Case 1:22-cv-20827-XXXX Document 1 Entered on FLSD Docket 03/18/2022 Page 1 of 26
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`UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF FLORIDA
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`
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`ALBERTO GONZALEZ, Individually and
`on Behalf of All Others Similarly Situated,
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`
`Plaintiff,
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`Case No.
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`CLASS ACTION COMPLAINT
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`JURY TRIAL DEMANDED
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`
`CANO HEALTH, INC. f/k/a JAWS
`ACQUISITION CORP., MARLOW
`HERNANDEZ, BRIAN D. KOPPY, JOSEPH
`L. DOWLING, and MICHAEL RACICH,
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`v.
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`
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`Defendants.
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`
`
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`
`
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`Plaintiff Alberto Gonzalez (“Plaintiff”), individually and on behalf of all others similarly
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`situated, by Plaintiff’s undersigned attorneys, for Plaintiff’s complaint against Defendants, alleges
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`the following based upon personal knowledge as to Plaintiff and Plaintiff’s own acts, and
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`information and belief as to all other matters, based upon, inter alia, the investigation conducted
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`by and through Plaintiff’s attorneys, which included, among other things, a review of the
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`Defendants’ public documents, conference calls and announcements made by Defendants, United
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`States (“U.S.”) Securities and Exchange Commission (“SEC”) filings, wire and press releases
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`published by and regarding Cano Health, Inc. (“Cano” or the “Company”) f/k/a Jaws Acquisition
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`Corp. (“Jaws”), analysts’ reports and advisories about the Company, and information readily
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`obtainable on the Internet. Plaintiff believes that substantial, additional evidentiary support will
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`exist for the allegations set forth herein after a reasonable opportunity for discovery.
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`NATURE OF THE ACTION
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`1.
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`This is a federal securities class action on behalf of a class consisting of all persons
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`and entities other than Defendants that purchased or otherwise acquired Cano securities between
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`1
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`Case 1:22-cv-20827-XXXX Document 1 Entered on FLSD Docket 03/18/2022 Page 2 of 26
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`May 18, 2020 and February 25, 2022, both dates inclusive (the “Class Period”), seeking to recover
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`damages caused by Defendants’ violations of the federal securities laws and to pursue remedies
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`under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and
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`Rule 10b-5 promulgated thereunder, against the Company and certain of its top officials.
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`2.
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`Cano provides primary care medical services to its members in the U.S. and Puerto
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`Rico. The Company owns and operates medical centers, as well as operates pharmacies.
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`3.
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`Cano used to be a special purpose acquisition company (“SPAC”)1 and operated
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`under the name “Jaws Acquisition Corp.” On June 3, 2021, Jaws consummated a merger with
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`Primary Care (ITC) Intermediate Holdings, LLC (“PCIH”), whereby, among other things, Jaws
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`changed its name to “Cano Health, Inc.” and began to provide primary care medical services (the
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`“Business Combination”).
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`4.
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`As a publicly traded company, Cano must adhere to strict financial reporting
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`requirements by, among other things, timely filing periodic financial reports with the SEC and
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`complying with Financial Accounting Standards Board (“FASB”) guidelines, including
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`Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers (Topic 606)
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`(“ASC 606”). Particularly, under ASC 606, Cano must analyze its revenue recognition with
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`respect to, inter alia, certain Medicare risk adjustments.
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`5.
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`Throughout the Class Period, Defendants made materially false and misleading
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`statements regarding the Company’s business, operations, and compliance policies. Specifically,
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`Defendants made false and/or misleading statements and/or failed to disclose that: (i) Cano
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`overstated its due diligence efforts and expertise with respect to acquiring target businesses; (ii)
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`1 A SPAC, also called a blank-check company, is a development stage company that has no specific
`business plan or purpose or has indicated its business plan is to engage in a merger or acquisition
`with an unidentified company or companies, other entity, or person.
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`2
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`accordingly, Cano performed inadequate due diligence into whether the Company, post-Business
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`Combination, could properly account for the timing of revenue recognition as prescribed by ASC
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`606, particularly with respect to Medicare risk adjustments; (iii) as a result, the Company misstated
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`its capitated revenue, direct patient expense, accounts receivable, net of unpaid service provider
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`costs, and accounts payable and accrued expenses; (iv) accordingly, the Company was at an
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`increased risk of failing to timely file one or more of its periodic financial reports; and (v) as a
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`result, the Company’s public statements were materially false and misleading at all relevant times.
