Friday, June 20, 1997 | 6:13 a.m.
A Las Vegas based hospital chain that is traded on the New York Stock Exchange is the object of a class action lawsuit alleging that some stockholders were the victims of insider profiteering.
The lawsuit was filed Thursday by attorney Mark Albright against Transitional Hospitals Corporation -- which provides long-term acute care at facilities in several states -- and two of its executives.
According to the legal action filed in U.S. District Court on behalf of Jules Brody and unnamed former stockholders, the problem began when THC quietly began buying up its outstanding stock between Feb. 26 and May 4.
Stockholders, however, were unaware that some national companies had expressed interest in purchasing THC -- a circumstance that, if it occurred, would send stocks soaring.
THC had become an attractive company through some financial wheeling and dealing that left it with a profitable business base and $84 million in cash, the lawsuit stated.
When the sale of THC to Vencor Inc. went through earlier this month, the price per share was nearly 60 percent higher than it was a couple of months before.
The lawsuit charges that THC executives hid the knowledge of the impending sale -- or at least the fact that some companies were sniffing around THC -- to profiteer when the deal finally went through.
The lawsuit states that in the months before the sale, THC repurchased at least 1.5 million shares of its own stock that had been in private hands.
Brody indicated he sold 3,000 shares at $10.50 a share in April. About 800,000 shares were bought by THC in February at $9.25 a share.
The legal action is asking that the federal courts force THC to cough up the profits that the stockholders would have made except for the "fraudulent scheme."
That would amount to more than $9 million.
The lawsuit charged that THC had "a duty to disclose Vencor's interest" before beginning its stock repurchase activities.
THC spokesperson Suzanne Shirley denied there was any wrongdoing in the stock repurchase program and said THC "met all necessary disclosure requirements."
Shirley added that THC stock prices didn't shoot up "until Vencor made a solid offer."
Vencor, one of the nation's largest health care providers for the elderly, originally had offered $11.50 a share for THC stock, but a bidding war with Select Medical Corporation bumped the offered price to $14.55.
On May 7, Vencor announced that it intended a hostile takeover at $16 per share and the THC board of directors subsequently voted to voluntarily accept that offer.
The lawsuit stated that THC was founded in 1992 with the goal of filling empty psychiatric beds by providing long-term acute care.
"The concept proved enormously successful as it offered patients high clinical quality care at less cost through specialization," the suit said.
THC has a 50-bed facility for the chronically ill at 5100 W. Sahara Ave.
In addition to the corporation, the lawsuit also targeted Richard Conte, the chairman of the board and chief executive officer, and Wendy Simpson, a member of the board and THC's chief financial officer.
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