurred in substantial part in this Judicial District. In addition, the Company’s
principal executive offices are located within this judicial district.
11. In connection with the acts, transactions, and conduct alleged herein, Defendants
directly and indirectly used the means and instrumentalities of interstate commerce, including the
United States mail, interstate telephone communications, and the facilities of a national securities
exchange.
PARTIES
12. Plaintiff, as set forth in the accompanying certification, incorporated by reference
herein, purchased Nobilis common stock during the Class Period, and suffered damages as a
result of the federal securities law violations and false and/or misleading statements and/or
material omissions alleged herein.
13. Defendant Nobilis is a British Columbia, Canada corporation with its principal
executive offices located at 11700 Katy Freeway, Suite 300, Houston, Texas.
14. Defendant Chris Lloyd (“Lloyd”) was, at all relevant times, Chief Executive
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Officer (“CEO”) of Nobilis.
15. Defendant Andy Chen (“Chen”) was, at all relevant times, Chief Financial Officer
(“CFO”) of Nobilis until July 9, 2015.
16. Defendant Kenneth Klein (“Klein”) was, at all relevant times, Chief Financial
Officer (“CFO”) of Nobilis beginning July 9, 2015.
17. Defendants Lloyd, Chen, and Klein are collectively referred to hereinafter as the
“Individual Defendants.” The Individual Defendants, because of their positions with the
Company, possessed the power and authority to control the contents of Nobilis’s reports to the
SEC, press releases and presentations to securities analysts, money and portfolio managers and
institutional investors, i.e., the market. Each defendant was provided with copies of the
Company’s reports and press releases alleged herein to be misleading prior to, or shortly after,
their issuance and had the ability and opportunity to prevent their issuance or cause them to be
corrected. Because of their positions and access to material non-public information available to
them, each of these defendants knew that the adverse facts specified herein had not been
disclosed to, and were being concealed from, the public, and that the positive representations
which were being made were then materially false and/or misleading. The Individual
Defendants are liable for the false statements pleaded herein, as those statements were each
“group-published” information, the result of the collective actions of the Individual Defendants.
SUBSTANTIVE ALLEGATIONS
Background
18. Nobilis was incorporated on March 16, 2007 under the name “Northstar
Healthcare Inc.” pursuant to the provisions of the British Columbia Business Corporations Act.
On December 5, 2014, Northstar Healthcare Inc. changed its name to Nobilis Health Corp.
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19. Nobilis owns and manages healthcare facilities in Texas and Arizona; including
hospitals and ASCs, referred to as the “Nobilis ASCs.” The Nobilis ASCs are licensed ASCs that
provide scheduled surgical procedures in a limited number of clinical specialties. In December
2014, the Company expanded its services to health care marketing and factoring of receivables.
The Nobilis ASCs do not offer the full range of services typically found in traditional hospitals,
but instead focus on certain clinical specialties, including orthopedic surgery, podiatric surgery,
ENT, pain management, gastro- intestinal, gynecology, and general surgery
Materially False and Misleading
Statements Issued During the Class Period
20. The Class Period begins on March 23, 2015. On that day, Nobilis issued a press
release entitled, “Nobilis Health Corp. Reports Record $84MM in Revenues and $10.4 MM in
Adjusted EBITDA for the Year Ended December 31, 2014.” Therein, the Company, in relevant
part, stated:
HOUSTON, TX--(Marketwired - March 23, 2015) - Nobilis Health Corp. (TSX:
NHC) today announced its financial results for the three and twelve months ended
December 31, 2014. All dollar amounts are in United States currency unless
otherwise stated; percentage calculations are based on the numbers in the
financial statements and may not correspond to rounded figures presented in this
release.
Detailed information relating to the three and twelve months ended December 31,
2014 is available in Management's Discussion and Analysis (MD&A) and
Consolidated Financial Statements, which are available on the company's web site
at: www.nobilishealth.com and at www.sedar.com. This information is not
intended to provide a comprehensive comparison of financial results.
Chris Lloyd, Nobilis Health's CEO, said, "Our 2014 results provide initial insight
into the strength of the Nobilis strategy of coupling innovative direct-to-patient
marketing with physician-centric services. We are carrying significant momentum
into 2015 and fully expect to continue delivering outstanding results."
"We are pleased to have exceeded our 2014 revenue and EBITDA targets, and are
confident that the continued expansion of our marketing platforms will allow us to
have a strong first quarter in 2015," said Harry Fleming, Nobilis' President. "We
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are currently engaging in discussions with several unique and interesting
acquisition opportunities that would fit well with Nobilis' diverse revenue model.
Concurrent with our new ancillaries division, Nobilis is positioning itself to
capture a greater share of the various revenue streams attendant in each medical
procedure performed at any of our facilities," continued Fleming.
Twelve Months Results
Total revenues for the twelve months ended December 31, 2014 totaled $84.0
million, an increase of $52.9 million or 170.1%, compared to $31.1 million from
the prior corresponding period. Total cases for the twelve months ended
December 31, 2014 were 8,740, representing an increase of 3,254 cases or 59.3%
from the 5,486 cases in the prior corresponding period. Revenue per case
increased as a product of the procedure mix moving towards surgeries with higher
reimbursements. The increase in total revenues resulted in Nobilis achieving
Adjusted EBITDA1 of $10.4 million, for the twelve months ended December 31,
2014 compared with $2.7 million from the prior corresponding period. Nobilis
had a net income of $0.14 per weighted average share, compared with a net
income of $0.04 per weighted average share in the corresponding 2013 period.
Cash flows provided by operating activities in the nine months ended December
31, 2014 were $4.0 million, which represented a $0.5 million increase compared
to the prior corresponding period, which provided $3.5 million in cash flows from
operating activities. The cash impact from the aforementioned operating results
will largely be seen during the first quarter of 2015.
At December 31, 2014, Nobilis had consolidated net working capital of $23.8
million, including cash of $7.6 million. This compares with $8.7 million and $5.6
million, respectively, at year-end 2013.
