Fort Worth Hedge Fund Incites Hospital Operator Investigation Into Spinoff Disclosures

Hospital operator Quorum Health Corp., based in Brentwood, Tenn., has launched an investigation to determine whether it provided acceptable disclosure to investors prior to its spinoff after a Fort Worth-based investor wrote to Quorum’s board.

According to Reuters, one of Quorum’s investors, hedge fund Q Investments LP of Fort Worth, wrote to Quorum’s board in October alleging that “debt-laden Community Health Systems duped Quorum investors.”

In its letter, Q Investments also told Quorum, which currently owns or leases 36 hospitals, that it should launch an investigation.

The letter says, “We believe Community Health was desperate to raise cash, and they saw an easy path to do so by stuffing new investors in Quorum with inflated guidance and concealing costs within what they knew was a disintegrating business,” Reuters reports.

Since then, Quorum has hired attorney Robert Varian from Orrick Herrington & Sutcliffe LLP as independent counsel to examine how its separation from Community Health Systems Inc. was handled back in April.

In response to the allegations, Community Health spokeswoman Tomi Galin said, “We categorically reject the allegations by Q Investments that Community Health Systems committed fraud or any other wrongdoing in connection with the Quorum spin-off. Community Health conducted itself appropriately and made all necessary disclosures throughout the process.”

Financial records show Quorum’s stock fell almost 80 percent months after the spinoff, when Community Health announced it wanted to focus on its largest markets. Quorum currently has a market value of $240 million, but also had total debt of $1.24 billion as of last September.

Posted in Finance, News.