Securities and Exchange Commission v. American Renal Associates Holdings, Inc.

Background

The Securities and Exchange Commission brought the action against Jonathan L. Wilcox, Jason M. Boucher, and Karen J. Smith, alleging violations of the Securities Act and the Exchange Act. American Renal Associates Holdings, Inc. was originally also a defendant, but the court entered a final judgment against it with its consent on December 8, 2021, and later terminated it from the action.

The SEC alleged that the defendants participated in a fraudulent revenue-recognition scheme. American Renal Associates used “topside adjustments” to update estimates of revenue from insurance payments for dialysis treatments. According to the complaint, Wilcox and Boucher predetermined how much revenue the company should report, and Boucher and Smith directed accounting staff to enter adjustments matching those targets rather than relying on patient-level payment information. The SEC also alleged that the defendants manipulated payment histories, recognized revenue when needed, created misleading documents for external auditors, and misstated or omitted information about the adjustments.

Motion to Transfer

The defendants moved under 28 U.S.C. § 1404(a) to transfer the case from the Southern District of New York to the District of Massachusetts. The parties agreed that the case could originally have been brought in Massachusetts. The court therefore considered whether transfer would be appropriate based on the convenience of the witnesses and parties and the interests of justice.

Court’s Analysis

The court identified nine transfer factors: witness convenience, party convenience, access to documents and other proof, the location of the operative events, the ability to compel unwilling witnesses, the parties’ relative financial means, familiarity with the governing law, the plaintiff’s choice of forum, and trial efficiency and the interests of justice.

The location of the operative events strongly favored Massachusetts. The court found that the alleged accounting scheme and the conduct involved in carrying it out occurred at American Renal Associates’ headquarters in Beverly, Massachusetts. The alleged misleading statements to the external audit firm also concerned conduct in Massachusetts. The court rejected the SEC’s argument that New York was equally important because some recipients of the alleged misrepresentations, investors, analysts, and the company’s stock exchange were located there. It reasoned that the central events were the accounting activities in Massachusetts, not the locations where information was received or where the alleged fraud had effects.

The convenience of witnesses also favored transfer. The individual defendants, other likely accounting-department witnesses, and employees of the audit firm resided and worked in Massachusetts. The court found that three witnesses identified by the SEC in New York did not appear to have firsthand knowledge of the alleged scheme.

The convenience of the parties and their relative means slightly or modestly favored transfer. The defendants lived in Massachusetts and submitted declarations describing the financial and personal burdens of litigating in New York. The court found that transferring the case would not merely shift the burden to the SEC because the SEC lawyers handling the case were based in Washington, D.C., rather than New York.

The SEC’s choice of New York weighed against transfer, but the court gave that choice less weight because most operative events and key witnesses were in Massachusetts. The remaining factors were neutral, including the location of electronic documents, the ability to compel witnesses, familiarity with federal securities law, trial efficiency, and the interests of justice.

Disposition

The court granted the defendants’ motion to transfer venue. It directed the Clerk of Court to close the motion at Docket Number 19 and transfer the case to the District of Massachusetts. The opinion did not decide whether the defendants violated the Securities Act or the Exchange Act.