NextGen Healthcare parent to pay $19M to settle securities fraud allegations

Judge banging gavel on stack of money
NextGen Healthcare's parent company, Quality Systems Inc., has agreed to pay $19 million to settle claims it misled investors. (Getty/AndreyPopov)

The parent company of EHR vendor NextGen Healthcare has agreed to pay $19 million to settle a class-action complaint that senior executives defrauded investors by misrepresenting the company’s financial projections.

The settlement ends five years of litigation and suspends a request to the Supreme Court to review the case.

In a suit initially filed in November 2013 in a Central California District Court, shareholders accused Quality Systems Inc. and three company executives of misrepresenting the company’s current and projected financial performance, promising earnings growth of 20% to 25% in 2013 despite evidence that revenues and bookings had begun to decline.

Shareholders, led by the City of Miami Firefighters' and Police Officers' Retirement Trust and the Arkansas Teacher Retirement System, also accused Quality Systems CEO Steven Plochocki of insider trading after he sold off nearly $4 million of shares following dramatic share price increases, allegedly driven by the company’s misrepresentations.

Plochocki retired in June 2015 after seven years as the company's CEO. The two other executives named in the litigation were Paul Holt, the former chief financial officer, now the CFO at NantHealth, and Sheldon Razin, Quality Systems' founder and chairman of the board. Razin left the company in 2015. 

As part of the settlement (PDF), Quality Systems and the executives named do not “admit to any liability, fault, or wrongdoing of any kind.”

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Quality Systems operates primarily as NextGen Healthcare, which offers a suite of EHR solutions targeted primarily to physician practices. Beyond its core EHR offering, NextGen also provides billing software, population health platforms and workflow management tools.

In the last fiscal year ending March 31, 2018, NextGen recorded $531 million in revenue and $289.5 million in gross profit. The company recorded a net income of $2.4 million, down from $18.2 million the year prior.

In January, Quality Systems filed a petition (PDF) with the U.S. Supreme Court asking the high court to weigh in on when a defendant must admit that non-forward looking statements are false or misleading in order to be protected under federal safe harbor provisions.

A NextGen Healthcare spokesperson did not immediately respond to a request for comment.