A class action lawsuit against Teladoc and two of its executives, which includes allegations of misleading or false statements, insider trading and an inappropriate sexual relationship at the company, has put the publicly traded telemedicine company in the spotlight. The suit was filed on behalf of anyone who purchased shares in the company between March 3, 2016 and December 5, 2018.
At the heart of the suit, filed in the United State District Court District of New York yesterday, is the claim that Mark Hirschhorn, the executive vice president, chief operating officer and chief financial officer of Teladoc, was having an inappropriate sexual relationship with his subordinate and the pair were engaging in insider trading. The class action also alleges that the subordinate in question was promoted because of this relationship.
“Hirschhorn caused the subordinate to receive promotions for which she was unqualified, thereby negatively impacting the Company’s operations; the Company’s enforcement of its own purported employment and trading policies were inadequate to prevent the foregoing conduct; and as a result, the Company’s public statements were materially false and misleading at all relevant times,” according to the suit, which was obtained by FierceHealthcare who first broke the story.
The lawsuit comes just a week after the Southern Investigative Reporting Foundation released a report describing Hirschhorn’s relationship with Charece Griffin, who was several levels below him in the company. The report also claims that Griffin told her coworkers that “she and Hirschhorn liked to trade Teladoc Health’s stock together” and he would tell her when was opportune to sell.
Teladoc released a statement last week firing back at the report published by the SIRF.
“We take workplace conduct matters very seriously. The SIRF report contains several factual inaccuracies. When we were made aware of the allegations against Mark Hirschhorn in 2016, we engaged an outside law firm to investigate the claims,” a public release from Teladoc read. “That investigation found violations solely of our workplace relationship policy, and our board of directors took swift and appropriate disciplinary action to address the violations. This matter was handled in a prompt, thorough and fair manner. We are deeply committed to ensuring a safe, respectful work environment where all individuals are treated fairly and equally.”
The article in the SIRF and the lawsuit are directly linked. The suit alleges that the decline in the company’s stock price is a result of the publication.
“Following publication of the SIRF article, Teladoc’s stock price fell sharply by $4.00, or 6.69 percent, to close at $55.81 on December 6, 2018,” the suit reads. “As a result of Defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the Company’s securities, Plaintiff and other Class members have suffered significant losses and damages.”
In a statement to MobiHealthNews Teladoc denied all allegations in the lawsuit.
"We deny the allegations contained in the lawsuit and reject any claim that we made materially false or misleading statements regarding our business, operations and compliance policies," the company wrote to MobiHealthNews. "When we were made aware of the allegations against Mark Hirschhorn in 2016, we engaged an outside law firm to investigate the claims. The investigation found no evidence of securities law or any other legal violations. We will respond to these claims through the legal process."
Why it matters
Teladoc is currently the only publicly traded telemedicine service on the New York stock exchange. While these allegations have been denied by the company, this puts them in a public spotlight. The case could have major implications for Hirschhorn and the leadership team.
This isn’t the first lawsuit Teladoc has been up against. In July, Key Benefit Administrators (KBA), an Illinois-based administrator of self-funded employee welfare benefit plans for enterprises, has brought a lawsuit against Teladoc alleging a breach in obligations, pecuniary loss, defamation, and tortious interference all stemming from $450,000 in overcharges.
However, despite these allegations Teladoc has continued to grow. In September the company announced that it would be launching its virtual health services worldwide.