Fourth Quarter Results
Total revenues for the three months ended December 31, 2014 totaled $39.6
million, an increase of $26.1 million or 193.3%, compared to $13.5 million from
the prior corresponding period.
Total cases for the three months ended December 31, 2014 were 3,697,
representing an increase of 1,886 cases or 104.1% from the 1,811 cases in the
prior corresponding period. Revenue per case increased as a product of the
procedure mix moving towards surgeries with higher reimbursements. The
increase in total revenues resulted in Nobilis having Adjusted EBITDA1 of $8.1
million, for the three months ended December 31, 2014 compared with $3.5
million from the prior corresponding period. Nobilis had net income of $0.11 per
weighted average share, compared with net income of $0.08 per weighted average
share in the corresponding 2013 period.
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21. On April 2, 2015, Nobilis filed its Annual Report with the SEC on Form 10-K for
the fiscal year ended December 31, 2014. The Company’s Form 10-K was signed by Defendants
Lloyd and Chen, and reaffirmed the Company’s financial results previously announced on March
23, 2015.
22. The Company’s Form 10-K contained certifications pursuant to the Sarbanes-
Oxley Act of 2002 (“SOX”), signed by defendants Lloyd and Chen, who certified:
1. I have reviewed this Annual Report on Form 10-K of Nobilis Health Corp.;
2. Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects the
financial condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report;
4. The registrant's other certifying officer(s) and I are responsible for establishing
and maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as
defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
have:
a. Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being
prepared;
b. Designed such internal control over financial reporting, or caused such
internal control over financial reporting to be designed under our
supervision, to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles;
c. Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the
effectiveness of the disclosure controls and procedures, as of the end of
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the period covered by this report based on such evaluation; and
d. Disclosed in this report any change in the registrant's internal control
over financial reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual
report) that has materially affected, or is reasonably likely to materially
affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of directors
(or persons performing the equivalent functions):
a. All significant deficiencies and material weaknesses in the design or
operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
b. Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control
over financial reporting.
23. On April 7, 2015, Nobilis issued a press release entitled, “North American Spine
Now Provides the Innovative CuraSpine® and SecuraSpine Procedures.” Therein, the Company,
in relevant part, stated:
DALLAS, April 7, 2015 /PRNewswire/ — Nobilis Health, a publicly-traded
organization (anticipated NYSE: HLTH), recently acquired North American
Spine, the parent company of the nationally recognized and highly-effective
AccuraScope procedure®. North American Spine is proud to offer even more
treatment options from board-certified spine surgeons within its family of
minimally invasive laser spine procedures as a result of the acquisition. No single
procedure is effective for every patient, which is why the addition of new
minimally invasive procedures to the North American Spine portfolio is such
good news for back or neck pain sufferers.
AccuraScope and CuraSpine patients receive minimally invasive decompression
procedures to alleviate pressure on spinal nerves, while SecuraSpine provides
stabilization through small incisions for patients who have instability of the spine.
Compared to traditional open back surgery, minimally invasive procedures offer
smaller incisions, less chance of complication, and shorter recovery times.
“We are excited to take this important step in bolstering the clinical offerings in
our continuum of care. Many patients that were historically not deemed suitable
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candidates for treatment now have access to a wide range of advanced minimally
invasive procedures in our state-of-the-art facilities,” explained Chris Lloyd, CEO
of Nobilis Health.
Nobilis Health owns and operates surgical facilities throughout the United States.
We are committed to increasing access to healthcare for Americans in low-cost
outpatient settings using the latest advances in medical technologies. Nobilis
offers spine patients a holistic continuum of care, helping patients return to life
without debilitating chronic back or neck pain due to bulging or herniated discs,
spinal stenosis, sciatica and other common diagnoses.
About North American Spine
North American Spine is the exclusive provider of the AccuraScope® Procedure,
a minimally invasive spine surgery–which typically lasts less than 45 minutes– to
treat chronic back pain. To date, more than 8,000 AccuraScope procedures have
been performed by board-certified physicians with specialty training. Medical
research has shown that the AccuraScope procedure has an 82% success rate and
saves patients an average of $23,190 in out-of-pocket costs over 5 years by
reducing expenses including medical visits and medications.
North American Spine physicians are spine experts with specialty training in
Orthopedic Spine Surgery, Neurosurgery, or Interventional Pain Management.
Using tiny incisions and state-of-the-art visualization, these experts provide
minimally invasive decompression and/or stabilization to patients using the least
invasive means possible to alleviate their pain.
North American Spine was recently featured on Dallas’ CW 33. North American
Spine is a Finalist for the Greater Dallas Business Ethics Award in 2015.
24. May 14, 2015, Nobilis issued a press release entitled, “Nobilis Health Corp.
Reports Record Quarterly Revenue and EBITDA.” Therein, the Company, in relevant part,
stated:
HOUSTON, TX--(Marketwired - May 14, 2015) - Nobilis Health Corp. (NYSE
MKT: HLTH) (TSX: NHC) today announced its financial results for the three
months ended March 31, 2015.
Nobilis achieved revenues of $37.1 million and adjusted EBITDA of $3.5 million
for the quarter. This compares to $12.1 million in revenue and no EBITDA for the
same period 2014.
"We are pleased to exceed our first quarter revenue and adjusted EBITDA targets,
and are confident that we are on track to meet or exceed our 2015 revenue and
EBITDA goals," said Chris Lloyd, Nobilis' CEO. "In 2013 and 2014 Nobilis
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obtained 14-15% of its annual revenues in the first quarter due to the seasonality
of the healthcare business. Our positive adjusted EBITDA resulted from
executing our business plan and maintaining strong, innovative direct-to-patient,
physician-centric services. Nobilis' organic growth coupled with the continued
expansion of ancillary services and additions to our in-network capacity will
allow us to continue delivering excellent results throughout 2015," said Mr.
Lloyd.
