Dialysis Services Provider to Pay $25 Million in Fraud Case

LOS ANGELES —  Total Renal Care Holdings Inc. has agreed to pay $25 million to settle a host of securities fraud lawsuits accusing the world’s second-largest dialysis services provider of inflating earnings.

The Torrance-based company said it will pay $10.8 million of the settlement, with the rest coming from insurance that covers officers and directors who were accused of misleading investors about the company’s earnings growth and expenses.

The company also will make changes in its corporate structure requiring executives to be more accountable to shareholders and will take a $10.8-million charge against second-quarter earnings to pay for the settlement, officials said in a release.

“Most of the managers who were the target of these allegations are gone from the company,” spokeswoman LeAnne Zumwalt said.

Victor M.G. Chaltiel, Total Renal’s chairman and chief executive, stepped down last July along with the company’s chief financial officer. The resignations came after Total Renal announced that second-quarter earnings also would miss financial estimates.

In early 1994, Chaltiel was ousted as president of Abbey Healthcare Group Inc. and sued by the Costa Mesa managed-care company over the sale of his prior company to Abbey. The suit was eventually settled, but the terms were kept secret. Abbey merged in 1995 with another firm to create Apria Healthcare Group Inc. in Costa Mesa.

Total Renal’s shares have fallen 74% since February 1999, when the company said its fourth-quarter 1998 earnings came in below expectations. Investors quickly filed a wave of lawsuits alleging that company executives had issued misleading statements about the company’s growth potential.

Total Renal officials recorded revenue for dialysis services even before patients were billed, according to court papers. Executives also booked revenue at inflated amounts they knew would never be paid, court records show.

Total Renal officials continue to maintain that they didn’t mislead investors.

The settlement requires final approval from a federal judge in Los Angeles.

Total Renal’s shares closed off 31 cents at $6.44 on the New York Stock Exchange.