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`6.
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`On February 28, 2022, Cano issued a press release “announc[ing] it will delay its
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`fourth quarter and full year 2021 earnings release, conference call and 2022 guidance updates,
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`previously scheduled for Monday, February 28, 2022.” In explaining the delay, Cano advised that
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`“in the course of finalizing its audit of the financial statements for the year ended December 31,
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`2021, the Company and its independent auditor . . . identified certain potential non-cash
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`adjustments to account for revenue recognition under accounting standard ASC 606.”
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`Specifically, Cano advised that “[t]he adjustments relate to how and when the Company accrues
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`revenue related to Medicare Risk Adjustments” and that “[t]he adjustments are expected to impact
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`the timing of revenue recognition, by delaying recognition of certain amounts related to the
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`Medicare Risk Adjustment to subsequent periods[.]”
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`7.
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`On this news, Cano’s Class A common stock price fell $0.32 per share, or 6.17%,
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`to close at $4.87 per share on February 28, 2022.
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`8.
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`On March 14, 2022, Cano filed its annual report for the quarter and year ended
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`December 31, 2021 (the “2021 10-K”). That filing stated, inter alia, that “[t]he correction in the
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`timing of revenue recognition under ASC 606 resulted in adjustments to capitated revenue, direct
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`patient expense, accounts receivable, net of unpaid service provider costs, and accounts payable
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`3
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`and accrued expenses[,]” and that the Company therefore “restated its financial statements for each
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`of the quarterly periods ended March 31, 2021, June 30, 2021 and September 30, 2021 in the [2021
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`10-K.]” For example, the 2021 10-K reported that, as restated, capitated revenue decreased 2.13%
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`for the three months ended March 31, 2021; 13.11% for the three months ended June 30, 2021;
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`and 5.58% for the three months ended September 30, 2021.
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`9.
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`As a result of Defendants’ wrongful acts and omissions, and the precipitous decline
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`in the market value of the Company’s securities, Plaintiff and other Class members have suffered
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`significant losses and damages.
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`JURISDICTION AND VENUE
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`10.
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`The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of
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`the Exchange Act (15 U.S.C. §§ 78j(b) and 78t(a)) and Rule 10b-5 promulgated thereunder by the
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`SEC (17 C.F.R. § 240.10b-5).
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`11.
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`This Court has jurisdiction over the subject matter of this action pursuant to 28
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`U.S.C. § 1331 and Section 27 of the Exchange Act.
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`12.
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`Venue is proper in this Judicial District pursuant to Section 27 of the Exchange Act
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`(15 U.S.C. § 78aa) and 28 U.S.C. § 1391(b). Cano is headquartered in this Judicial District,
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`Defendants conduct business in this Judicial District, and a significant portion of Defendants’
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`actions took place within this Judicial District.
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`13.
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`In connection with the acts alleged in this complaint, Defendants, directly or
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`indirectly, used the means and instrumentalities of interstate commerce, including, but not limited
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`to, the mails, interstate telephone communications, and the facilities of the national securities
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`markets.
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`4
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`PARTIES
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`14.
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`Plaintiff, as set forth in the attached Certification, acquired Cano securities at
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`artificially inflated prices during the Class Period and was damaged upon the revelation of the
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`alleged corrective disclosures.
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`15.
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`Defendant Cano is a Delaware corporation with principal executive offices located
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`at 9725 NW 117th Avenue, Miami, Florida 33178. Cano’s Class A common stock and warrants
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`trade in an efficient market on the New York Stock Exchange (“NYSE”) under the trading symbols
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`“CANO” and “CANO/WS”, respectively. Prior to the Business Combination, Cano was a Cayman
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`Islands corporation with principal executive offices located at 1601 Washington Avenue, Suite
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`800, Miami Beach, Florida 33139, and its units, Class A ordinary shares, and redeemable warrants
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`traded in an efficient market on the NYSE under the trading symbols “JWS.U”, “JWS”, and “JWS
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`WS”, respectively.
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`16.
