GTCR accused of fraud in lawsuit

GTCR has traded lawsuits with the purchaser of its portfolio company APS Healthcare, which is accusing the mid-market firm of whitewashing the company’s financial health before exit.

Healthcare benefits provider Universal American Corp filed a lawsuit in a US district court last week claiming Chicago-based mid-market firm GTCR failed to disclose material facts about the finances and business prospects of healthcare services company APS, which GTCR sold to Universal in March 2012 for $222 million. GTCR filed its own lawsuit against Universal a day earlier.

Universal claims that prior to the completion of the APS sale, GTCR knew about certain business relationships and key customer contracts that were at risk of being terminated in the short-term. The company also claims GTCR intentionally omitted these facts during negotiations and violated certain representations and warranties that APS was not in default of any of its material contracts.

A spokesperson for GTCR did not return a request for comment. 

GTCR and other defendants “engaged in a deliberate campaign to conceal the truth about APS prior to the close of the transaction,” Universal said in court papers.

“The avalanche of bad news about APS’s business that did not come to Universal’s attention until just after the March 2, 2012 closing, the complete evaporation of APS’s income within months, and the sheer number of misrepresentations and omissions in the merger agreement…are all telltale signs of fraud.”

Universal claims GTCR personnel were regularly appraised of APS’s business and prospects at board meetings, in emails and telephone calls, and received approved drafts of presentations made by APS to Universal, all of which allegedly concealed the true nature of its financial health. 

“GTCR personnel dealt directly with APS’s lenders [and] knew that they were nervous about the company’s future,” Universal claimed in court documents.