"Our employees have driven us to achieve all of our strategic goals for the first
quarter, including listing on the NYSE, achieving significant organic growth,
closing on select distressed asset purchases, launching of an ancillary services
division, expanding of in-network service options, and recapitalization to support
the aforementioned growth and M&A," said Harry Fleming, the Company's
Chairman, "In just the first four months of 2015 Nobilis has closed on a $25.0
million line of credit from GE Capital, Healthcare Finance, completed a $30.0
million equity raise, acquired Hospitals in Houston and in Dallas expanding our
in-network capacity, launched our ancillary services division, and listed on the
New York Stock Exchange. The Company is excited about all that its
accomplished and looks forward to assessing the numerous M&A opportunities
now available to the Company."
The company expects to reevaluate guidance and post a 2016 pro forma in the
early fall timeframe after 2Q15 results are announced.
All dollar amounts are in United States currency unless otherwise stated;
percentage calculations are based on the numbers in the financial statements and
may not correspond to rounded figures presented in this release.
Detailed information relating to the three months ended March 31, 2015 is
available in Management's Discussion and Analysis (MD&A) and Interim
Consolidated Financial Statements, which are available on the company's web site
at: www.nobilishealth.com and at www.sedar.com or www.edgar.com. This
information is not intended to provide a comprehensive comparison of financial
results.
Three Months Results
Total revenues for the three months ended March 31, 2015 totaled $37.1 million,
an increase of $25.0 million or 206.6%, compared to $12.1 million from the prior
corresponding period. Total cases for the three months ended March 31, 2015
were 3,516, representing an increase of 2,017 cases or 134.6% from the 1,499
cases in the prior corresponding period. Revenue per case increased as a product
of the procedure mix moving towards surgeries with higher reimbursements. The
increase in total revenues resulted in Nobilis achieving adjusted EBITDA of $3.5
million, for the three months ended March 31, 2015 compared with breakeven
from the prior corresponding period.
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Cash flows provided by operating activities in the three months ended March 31,
2015 were $3.7 million, which represented a $1.5 million increase compared to
the prior corresponding period, which provided $2.2 million in cash flows from
operating activities.
At March 31, 2015, Nobilis had consolidated net working capital of $40.8 million,
including cash of $11.6 million. This compares with $23.8 million and $7.6
million, respectively, at year-end 2014.
25. On the same day, Nobilis filed its Quarterly Report with the SEC on Form 10-Q
for the fiscal quarter ended March 31, 2015. The Company’s Form 10-Q was signed by
Defendant Chen, and reaffirmed the Company’s financial results previously announced the same
day. The Form 10-Q contained certifications pursuant to SOX, signed by defendants Lloyd and
Chen, substantially similar to the certifications described in ¶22, supra.
26. On August 14, 2015, Nobilis issued a press release entitled, “Nobilis Health Corp.
Announces Second Quarter Results; Provides Guidance.” Therein, the Company, in relevant
part, stated:
HOUSTON, TX--(Marketwired - August 14, 2015) - Nobilis Health Corp. (NYSE
MKT: HLTH) (TSX: NHC) ("Nobilis" or the "Company") today announced its
financial results for the three and six months ended June 30, 2015. All dollar
amounts are in United States currency unless otherwise stated; percentage
calculations are based on the numbers in the financial statements and may not
correspond to rounded figures presented in this release.
Chris Lloyd, Nobilis Health's CEO, said, "We are excited to announce that the
Company's second quarter recorded total revenues were $48.9 million with an
Adjusted EBITDA1 (net of NCI) of $7.1 million. This represents a significant
improvement over the corresponding period in 2014, during which the Company's
total revenues were $15.1 million, with an Adjusted EBITDA1 of $0.9 million.
While the Company historically realizes between 18.0 and 19.0% of its total
annual revenue in the second quarter, our second quarter revenue of $48.9 million
represents 24.0% of our original 2015 revenue guidance of $205.0 million,
exceeding this historical trend. Year-to-date, our total revenues of $86.0 million
represent 42.0% of our 2015 guidance and indicate strong progress toward our
original guidance as, historically, the Company earns upwards of 60.0% of our
revenues in the second half of the year.
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Our performance highlights our unique ability to market direct to the consumer
through our proprietary platform and our strong strategic physician-partnerships,
which will enable us to sustain exemplary growth throughout 2015."
Detailed information relating to the second quarter ended June 30, 2015 is
available in our quarterly report on Form10-Q and Financial Statements, which
can be accessed on our web site www.NobilisHealth.com, www.Edgar.com, and
www.Sedar.com. This information is not intended to provide a comprehensive
comparison of financial results.
Second Quarter Results
Total revenues for the three months ended June 30, 2015 totaled $48.9 million, an
increase of $33.8 million or 223.8%, compared to $15.1 million from the prior
corresponding 2014 period.
Total cases for the three months ended June 30, 2015 were 4,780, representing an
increase of 3,134 cases or 190% from the 1,646 cases in the prior corresponding
2014 period. Revenue per case increased as a product of the procedure mix
moving towards surgeries with higher reimbursements. Net loss attributable to
Nobilis for the three months ended June 30, 2015 was $1.6 million compared with
a net income of $0.2 million from the prior corresponding 2014 period.
The increase in total revenues resulted in Nobilis having an Adjusted EBITDA1
of $7.1 million, for the three months ended June 30, 2015 compared with $0.9
million from the prior corresponding 2014 period, representing an increase of
689.0%.
See page 6 for a reconciliation non-GAAP financial results.
Six Months Results
Total revenues for the six months ended June 30, 2015 totaled $86.0 million, an
increase of $58.8 million or 216%, compared to $27.2 million from the prior
corresponding 2014 period.
Total cases for the six months ended June 30, 2015 were 8,296, representing an
increase of 5,151 cases or 164% from the 3,145 cases in the prior corresponding
2014 period.
Net loss attributable to Nobilis for the six months ended June 30, 2015 was $2.8
million compared with a net loss of $0.3 million from the prior corresponding
2014 period.