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`Defendant Marlow Hernandez (“Hernandez”) has served as Cano’s Chief
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`Executive Officer (“CEO”) at all relevant times following the Business Combination.
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`17.
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`Defendant Brian D. Koppy (“Koppy”) has served as Cano’s Chief Financial Officer
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`(“CFO”) at all relevant times following the Business Combination.
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`18.
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`Defendant Joseph L. Dowling (“Dowling”) served as Cano’s CEO at all relevant
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`times prior to the Business Combination.
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`19.
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`Defendant Michael Racich (“Racich”) served as Cano’s CFO at all relevant times
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`prior to the Business Combination.
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`20.
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`Defendants Hernandez, Koppy, Dowling, and Racich are sometimes referred to
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`herein as the “Individual Defendants.”
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`5
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`21.
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`The Individual Defendants possessed the power and authority to control the
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`contents of Cano’s SEC filings, press releases, and other market communications. The Individual
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`Defendants were provided with copies of Cano’s SEC filings and press releases alleged herein to
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`be misleading prior to or shortly after their issuance and had the ability and opportunity to prevent
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`their issuance or to cause them to be corrected. Because of their positions with Cano, and their
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`access to material information available to them but not to the public, the Individual Defendants
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`knew that the adverse facts specified herein had not been disclosed to and were being concealed
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`from the public, and that the positive representations being made were then materially false and
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`misleading. The Individual Defendants are liable for the false statements and omissions pleaded
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`herein.
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`22.
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`Cano and the Individual Defendants are collectively referred to herein as
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`“Defendants.”
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`SUBSTANTIVE ALLEGATIONS
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`Background
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`23.
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`Cano provides primary care medical services to its members in the U.S. and Puerto
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`Rico. The Company owns and operates medical centers, as well as operates pharmacies.
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`24.
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`Cano used to be a SPAC and operated under the name “Jaws Acquisition Corp.”
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`On June 3, 2021, Jaws consummated the Business Combination, whereby, among other things, the
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`Company acquired certain equity interests in PCIH, PCIH became a direct subsidiary of the
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`Company, Jaws changed its name to “Cano Health, Inc.”, and the Company began to provide
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`primary care medical services.
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`25.
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`As a publicly traded company, Cano must adhere to strict financial reporting
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`requirements by, among other things, timely filing periodic financial reports with the SEC and
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`6
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`Case 1:22-cv-20827-XXXX Document 1 Entered on FLSD Docket 03/18/2022 Page 7 of 26
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`complying with FASB guidelines, including ASC 606. Particularly, under ASC 606, Cano must
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`analyze its revenue recognition with respect to, inter alia, certain Medicare risk adjustments.
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`Materially False and Misleading Statements Issued During the Class Period
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`26.
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`The Class Period begins on May 18, 2020, the first trading day after Cano—then
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`still operating as Jaws—filed a prospectus on Form 424B4 with the SEC in connection with its
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`initial public offering. That filing stated, inter alia:
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`In evaluating a prospective target business, we expect to conduct an extensive due
`diligence review which may encompass, as applicable and among other things,
`meetings with incumbent management and employees, document reviews,
`interviews of customers and suppliers, inspection of facilities and a review of
`financial and other information about the target and its industry. We will also utilize
`our management team’s operational and capital planning experience.
`
`* * *
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`Prior to the completion of our initial business combination, we will have available
`to us the $1,900,000 of proceeds held outside [a] trust account, as well as certain
`funds from loans from our sponsor, its affiliates or members of our management
`team. We will use these funds to primarily identify and evaluate target businesses,
`perform business due diligence on prospective target businesses, travel to and from
`the offices, plants or similar locations of prospective target businesses or their
`representatives or owners, review corporate documents and material agreements of
`prospective target businesses, and structure, negotiate and complete a business
`combination.
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`27.
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`On August 13, 2020, the Company filed a quarterly report on Form 10-Q with the
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`
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`
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`SEC, reporting its financial and operating results for the quarter ended June 30, 2020 (the “2Q20
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`10-Q”). That filing stated, in relevant part:
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`At June 30, 2020, we had cash of $2,140,755 held outside of [a] Trust Account. We
`intend to use the funds held outside the Trust Account primarily to identify and
`evaluate target businesses, perform business due diligence on prospective target
`businesses, travel to and from the offices, properties or similar locations of
`prospective target businesses or their representatives or owners, review corporate
`documents and material agreements of prospective target businesses, and structure,
`negotiate and complete a Business Combination.
