Psychiatric Solutions Inc., the nation’s leading provider of inpatient mental health care, is being sued by stockholders who claim the company issued "false and misleading statements" about troubles at one of its hospitals.
The lawsuit, filed Monday in U.S. District Court in Tennessee, alleges that PSI violated securities laws by downplaying problems at Riveredge Hospital near Chicago and waiting too long to tell shareholders how they had affected the company’s bottom line.
Investigations last year by the Chicago Tribune and ProPublica detailed violence, sexual abuse and neglect at PSI facilities from coast to coast, including Riveredge. In several instances, PSI facilities were cited for not reporting patient deaths and injuries as required, federal and state records showed.
Following those reports, the Justice Department opened an investigation and the Illinois Department of Children and Family Services froze admissions of foster children to Riveredge.
The lawsuit alleges that PSI’s statements – particularly those indicating the admissions hold would end soon and that other regulatory deficiencies had been fixed – inflated the company’s stock price, helping company leaders reap millions from insider sales.
In early 2009, PSI announced that its 2008 results had fallen short of estimates. Its share price dropped about 35 percent on the news.
Through a spokesman, PSI called the lawsuit "wholly without merit."
"We have at all times operated, and will continue to operate in full compliance with the rules and regulations of the Securities and Exchange Commission," John Van Mol said in a written statement.