Adjusted EBITDA1 for the six months ended June 30, 2015 was $10.6 million as
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compared with $1.0 million from the prior corresponding 2014 period,
representing an increase of 960%.
See page 6 for a reconciliation of non-GAAP financial results.
Cash flows provided by operating activities in the six months ended June 30, 2015
were $5.4 million, which represented a $3.2 million increase compared to the
prior corresponding 2014 period, which provided $2.2 million in cash flows from
operating activities.
At June 30, 2015, Nobilis had consolidated net working capital of $56.7 million,
including cash of $31.7 million. This compares with $23.8 million and $7.6
million, respectively, from the prior corresponding 2014 period.
Revised Full Year 2015 Guidance
Our original financial guidance for fiscal year 2015 was $205 million total
revenue and $41 million Adjusted EBITDA1. With our performance during the
first half of the 2015 outperforming the historical trend from 2014, we are now
increasing our expected revenue for this year to $233 million. Adjusted EBITDA1
will increase to $42 million for the year. Note that the Adjusted EBITDA1 figure
did not increase in lockstep with revenues due to the associated costs of ramping
volume at our two newest hospitals, both of which were acquired this year.
The information contained in the preceding paragraphs, including information
regarding the Company's financial results for future periods, is forward-looking
information. Forward-looking information involves known and unknown risks
and uncertainties as described below. There can be no assurance that Nobilis will
attain the financial targets set forth in this press release. The Company's actual
results and performance could differ materially from those expressed or implied
by the forward-looking information contained in this press release.
2016 Guidance
The company is setting 2016 financial guidance at $320 million in annual
revenues and $65 million in Adjusted EBITDA1, which represents a 20.3%
Adjusted EBITDA1 margin. These projections incorporate both organic growth
and estimated M&A activity. The projections assume that the Company will
realize 20% organic growth on "same store" facilities (defined as facilities and
companies owned since January 1, 2015) and also assume that the facilities and
companies acquired after January 1, 2015 (including acquisitions in 2016) will
have an annual revenue of $100 million.
27. On the same day, Nobilis filed its Quarterly Report with the SEC on Form 10-Q
for the fiscal quarter ended June 30, 2015. The Company’s Form 10-Q was signed by Defendant
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Klein, and reaffirmed the Company’s financial results previously announced the same day. The
Form 10-Q contained certifications pursuant to SOX, signed by defendants Lloyd and Klein,
substantially similar to the certifications described in ¶22, supra.
28. The above statements contained in ¶¶ 20-27 were false and/or misleading, as well
as failed to disclose material adverse facts about the Company’s business, operations, and
prospects. Specifically, these statements were false and/or misleading statements and/or failed to
disclose: (1) that the AccuraScope procedure was not as safe and/or effective as the company
represented; (2) that the Company’s claimed AccuraScope procedure success and/or safety rates
were not backed up by solid data and research; (3) that most large insurers do not cover the
AccuraScope procedure; (4) that the Company overrepresented its Nobilis Facility Net Patient
Service Revenue associated with the “KIRBY” and “MSID” facilities; (5) that the company
lacked adequate internal controls; and (6) that, as a result of the foregoing, Defendants’
statements about Nobilis’s business, operations, and prospects, were false and misleading and/or
lacked a reasonable basis.
Disclosures at the End of the Class Period
29. On October 9, 2015, seekingalpha.com published a report on Nobilis shedding
light on issues within the Company. The report, in relevant part, disclosed:
The Little Sales That Are Not So Cute
At North American Spine, Joe Sam Bailey would hold seminars touting his
education (Ph.D), in addition to touting AccuraScope success rates, despite his
unaccredited education in Theology and questionable success rate data. An extract
from a lawsuit against the company illustrates that North American Spine
exaggerated success rates - Nicholas Vanderburg (Plaintiff) vs. Defendants
(Riverview Health, Lawrence Rothstein, Steven Rothstein and Dayton Laser
Spine), paragraph 40: "Thereafter, on or about June 23, 2009, Nicholas
Vanderburg contacted North American Spine and received information for his
review. During his telephone conversation, Vanderburg was assured that the
procedure was safe, he would have no down time and it was about one hundred
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(100%) effective".
First and foremost, per this source, the company itself appears to have stated that
success rates are difficult, as the studies are difficult: "as with other types of
minimally invasive spine surgery, no such trials have been done for the
AccuraScope. 'Doctors don't like to do them,' Wells said. 'Secondly, those are
massively expensive." Now, there are multiple holes to poke in this statement, the
first of which is that if trials have not been done, how does Nobilis continue to put
out success rates? Further, if studies have not been done, would it not be in
Nobilis' interest to sponsor a study? Now, if it has not, does that imply that the
company is scared of the results or unwilling to find out?
However, Nobilis continues with the Athas style of publishing success rates. As
of its April 7, 2015 press release, the company said: "Medical research has shown
that the AccuraScope procedure has an 82% success rate and saves patients an
average of $23,190 in out-of-pocket costs over 5 years by reducing expenses
including medical visits and medications." In this article written by Doug Swan,
he references five studies that North American Spine previously used as sources:
one was written by Rothstein and a related doctor, another was once again written
by a doctor related to North American Spine (Dr. Kenneth Alo), the third is of
current trends in the industry, the fourth is a Korean report which Dr. Alo was
once again linked to, and the final study had nothing to do with North American
Spine-like procedures. This all begs the question of how Nobilis is still standing
by the 82% success rate noted in the April 7, 2015 press release.
Once again, Doug Swanson catches North American Spine with misleading
statements, given the company claims to have been vetted by a major university,
when in fact, it was not. See the following quotes: "Last year, North American
Spine sought to have a judge stop a Florida woman from complaining about the
AccuraScope procedure on a website. In its petition, the company said the
AccuraScope is 'the only minimally invasive procedure vetted by a major
university (Louisiana State University) establishing both the procedure's efficacy
as well as its overall cost savings'... This was a reference to Erich Richter, who
formerly taught at LSU. He disputes the company's assertion. 'It is not vetted or
approved by LSU,' he said. 'There was no study by LSU.' Nor has there been a
study by West Virginia University, where Richter now teaches".