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`7
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`28.
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`Appended as exhibits to the 2Q20 10-Q were signed certifications pursuant to the
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`Sarbanes-Oxley Act of 2022 (“SOX”), wherein Defendants Dowling and Racich certified that
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`“[t]he [2Q20 10-Q] fully complies with the requirements of Section 13(a) or 15(d) of the
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`[Exchange Act]” and that “the information contained in the [2Q20 10-Q] fairly presents, in all
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`material respects, the financial condition and results of operations of the Company as of and for
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`the period covered by the [2Q20 10-Q].”
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`29.
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`On November 10, 2020, the Company filed a quarterly report on Form 10-Q with
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`the SEC, reporting its financial and operating results for the quarter ended September 30, 2020
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`(the “3Q20 10-Q”). That filing stated, in relevant part:
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`At September 30, 2020, we had cash of $1,675,265 held outside of [a] Trust
`Account. We intend to use the funds held outside the Trust Account primarily to
`identify and evaluate target businesses, perform business due diligence on
`prospective target businesses, travel to and from the offices, properties or similar
`locations of prospective target businesses or their representatives or owners, review
`corporate documents and material agreements of prospective target businesses, and
`structure, negotiate and complete a Business Combination.
`
`30.
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`Appended as an exhibit to the 3Q20 10-Q were substantively the same SOX
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`
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`certifications as referenced in ¶ 28, supra, signed by Defendants Dowling and Racich.
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`31.
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`On March 29, 2021, the Company filed an annual report on Form 10-K with the
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`SEC, reporting the Company’s financial and operating results for the quarter and year ended
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`December 31, 2020 (the “2020 10-K”). That filing contained substantively the same statements
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`as referenced in ¶ 26, supra, regarding the Company’s due diligence efforts in evaluating
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`prospective businesses to acquire.
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`32.
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`The 2020 10-K also stated, in relevant part:
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`At December 31, 2020, we had cash of $1,037,124 held outside of [a] Trust
`Account. We intend to use the funds held outside the Trust Account primarily to
`identify and evaluate target businesses, perform business due diligence on
`prospective target businesses, travel to and from the offices, properties or similar
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`Case 1:22-cv-20827-XXXX Document 1 Entered on FLSD Docket 03/18/2022 Page 9 of 26
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`locations of prospective target businesses or their representatives or owners, review
`corporate documents and material agreements of prospective target businesses, and
`structure, negotiate and complete a business combination.
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`33.
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`Appended as an exhibit to 2020 10-K were substantively the same SOX
`
`
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`certifications as referenced in ¶ 28, supra, signed by Defendants Dowling and Racich.
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`34.
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`On April 29, 2021, the Company filed an amendment to the 2020 10-K on Form
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`10-K/A (the “2020 10-K/A”), which contained substantively the same statements as referenced in
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`¶ 26, supra, regarding the Company’s due diligence efforts in evaluating prospective businesses
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`to acquire, and the same statements referenced in ¶ 31, supra, regarding the Company’s use of
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`funds to conduct that due diligence.
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`35.
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`Appended as an exhibit to 2020 10-K/A were substantively the same SOX
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`certifications as referenced in ¶ 28, supra, signed by Defendants Dowling and Racich.
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`36.
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`On May 7, 2021, the Company filed a proxy statement and prospectus on Form
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`424B3 with the SEC in connection with the Business Combination (the “Proxy”). That filing
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`stated that, “[i]n evaluating the transaction with PCIH, the Jaws Board consulted with our
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`management and legal counsel as well as financial and other advisors, and the Jaws Board
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`considered and evaluated several factors[,]” “[i]n particular . . . the results of the due diligence
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`investigation conducted by Jaws’ management.”
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`37.
