NEW YORK, 08 Feb. 18, 2022 (GLOBE NEWSWIRE) — Pomerantz LLP is advising investors in eHealth, Inc. (NASDAQ: EHTH) (“eHealth” or the “Company”) of an ongoing lawsuit against eHealth and certain of its officers. The class action, In re eHealth Inc. Securities Litigation, No. 4:20-cv-02395-JST (the “Class Action”), is pending in the United States District Court for the Northern District of California on behalf of a class consisting of all and entities other than defendants that purchased or otherwise acquired shares of eHealth common stock between April 26, 2018 and July 23, 2020 inclusive (the “Class” and the “Class Period”). The class action pursues claims against the defendants under the Securities Exchange Act of 1934 (the “Exchange Act”).
If you are a shareholder who purchased eHealth shares during the class period, you have until March 18, 2022 to ask the court to name you as the lead plaintiff in the class. To discuss this action, contact Robert S. Willoughby at [email protected] or 888.476.6529 (or 888.4-POMLAW), toll-free, Ext. 7980. Those making inquiries by e-mail are encouraged to include their mailing address, phone number and number of shares purchased.
[Click here for information about joining the class action]
eHealth is a health insurance broker that focuses on selling Medicare-related policies on behalf of private insurers. Its primary source of revenue is commissions from the sale of Medicare Advantage, Medicare Supplement, and Medicare Part D prescription drug policies. On January 1, 2018, eHealth adopted and implemented a new accounting standard for revenue recognition. This standard, referred to here as Accounting Standard Codification 606 or ASC 606, allowed eHealth to immediately recognize all of the commissions it expected to receive over the expected life of the policies. Although eHealth sold annual policies that could be canceled at any time by the consumer, it assumed that its policies would be renewed for several years. Therefore, for many of eHealth’s Medicare-related policies, it recognized between three and five years of commissions immediately after the policy was sold.
The complaint in the class action alleges that the assumption that eHealth customers would renew their policies was unrealistic and contrary to eHealth’s recent experience with cancellations and renewals. Beginning in 2017, eHealth began soliciting Medicare customers with television advertising. Late night ads offering $0 monthly bonuses actually generated an increase in customers in a short period of time. Between 2017 and 2018, the number of Medicare-related insurance claims submitted to eHealth by claimants increased by 39%. These customers, however, were known to cancel their policies over short periods of time, leading eHealth to experience skyrocketing “membership turnover” rates, i.e. the percentage of customers who cancel their policies in the first year. Nevertheless, eHealth was able to provide analysts and investors with record earnings due to the fact that it was able to recognize in advance and immediately three to five year commission earnings for these policies.
The complaint further alleges that class members were materially harmed by eHealth’s false and misleading statements. As a direct result of defendants’ materially false and misleading statements, eHealth’s stock price artificially rose from a relatively flat price of approximately $15.32 per common share on March 19, 2018 to $136.32 before April 8, 2020. It was that day. that Muddy Waters Capital, a well-known and well-respected research firm, released a report exposing eHealth’s accounting misconduct. The report revealed, among other things, that eHealth’s “very aggressive accounting masks”  a significantly unprofitable business”, “that the primary driver of growth since 2018 has been EHTH’s reliance on direct response television advertising, which attracts an unprofitable and high churn subscriber”, “that the assumptions persistence of EHTH in its LTV model [under ASC 606] seem very aggressive compared to reality. The Muddy Waters report also found that eHealth’s financial statements for 2019: (a) overstated revenue by $128 million; (b) an overstated operating profit of $263 million; and (c) understated an operating loss of -$181 million. The Muddy Waters report led to a sharp decline in eHealth’s stock price, which fell to $103.20 per share.
Subsequently, on July 23, 2020, when eHealth announced its results for the second quarter of fiscal 2020, its share price fell again as information in its announcement confirmed substantial aspects of the allegations of “membership churn” previously asserted in the Muddy Waters. report. In response, eHealth’s stock price fell from a closing price of $114 per share on July 23, 2020 to $79.17 per share on July 24, 2020.
Pomerantz LLP, with offices in New York, Chicago, Los Angeles, Paris and Tel Aviv, is recognized as one of the leading firms in the areas of corporate litigation, securities and antitrust. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, Pomerantz pioneered the field of securities class actions. Today, more than 85 years later, Pomerantz continues the tradition he established, fighting for the rights of victims of securities fraud, breaches of fiduciary duty and corporate misconduct. The firm recovered numerous multimillion-dollar damages on behalf of class members. See www.pomlaw.com.
Robert S. Willoughby
888-476-6529 ext. 7980