But not to worry, although Athas was acquired for its marketing prowess, it was
missing an integral piece, and that was resolved on April 29, 2015, when Nobilis
entered into an agreement with Renew Spinal Care. Renew Spinal is effectively a
marketing firm and run by Joe Sam Bailey. "Nobilis is excited to work with the
innovative marketing team at Renew. Renew currently operates in Texas and
Florida as it contemplates expansion into strategic markets nationwide,' said
Chris Lloyd, CEO of Nobilis".
Who is paying for this?
CLASS ACTION COMPLAINT
16
For a surgery that is supposed to cost $25-30k, it is pretty unbelievable that there
are cases where it has cost $94,000 and $90,176 in certain cases, especially for an
outpatient procedure, which typically lasts 45 minutes. A Bloomberg article also
highlights that a 45-minute surgery by an anaesthesiologist cost $95k in some
cases - seems a little excessive, if you ask me. And this patient's surgery had poor
results, just like the rest, as they exclaimed "this has just devastated my life".
From what I have found, most of the big insurance companies do not cover
AccuraScope or similar minimally invasive spine surgeries. See the following
quote from the previously linked Dallas Morning News article, where neither
Aetna nor Blue Cross cover it: "Some insurance plans cover treatments such as
the AccuraScope - and other types of minimally invasive spine surgery - partially
or not at all. Aetna, for example, considers the AccuraScope-type procedure to be
'experimental and investigational'... An Aetna policy bulletin says the
effectiveness of such measures is unproven and may entail 'significant risk' of
injury and infection... An Anthem Blue Cross insurance policy statement classifies
the procedures as 'not medically necessary'". I have also spoken with Humana
(NYSE:HUM) - the company indicated the surgery is experimental and not
covered.
Here is a blog post from just under 2 years ago, which flags various issues:
"I had a consult with this North American Spine for what is essentially
percutaneous laser discectomy on a herniated disc. This is a 15 k
procedure I found out at other practices throughout the country. They
want to bill my insurance company 35k for a regular discectomy and also
inquired about acupuncture and other non related surgical procedures.
Then they said they have $900 administrative fee if I get the procedure.
They said insurance doesn't cover this fee and its their own fee. I asked
what it was for and they only could state for administrative fee".
One part of the excitement surrounding Nobilis' stock relates to growing the mix
of in-network surgeries, but this is odd, given insurance already appears to be
skeptical of the surgery. Additionally, one of its recent acquisitions, Victory, was
shut down because of shift to in-network and the resulting inability to collect on
accounts receivable that it was owed by insurers. OnJune 12, 2015, the Victory
CEO said, "'Unfortunately, as out-of-network providers, we came under attack by
large insurance carriers. Even though we were able to execute in-network
agreements with three large insurers, the extreme slowness and lack of payment
from the carriers constrained liquidity significantly. We have responded by
reducing expenses and changing our facilities to provide fewer services and kept
our emergency rooms open. Unfortunately, now we have no other choice except to
sell our facilities with the intent of remunerating secured and unsecured creditors
alike". It appears that Nobilis' strategy has substantial risk.
CLASS ACTION COMPLAINT
17
Considering that major insurers are not insuring this procedure, yet somehow, per
the Dallas Morning News article, "Her total bill was $94,514. Harrison's share of
that was $9,500. Insurance paid some of the rest", and the July 31, 2015 review
here, "You give them your Insurance they call and say, You Qualify", it appears
that the company is getting it through insurance somehow - I just cannot see how.
Perhaps the secret sauce of the "marketing engine" is really just the ability to get
normally not insurable procedures reimbursed by insurers. And it is easy to see
the results, as Nobilis' Revenue per Procedure is dramatically higher than that of
its competitors (even with a significant year over year drop). There competitors
include Amsurg Corp. (NASDAQ:AMSG), Surgical Care Affiliates Inc.
(NASDAQ:SCAI), United Surgical Partners (formerly USPI) and Surgery
Partners Inc. (NASDAQ:SGRY) (Source: Company Filings).
* * *
Are Nobilis' Financials Any More Reliable Than The Company's Surgical
Procedure?
Any roll up with multiple mergers is going to lead to some complicated
accounting. And Nobilis takes this even further with many subsidiaries and partial
ownership of entities. Appendix A shows Nobilis's complicated organization, with
31 different entities and multiple ownership percentages. All this for a company
that brought in only $49 million in revenue last quarter, for a shockingly low
revenue per entity of less than $2 million. And of all the accounting firms to audit
that complexity, which one did Nobilis pick? None other than tiny Calvetti
Ferguson, with a total of 38 professionals. Barely more than the number of
entities it audited at Nobilis. And the company's CFO situation inspires no more
confidence. Since 2010, Nobilis has changed CFOs four times (Source:
Bloomberg, Company Filings).
* * *
In August, Calvetti resigned as auditor. This follows closely after the last CFO
change in July. A new CFO and a new auditor are now charged with figuring out
all the complicated arrangement and deals built up over the years. While this does
not guarantee that any problems will be found, it definitely increases the
uncertainty.
Even my outsider's review of Nobilis' financial statements uncovered some
potential issues. Per the organization chart or the following statements, "The
Company assigned 100% of its equity interest in MSID to NHC ASC - Dallas, of
which the Company owns 35% as a result of syndication... In November 2013,
the Company sold 15.1% of its ownership interest in the Kirby Partnership to
existing physician limited partners, effectively decreasing the Company's
ownership interest to 25%" - so this means the company owns 35% of MSID and
25% of Kirby. However, it appears to be fully consolidating both entities. The
CLASS ACTION COMPLAINT
18
effect of this would be to inflate revenues so that the growth story appears better
than it really is (Source: Nobilis' latest 10-K).