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`Specifically, with respect to Cano’s due diligence efforts prior to approving the
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`Business Combination, the Proxy assured investors, inter alia, that “[t]he Jaws Board . . . identified
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`and considered . . . factors and risks weighing negatively against pursuing the Business
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`Combination” including “[b]usiness risks of PCIH”; that “[i]n analyzing the Business
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`Combination, the Jaws Board and Jaws’ management conducted due diligence on PCIH and
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`researched the industry in which PCIH operates and concluded that the Business Combination was
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`Case 1:22-cv-20827-XXXX Document 1 Entered on FLSD Docket 03/18/2022 Page 10 of 26
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`in the best interest of its shareholders”; that “[b]etween September 16, 2020 and September 25,
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`2020, [Defendant] Dowling engaged in discussions with representatives of PCIH regarding a
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`potential business combination” and, “[d]uring this time, Jaws conducted further financial and
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`business due diligence on PCIH”; that “[f]ollowing . . . communications [with Defendant
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`Hernandez], Jaws began to conduct further due diligence on PCIH, the senior health care services
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`industry, and comparable companies in the same sector as PCIH”; that “[b]etween October 12,
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`2020 and October 18, 2020, the parties further negotiated [a] letter of intent” and “continued due
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`diligence activities and ongoing discussions regarding future value creation as well as began
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`preparation of certain investor materials”; and that “[f]ollowing the execution of the Letter of
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`Intent, Jaws and its advisors continued their due diligence review of PCIH, including business,
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`legal, accounting, tax, IT systems and health care regulatory due diligence, as well as due diligence
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`calls with PCIH management.”
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`38.
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`The Proxy further represented that, “[b]efore reaching its decision, the Jaws Board
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`discussed the material results of its management’s due diligence activities, which included,”
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`among other things, “extensive meetings and calls with PCIH’s management team regarding
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`PCIH’s operations and projections, including interviews of top executives”; “research on the
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`healthcare industry, including historical and projected growth trends and calls with industry
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`experts”; “the financial projections provided by PCIH”; “engagement of KPMG for financial,
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`accounting, tax, IT and public-market readiness due diligence”; “engagement of Kirkland & Ellis
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`for legal due diligence”; and “engagement of Epstein Becker Green for healthcare-specific and
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`coding due diligence.”
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`39.
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`Likewise, the Proxy assured investors that “[t]he Jaws Board considered the scope
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`of the due diligence investigation conducted by Jaws’ management and outside advisors and
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`Case 1:22-cv-20827-XXXX Document 1 Entered on FLSD Docket 03/18/2022 Page 11 of 26
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`evaluated the results thereof and information available to it related to PCIH,” such as “multiple
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`meetings and calls with the PCIH management team regarding its operations, financial metrics,
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`historical performance and financial projections and the proposed transaction”; “review of
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`materials related to PCIH made available by PCIH, including strategic plans, key metrics and
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`performance indicators, benefit plans, insurance policies, litigation information, financial
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`statements, compliance plans, risk mitigation materials and other financial and legal diligence”;
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`“review of the due diligence reports of all third-party advisors, including KPMG, Kirkland & Ellis
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`and Epstein Becker Green”; “interviews with PCIH’s management as well as interviews of
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`industry experts”; “analysis of industry competitors and publicly traded comparable companies”;
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`and “research regarding the Medicare and Medicare Advantage markets.”
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`40.
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`On May 24, 2021, the Company filed a quarterly report on Form 10-Q with the
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`SEC, reporting the Company’s financial and operating results for the quarter ended March 31,
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`2021 (the “1Q21 10-Q”). That filing stated, in relevant part:
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`At March 31, 2021, we had cash of $487,743 held outside of [a] Trust Account. We
`intend to use the funds held outside the Trust Account primarily to identify and
`evaluate target businesses, perform business due diligence on prospective target
`businesses, travel to and from the offices, properties or similar locations of
`prospective target businesses or their representatives or owners, review corporate
`documents and material agreements of prospective target businesses, and structure,
`negotiate and complete a Business Combination.
`
`41.
`
`Appended as an exhibit to 1Q21 10-Q were substantively the same SOX
`
`
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`certifications as referenced in ¶ 28, supra, signed by Defendants Dowling and Racich.
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`42.
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`On August 12, 2021, the Company—now operating as Cano—filed a registration
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`statement on Form S-1 with the SEC in connection with an offering of the Company’s Class A
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`common stock. For the three months ended March 31, 2021, that filing reported capitated revenue
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`of $267.051 million, direct patient expense of $34.287 million, accounts receivable, net of unpaid
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`service provider costs of $88.007 million, and accounts payable and accrued expenses of $39.87
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`million.
