Drkoop Shareholders File Fraud Suit

SAN FRANCISCO (07/17/2000) - Drkoop.com shareholders filed a class-action fraud suit against the beleaguered Internet health care company on Friday, charging that Chairman C. Everett Koop and other directors concealed a damaging auditors' report while they sold their stock for handsome profits.

The lawsuit, filed in federal court in Austin, Texas, was brought on behalf of shareholders who bought Drkoop stock between Feb. 15 and March 30.

An auditors' report dated Feb. 15 and addressed to Drkoop's board of directors expressed "substantial doubt" about the company's viability given its negative cash flow and mounting debt. The company, however, did not release the letter until March 30, when it filed its annual report with the Securities and Exchange Commission. The disclosure of the auditors' report sent Drkoop's share price plunging 60 percent. Subsequent revelations about the company's dire financial situation has kept Drkoop's stock in the $1-$2 range.

In mid-February, after the Feb. 15 auditors' letter but before the company disclosed the report to the public, former U.S. Surgeon General Koop sold $914,850 worth of stock in the company. At the same time, Vice Chairman John Zaccaro took home $791,017 from a stock sale. Director Nancy Snyderman, the celebrity TV doctor, made $2.6 million off shares she had purchased for 12 to 16 cents.

The suit, which names Koop, Zaccaro and Snyderman as defendants, alleges that the directors improperly used their inside knowledge of the auditors' report to profit from Drkoop's then relatively high stock price. The suit also names former Drkoop executive Neal Longwill, who sold stock in February, as well as CEO Donald Hackett, who did not sell any stock. The suit does not name Superior Consultant Holding, whose CEO formerly sat on Drkoop's board and which sold shares for $6 million in February.

"Defendants misrepresented the company's health with the intention of enriching certain individual defendants at the expense of the investing public," stated the suit filed by the New York law firm of Wolf Haldenstein Adler Freeman & Herz. "These misrepresentations, omissions and manipulative contrivances had the aggregate effect of artificially inflating the share price of Drkoop common stock."

Hackett says the company did not actually receive the auditors' report until late March, after the directors sold their stock. "The board had no idea, management had no idea, that we would receive the going-concern opinion," he says.

Zaccaro, for his part, wrote in an e-mail to The Standard that he also had not seen the Feb. 15 auditors' report until late March.

Koop and Snyderman could not be reached to comment.

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