* * *
If the company were to proportionally consolidate revenues, its 2014 revenues
would be meaningfully lower by $36 million for a total of $44 million, as
reflected in the following adjusted chart (Source: Nobilis' latest 10-K).
* * *
It appears that Nobilis does not have control over these two subsidiaries. Also, if
$44 million is the right number for revenue for 2014, then revenue growth is 44%,
not the astronomical 161% the company reported. It is noted that Nobilis retains
the benefit of fully consolidating FNH and FNSC in the chart above.
Conclusion | A Potential House of Cards
Nobilis has no accolades which would cause me to believe that the company can
be one of the few successful and sustainable roll up strategies. Instead, it has a
history of poor management with two prior roll ups that resulted in over 90%
losses to shareholders (Acro Energy and Northstar Healthcare from 2007-2010).
Fundamentally, Nobilis is very unlikely to make bullish guidance, yet
management is extremely well paid and sells stock relentlessly. One of its primary
marketed experimental procedures (AccuraScope) has questionable insurability,
unsubstantiated success rates, lack of recognition from any institutions (insurance,
university or medical bodies) and a poor history, with patient lives being ruined.
And to top it all off, the company's accounting situation appears unstable and
vulnerable. This report is part I of a potential multi-series write-up, as Nobilis'
depth of issues runs deep.
30. On this news, shares of Nobilis fell $1.57 per share, or almost 30%, over two
trading days, to close at $3.67 on October 12, 2015, on unusually heavy trading volume.
CLASS ACTION ALLEGATIONS
31. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil
Procedure 23(a) and (b)(3) on behalf of a class, consisting of all those who purchased Nobilis’s
securities between March 23, 2015 and October 9, 2015, inclusive (the “Class Period”) and who
were damaged thereby (the “Class”). Excluded from the Class are Defendants, the officers and
directors of the Company, at all relevant times, members of their immediate families and their
CLASS ACTION COMPLAINT
19
legal representatives, heirs, successors or assigns and any entity in which Defendants have or had
a controlling interest.
32. The members of the Class are so numerous that joinder of all members is
impracticable. Throughout the Class Period, Nobilis’s securities were actively traded on the
NYSE MKT stock exchange (the “NYSE MKT”). While the exact number of Class members is
unknown to Plaintiff at this time and can only be ascertained through appropriate discovery,
Plaintiff believes that there are hundreds or thousands of members in the proposed Class.
Millions of Nobilis shares were traded publicly during the Class Period on the NYSE MKT. As
of May 12, 2015, Nobilis had 62,166,553 shares of common stock outstanding. Record owners
and other members of the Class may be identified from records maintained by Nobilis or its
transfer agent and may be notified of the pendency of this action by mail, using the form of
notice similar to that customarily used in securities class actions.
33. Plaintiff’s claims are typical of the claims of the members of the Class as all
members of the Class are similarly affected by Defendants’ wrongful conduct in violation of
federal law that is complained of herein.
34. Plaintiff will fairly and adequately protect the interests of the members of the
Class and has retained counsel competent and experienced in class and securities litigation.
35. Common questions of law and fact exist as to all members of the Class and
predominate over any questions solely affecting individual members of the Class. Among the
questions of law and fact common to the Class are:
(a) whether the federal securities laws were violated by Defendants’ acts as
alleged herein;
(b) whether statements made by Defendants to the investing public during the
CLASS ACTION COMPLAINT
20
Class Period omitted and/or misrepresented material facts about the business, operations, and
prospects of Nobilis; and
(c) to what extent the members of the Class have sustained damages and the
proper measure of damages.
36. A class action is superior to all other available methods for the fair and efficient
adjudication of this controversy since joinder of all members is impracticable. Furthermore, as
the damages suffered by individual Class members may be relatively small, the expense and
burden of individual litigation makes it impossible for members of the Class to individually
redress the wrongs done to them. There will be no difficulty in the management of this action as
a class action.
UNDISCLOSED ADVERSE FACTS
37. The market for Nobilis’s securities was open, well-developed and efficient at all
relevant times. As a result of these materially false and/or misleading statements, and/or failures
to disclose, Nobilis’s securities traded at artificially inflated prices during the Class Period.
Plaintiff and other members of the Class purchased or otherwise acquired Nobilis’s securities
relying upon the integrity of the market price of the Company’s securities and market
information relating to Nobilis, and have been damaged thereby.
38. During the Class Period, Defendants materially misled the investing public,
thereby inflating the price of Nobilis’s securities, by publicly issuing false and/or misleading
statements and/or omitting to disclose material facts necessary to make Defendants’ statements,
as set forth herein, not false and/or misleading. Said statements and omissions were materially
false and/or misleading in that they failed to disclose material adverse information and/or
misrepresented the truth about Nobilis’s business, operations, and prospects as alleged herein.
CLASS ACTION COMPLAINT
21
39. At all relevant times, the material misrepresentations and omissions particularized
in this Complaint directly or proximately caused or were a substantial contributing cause of the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about Nobilis’s financial well-being and prospects. These material
misstatements and/or omissions had the cause and effect of creating in the market an
unrealistically positive assessment of the Company and its financial well-being and prospects,
thus causing the Company’s securities to be overvalued and artificially inflated at all relevant
times. Defendants’ materially false and/or misleading statements during the Class Period
resulted in Plaintiff and other members of the Class purchasing the Company’s securities at
artificially inflated prices, thus causing the damages complained of herein.
LOSS CAUSATION
40. Defendants’ wrongful conduct, as alleged herein, directly and proximately caused
the economic loss suffered by Plaintiff and the Class.
41. During the Class Period, Plaintiff and the Class purchased Nobilis’s securities at
artificially inflated prices and were damaged thereby. The price of the Company’s securities
significantly declined when the misrepresentations made to the market, and/or the information
alleged herein to have been concealed from the market, and/or the effects thereof, were revealed,
causing investors’ losses.