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`43.
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`On August 16, 2021, Cano filed a quarterly report on Form 10-Q with the SEC,
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`reporting the Company’s financial and operating results for the quarter ended June 30, 2021 (the
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`“2Q21 10-Q”). For the three months ended June 30, 2021, that filing reported capitated revenue
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`of $379.21 million, direct patient expense of $43.782 million, accounts receivable, net of unpaid
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`service provider costs of $131.831 million, and accounts payable and accrued expenses of $46.465
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`million.
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`44.
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`Additionally, the 2Q21 10-Q represented, inter alia, that “[o]n January 1, 2019, the
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`Company adopted ASC 606, applying the full retrospective method as of the earliest period
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`presented[,]” while stating the following regarding how the Company recognized revenue under
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`ASC 606:
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`Under ASC 606, the Company recognizes revenue when a customer obtains control
`of the promised goods or services. The amount of revenue that is recorded reflects
`the consideration that the Company expects to receive in exchange for those goods
`or services. The Company applies the following five-step model in order to
`determine this amount: (i) identify the contract(s) with a customer; (ii) identify the
`performance obligations in the contract; (iii) determine the transaction price; (iv)
`allocate the transaction price to the performance obligations in the contract; and (v)
`recognize revenue when (or as) the Company satisfies a performance obligation.
`The Company only applies the five-step model to contracts when it is probable that
`the Company will collect the consideration it is entitled to in exchange for the goods
`or services the Company transfers to the customer (i.e. patient). At contract
`inception, once the contract is determined to be within the scope of ASC 606,
`management reviews the contract to determine which performance obligations
`must be satisfied and which of these performance obligations are distinct. The
`Company recognizes as revenue the amount of the transaction price that is allocated
`to the respective performance obligation when the performance obligation is
`satisfied.
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`45. With specific respect to how Cano accounted for Medicare risk adjustments and
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`
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`recognized revenue under certain contractual arrangements, the 2Q21 10-Q stated, inter alia:
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`Case 1:22-cv-20827-XXXX Document 1 Entered on FLSD Docket 03/18/2022 Page 13 of 26
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`Capitated revenue is derived from fees for medical services provided by the
`Company under capitated arrangements with health maintenance organizations’
`(“HMOs”) health plans. Capitated revenue consists of revenue earned through
`Medicare as well as through commercial and other non-Medicare governmental
`programs, such as Medicaid, which is captured as other capitated revenue. The
`Company is required to deliver primary care physician services to the enrolled
`member population and is responsible for medical expenses related to healthcare
`services required by that patient group, including services not provided by the
`Company. Since the Company controls the primary care physician services
`provided to enrolled members, the Company acts as a principal. The gross fees
`under these contracts are reported as revenue and the cost of provider care is
`included in third-party medical costs . . . .
`
`Since contractual terms across these arrangements are similar, the Company groups
`them into one portfolio. The Company identifies a single performance obligation
`to stand-ready to provide healthcare services to enrolled members. Capitated
`revenues is recognized in the month in which the Company is obligated to provide
`medical care services. The transaction price for the services provided depends upon
`the pricing established by the Centers for Medicare & Medicaid (“CMS”) and
`includes rates that are based on the cost of medical care within a local market and
`the average utilization of healthcare services by the members enrolled. The
`transaction price is variable since the rates are risk adjusted for projected health
`status (acuity) of members and demographic characteristics of the enrolled
`members. The risk adjustment to the transaction price is presented as the
`Medicare Risk Adjustment (“MRA”) within accounts receivable on the
`accompanying condensed consolidated balance sheets. The fees are paid on an
`interim basis based on submitted enrolled member data for the previous year and
`are adjusted in subsequent periods after the final data is compiled by the CMS.
`
`
`(Emphasis added.)
`
`
`46.
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`Appended as an exhibit to 2Q21 10-Q were substantively the same SOX
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`certifications as referenced in ¶ 28, supra, signed by Defendants Hernandez and Koppy.
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`47.
