Teladoc Health has been hit with a class-action lawsuit by shareholders accusing the company and its top executives of violating federal finance laws by hiding company information from investors.
The lawsuit, filed on Wednesday, comes on the heels of an investigative report by the Southern Investigative Reporting Foundation (SIRF) that detailed one senior executive’s sexual relationship with a subordinate that included bouts of insider trading.
According to that report, published earlier this month, Teladoc Chief Financial Officer and Chief Operating Officer Mark Hirschhorn, 54, engaged in an affair with 30-year-old Charece Griffin, who enrolled clinicians to the company’s network. But, according to SIRF, Griffin told colleagues she and Hirschhorn liked to trade company stocks together, with the CFO advising her on opportunities to sell.
Hirschhorn was named the company's CFO in 2012 and then added as COO in 2016.
The stock trading was brought to the attention of Griffin’s boss, Amy McKay, who relayed a complaint to the company’s legal and human resources departments. Although an outside counsel hired to investigate the allegations confirmed the inappropriate conduct, the company gave Hirschhorn a slap on the wrist in the form of an amended employment contract.
A year later, McKay was terminated. Griffin resigned in 2017. Her attorney, Andrew Dunlap, told SIRF Hirschhorn's stock tips were "at the very least … a violation of a bunch of [Teladoc Health’s] own employee conduct clauses."
“I’m not sure why they tolerated the CFO doing that," he said.
A lawsuit (PDF) filed by shareholder Jon Reiner in the U.S. District Court for the Southern District of New York heavily cites the SIRF report. The complaint alleges that the company, Hirschhorn and CEO Jason Gorevic “made material false and misleading statements” and failed to disclose Hirschhorn’s inappropriate relationship with a subordinate and failed to enforce its own policies prohibiting insider trading.
After the SIRF article was published, Teladoc stock dropped 6.7%. The complaint claims Teladoc shareholders have suffered significant losses due to the “wrongful acts and omissions” that triggered the drop in share value.
In a statement issued following the SIRF report, Teladoc said the story contained “several factual inaccuracies" and that violations were limited to Hirschhorn's relationship with Griffin.
“When we were made aware of the allegations against Mark Hirschhorn in 2016, we engaged an outside law firm to investigate the claims,” the company said. “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.”
A Teladoc spokesperson declined to comment on active litigation and referred FierceHealthcare to the company's prior statement.