SCIENTER ALLEGATIONS
42. As alleged herein, Defendants acted with scienter in that Defendants knew that
the public documents and statements issued or disseminated in the name of the Company were
materially false and/or misleading; knew that such statements or documents would be issued or
CLASS ACTION COMPLAINT
22
disseminated to the investing public; and knowingly and substantially participated or acquiesced
in the issuance or dissemination of such statements or documents as primary violations of the
federal securities laws. As set forth elsewhere herein in detail, Defendants, by virtue of their
receipt of information reflecting the true facts regarding Nobilis, his/her control over, and/or
receipt and/or modification of Nobilis’s allegedly materially misleading misstatements and/or
their associations with the Company which made them privy to confidential proprietary
information concerning Nobilis, participated in the fraudulent scheme alleged herein.
APPLICABILITY OF PRESUMPTION OF RELIANCE
(FRAUD-ON-THE-MARKET DOCTRINE)
43. The market for Nobilis’s securities was open, well-developed and efficient at all
relevant times. As a result of the materially false and/or misleading statements and/or failures to
disclose, Nobilis’s securities traded at artificially inflated prices during the Class Period. On
May 18, 2015, the Company’s stock closed at a Class Period high of $8.32 per share. Plaintiff
and other members of the Class purchased or otherwise acquired the Company’s securities
relying upon the integrity of the market price of Nobilis’s securities and market information
relating to Nobilis, and have been damaged thereby.
44. During the Class Period, the artificial inflation of Nobilis’s stock was caused by
the material misrepresentations and/or omissions particularized in this Complaint causing the
damages sustained by Plaintiff and other members of the Class. As described herein, during the
Class Period, Defendants made or caused to be made a series of materially false and/or
misleading statements about Nobilis’s business, prospects, and operations. These material
misstatements and/or omissions created an unrealistically positive assessment of Nobilis and its
business, operations, and prospects, thus causing the price of the Company’s securities to be
artificially inflated at all relevant times, and when disclosed, negatively affected the value of the
CLASS ACTION COMPLAINT
23
Company stock. Defendants’ materially false and/or misleading statements during the Class
Period resulted in Plaintiff and other members of the Class purchasing the Company’s securities
at such artificially inflated prices, and each of them has been damaged as a result.
45. At all relevant times, the market for Nobilis’s securities was an efficient market
for the following reasons, among others:
(a) Nobilis stock met the requirements for listing, and was listed and actively
traded on the NYSE MKT, a highly efficient and automated market;
(b) As a regulated issuer, Nobilis filed periodic public reports with the SEC
and/or the NYSE MKT;
(c) Nobilis regularly communicated with public investors via established
market communication mechanisms, including through regular dissemination of press releases
on the national circuits of major newswire services and through other wide-ranging public
disclosures, such as communications with the financial press and other similar reporting services;
and/or
(d) Nobilis was followed by securities analysts employed by brokerage firms
who wrote reports about the Company, and these reports were distributed to the sales force and
certain customers of their respective brokerage firms. Each of these reports was publicly
available and entered the public marketplace.
46. As a result of the foregoing, the market for Nobilis’s securities promptly digested
current information regarding Nobilis from all publicly available sources and reflected such
information in Nobilis’s stock price. Under these circumstances, all purchasers of Nobilis’s
securities during the Class Period suffered similar injury through their purchase of Nobilis’s
securities at artificially inflated prices and a presumption of reliance applies.
CLASS ACTION COMPLAINT
24
NO SAFE HARBOR
47. The statutory safe harbor provided for forward-looking statements under certain
circumstances does not apply to any of the allegedly false statements pleaded in this Complaint.
The statements alleged to be false and misleading herein all relate to then-existing facts and
conditions. In addition, to the extent certain of the statements alleged to be false may be
characterized as forward looking, they were not identified as “forward-looking statements” when
made and there were no meaningful cautionary statements identifying important factors that
could cause actual results to differ materially from those in the purportedly forward-looking
statements. In the alternative, to the extent that the statutory safe harbor is determined to apply to
any forward-looking statements pleaded herein, Defendants are liable for those false forward-
looking statements because at the time each of those forward-looking statements was made, the
speaker had actual knowledge that the forward-looking statement was materially false or
misleading, and/or the forward-looking statement was authorized or approved by an executive
officer of Nobilis who knew that the statement was false when made.
FIRST CLAIM
Violation of Section 10(b) of
The Exchange Act and Rule 10b-5
Promulgated Thereunder Against All Defendants
48. Plaintiff repeats and realleges each and every allegation contained above as if
fully set forth herein.
49. During the Class Period, Defendants carried out a plan, scheme and course of
conduct which was intended to and, throughout the Class Period, did: (i) deceive the investing
public, including Plaintiff and other Class members, as alleged herein; and (ii) cause Plaintiff and
other members of the Class to purchase Nobilis’s securities at artificially inflated prices. In
furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them,
CLASS ACTION COMPLAINT
25
took the actions set forth herein.
50. Defendants (i) employed devices, schemes, and artifices to defraud; (ii) made
untrue statements of material fact and/or omitted to state material facts necessary to make the
statements not misleading; and (iii) engaged in acts, practices, and a course of business which
operated as a fraud and deceit upon the purchasers of the Company’s securities in an effort to
maintain artificially high market prices for Nobilis’s securities in violation of Section 10(b) of
the Exchange Act and Rule 10b-5. All Defendants are sued either as primary participants in the
wrongful and illegal conduct charged herein or as controlling persons as alleged below.
51. Defendants, individually and in concert, directly and indirectly, by the use, means
or instrumentalities of interstate commerce and/or of the mails, engaged and participated in a
continuous course of conduct to conceal adverse material information about Nobilis’s financial
well-being and prospects, as specified herein.