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`On November 11, 2021, Cano filed a quarterly report on Form 10-Q with the SEC,
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`reporting the Company’s financial and operating results for the quarter ended September 30, 2021
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`(the “3Q21 10-Q”). For the three months ended September 30, 2021, that filing reported capitated
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`revenue of $501.78 million, direct patient expense of $57.708 million, accounts receivable, net of
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`unpaid service provider costs of $223.644 million, and accounts payable and accrued expenses of
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`$76.654 million.
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`13
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`Case 1:22-cv-20827-XXXX Document 1 Entered on FLSD Docket 03/18/2022 Page 14 of 26
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`48.
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`Additionally, the 3Q21 10-Q contained substantively the same statements as
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`referenced in ¶¶ 44-45, supra, regarding Cano’s adoption ASC 606 and how the Company
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`accounted for Medicare risk adjustments and recognized revenue.
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`49.
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`Appended as an exhibit to 3Q21 10-Q were substantively the same SOX
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`certifications as referenced in ¶ 28, supra, signed by Defendants Hernandez and Koppy.
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`50.
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`The statements referenced in ¶¶ 26-49 were materially false and misleading because
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`Defendants made false and/or misleading statements, as well as failed to disclose material adverse
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`facts about the Company’s business, operations, and compliance policies. Specifically,
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`Defendants made false and/or misleading statements and/or failed to disclose that: (i) Cano
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`overstated its due diligence efforts and expertise with respect to acquiring target businesses; (ii)
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`accordingly, Cano performed inadequate due diligence into whether the Company, post-Business
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`Combination, could properly account for the timing of revenue recognition as prescribed by ASC
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`606, particularly with respect to Medicare risk adjustments; (iii) as a result, the Company misstated
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`its capitated revenue, direct patient expense, accounts receivable, net of unpaid service provider
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`costs, and accounts payable and accrued expenses; (iv) accordingly, the Company was at an
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`increased risk of failing to timely file one or more of its periodic financial reports; and (v) as a
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`result, the Company’s public statements were materially false and misleading at all relevant times.
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`The Truth Emerges
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`51.
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`On February 28, 2022, Cano issued a press release announcing that it would delay
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`its fourth quarter and full year 2021 earnings release, conference call, and 2022 guidance updates
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`because of certain adjustments to account for revenue recognition under ASC 606, specifically,
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`adjustments relating to how and when the Company accrues revenue related to Medicare risk
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`adjustments, stating, in relevant part:
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`14
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`Case 1:22-cv-20827-XXXX Document 1 Entered on FLSD Docket 03/18/2022 Page 15 of 26
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`Cano . . . will delay its fourth quarter and full year 2021 earnings release, conference
`call and 2022 guidance updates, previously scheduled for Monday, February 28,
`2022. The Company currently anticipates filing a Form 12b-25, Notification of Late
`Filing, no later than March 2, 2022, which will provide the Company with a 15 day
`calendar extension to file its Form 10-K. The Company expects to report fourth
`quarter and full year 2021 earnings, as well as increased full year 2022 guidance,
`on or before March 16, 2022, the expiration date of the extension period. Updated
`conference call details will be provided in a subsequent announcement.
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`Last week, in the course of finalizing its audit of the financial statements for the
`year ended December 31, 2021, the Company and its independent auditor . . .
`identified certain potential non-cash adjustments to account for revenue recognition
`under accounting standard ASC 606. The adjustments relate to how and when the
`Company accrues revenue related to Medicare Risk Adjustments. The adjustments
`are expected to impact the timing of revenue recognition, by delaying recognition
`of certain amounts related to the Medicare Risk Adjustment to subsequent periods,
`but do not impact the Company's cash from operations, its cash position, or
`estimated collectability of receivables.
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`52.
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`On this news, Cano’s stock price fell $0.32 per share, or 6.17%, to close at $4.87
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`
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`per share on February 28, 2022.
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`53.
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`As a result of Defendants’ wrongful acts and omissions, and the precipitous decline
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`in the market value of the Company’s securities, Plaintiff and other Class members have suffered
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`significant losses and damages.
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`Post-Class Period Developments
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`54.
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`On March 14, 2022, Cano filed the 2021 10-K. That filing stated, inter alia, that
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`“[t]he correction in the timing of revenue recognition under ASC 606 resulted in adjustments to
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`capitated revenue, direct patient expense, accounts receivable, net of unpaid service provider