Law Firm Pomerantz Notifies eHealth, Inc. Investors of Pending Lawsuit and Lead Plaintiff Deadline of March 18, 2022
NEW YORK, January 27, 2022 /PRNewswire/ — 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 LitigationNo. 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 persons and entities other than defendants who purchased or otherwise acquired eHealth common stock between April 26, 2018 and July 23, 2020, inclusive (the “Group” and the “Group 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 ask the court to name you as the lead plaintiff for 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.
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. At January 1, 2018, eHealth has adopted and implemented a new accounting standard for revenue recognition. This standard, hereafter referred to 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 lawsuit 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 commercials touting $0 the monthly plan bonuses have actually generated an increase in the number of 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 stable price of approximately $15.32 per ordinary share on March 19, 2018 at $136.32 prior to April 8, 2020. It was on this 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 very unprofitable business”, “that the main driver of growth since 2018 has been EHTH’s reliance on direct response TV advertising, which attracts an unprofitable and high churn subscriber”, “that the assumptions persistence of EHTH in its LTV model [under ASC 606] appear very aggressive compared to reality.” The Muddy Waters report also found that eHealth’s 2019 financials: (a) overestimated revenue from $128 million; (b) operating income overestimated by $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 “member churn” allegations 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 at $79.17 per share on July 24, 2020.
Pomerantz LLP, with offices in New York, Chicago, Los Angeles, Parisand Tel Aviv, is recognized as one of the leading law 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
SOURCE Pomerantz LLP