52. These defendants employed devices, schemes and artifices to defraud, while in
possession of material adverse non-public information and engaged in acts, practices, and a
course of conduct as alleged herein in an effort to assure investors of Nobilis’s value and
performance and continued substantial growth, which included the making of, or the
participation in the making of, untrue statements of material facts and/or omitting to state
material facts necessary in order to make the statements made about Nobilis and its business
operations and future prospects in light of the circumstances under which they were made, not
misleading, as set forth more particularly herein, and engaged in transactions, practices and a
course of business which operated as a fraud and deceit upon the purchasers of the Company’s
securities during the Class Period.
53. Each of the Individual Defendants’ primary liability, and controlling person
CLASS ACTION COMPLAINT
26
liability, arises from the following facts: (i) the Individual Defendants were high-level executives
and/or directors at the Company during the Class Period and members of the Company’s
management team or had control thereof; (ii) each of these defendants, by virtue of their
responsibilities and activities as a senior officer and/or director of the Company, was privy to and
participated in the creation, development and reporting of the Company’s internal budgets, plans,
projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and
familiarity with the other defendants and was advised of, and had access to, other members of the
Company’s management team, internal reports and other data and information about the
Company’s finances, operations, and sales at all relevant times; and (iv) each of these defendants
was aware of the Company’s dissemination of information to the investing public which they
knew and/or recklessly disregarded was materially false and misleading.
54. The defendants had actual knowledge of the misrepresentations and/or omissions
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 Nobilis’s financial well-being and prospects from the
investing public and supporting the artificially inflated price of its securities. As demonstrated
by Defendants’ overstatements and/or misstatements of the Company’s business, operations,
financial well-being, and prospects throughout the Class Period, Defendants, if they did not have
actual knowledge of the misrepresentations and/or omissions alleged, were reckless in failing to
obtain such knowledge by deliberately refraining from taking those steps necessary to discover
whether those statements were false or misleading.
55. As a result of the dissemination of the materially false and/or misleading
CLASS ACTION COMPLAINT
27
information and/or failure to disclose material facts, as set forth above, the market price of
Nobilis’s securities was artificially inflated during the Class Period. In ignorance of the fact that
market prices of the Company’s securities were artificially inflated, and relying directly or
indirectly on the false and misleading statements made by Defendants, or upon the integrity of
the market in which the securities trades, and/or in the absence of material adverse information
that was known to or recklessly disregarded by Defendants, but not disclosed in public
statements by Defendants during the Class Period, Plaintiff and the other members of the Class
acquired Nobilis’s securities during the Class Period at artificially high prices and were damaged
thereby.
56. At the time of said misrepresentations and/or omissions, Plaintiff and other
members of the Class were ignorant of their falsity, and believed them to be true. Had Plaintiff
and the other members of the Class and the marketplace known the truth regarding the problems
that Nobilis was experiencing, which were not disclosed by Defendants, Plaintiff and other
members of the Class would not have purchased or otherwise acquired their Nobilis securities,
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.
57. By virtue of the foregoing, Defendants have violated Section 10(b) of the
Exchange Act and Rule 10b-5 promulgated thereunder.
58. As a direct and proximate result of Defendants’ wrongful conduct, Plaintiff and
the other members of the Class suffered damages in connection with their respective purchases
and sales of the Company’s securities during the Class Period.
SECOND CLAIM
Violation of Section 20(a) of
The Exchange Act Against the Individual Defendants
59. Plaintiff repeats and realleges each and every allegation contained above as if
CLASS ACTION COMPLAINT
28
fully set forth herein.
60. The Individual Defendants acted as controlling persons of Nobilis within the
meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level
positions, and their ownership and contractual rights, participation in and/or awareness of the
Company’s operations and/or intimate knowledge of the false financial statements filed by the
Company with the SEC and disseminated to the investing public, the Individual Defendants had
the power to influence and control and did influence and control, directly or indirectly, the
decision-making of the Company, including the content and dissemination of the various
statements which Plaintiff contends are false and misleading. The Individual Defendants were
provided with or had unlimited access to copies of the Company’s reports, press releases, public
filings and other statements alleged by Plaintiff to be misleading prior to and/or shortly after
these statements were issued and had the ability to prevent the issuance of the statements or
cause the statements to be corrected.
61. In particular, each of these Defendants had direct and supervisory involvement in
the day-to-day operations of the Company and, therefore, is presumed to have had the power to
control or influence the particular transactions giving rise to the securities violations as alleged
herein, and exercised the same.
62. As set forth above, Nobilis and the Individual Defendants each violated Section
10(b) and Rule 10b-5 by their acts and/or omissions as alleged in this Complaint. By virtue of
their positions as controlling persons, the Individual Defendants are liable pursuant to Section
20(a) of the Exchange Act. As a direct and proximate result of Defendants’ wrongful conduct,
Plaintiff and other members of the Class suffered damages in connection with their purchases of
the Company’s securities during the Class Period.
CLASS ACTION COMPLAINT
29
PRAYER FOR RELIEF
WHEREFORE, Plaintiff prays for relief and judgment, as follows:
(a) Determining that this action is a proper class action under Rule 23 of the Federal
Rules of Civil Procedure;
(b) Awarding compensatory damages in favor of Plaintiff and the other Class
members against all defendants, jointly and severally, for all damages sustained as a result of
Defendants’ wrongdoing, in an amount to be proven at trial, including interest thereon;
(c) Awarding Plaintiff and the Class their reasonable costs and expenses incurred in
this action, including counsel fees and expert fees; and
(d) Such other and further relief as the Court may deem just and proper.
JURY TRIAL DEMANDED
Plaintiff hereby demands a trial by jury.
Dated:
By:_____________________
[NAME HERE]
GLANCY PRONGAY & MURRAY LLP Lionel Z. Glancy
Robert V. Prongay
Lesley F. Portnoy
1925 Century Park East, Suite 2100
Los Angeles, CA 90067
Telephone: (310) 201-9150
Facsimile: (310) 201-9160
LAW OFFICES OF HOWARD G. SMITH Howard G. Smith
3070 Bristol Pike, Suite 112
Bensalem, PA 19020
Telephone: (215) 638-4847
Facsimile: (215) 638-4867
Attorneys for Plaintiff __________
