Investors ran away from W.R. Grace & Co. after the chemical company said records of its kidney dialysis subsidiary had been subpoenaed as part of a federal investigation.
Grace shares plunged $8.50, or 15%, to $56.63 in New York Stock Exchange trading on Oct. 18 after it issued a vaguely worded statement on the case.
The subpoenas, involving an investigation of "possible violations of federal laws relating to healthcare payments and reimbursements," are the latest in a batch of bad news for Grace, based in Boca Raton, Fla.
The subsidiary, National Medical Care, based in Waltham, Mass., was subpoenaed in two states earlier this year and is still in trouble with regulators for alleged defects in its dialysis products.
Grace faced an embarrassing management shakeup this year. Its chief executive left after allegations of sexual harassment. Its chairman, J. Peter Grace Jr., was forced out after disclosures that the company was paying him generous perks, including a New York apartment and nursing care.
National Medical Care is the country's largest supplier of dialysis equipment and services, serving 45,000 patients at about 600 clinics. It contributes more than one-third of Grace's annual revenues of $5 billion and about 40% of its operating profits.
Grace is in the midst of a plan to spin off the subsidiary as an independent company. The investigation could hamper that effort if investors back away from the plan.
Grace officials said in a statement that they've assigned an internal team to review the subpoenas served last week in connection with a probe by HHS' inspector general's office, the U.S. attorney in Massachusetts and other authorities.
National Medical had been asked to give up "extensive documents relating to various aspects of NMC's business," the Grace statement said.
Grace spokeswoman Mary Lou Kramer refused to comment beyond saying that the subpoenas had been received and that the company was reviewing them.
"NMC's management believes it is in material compliance with the laws and regulations under which it operates," the Grace statement said.
The inspector general's office generally refuses to give details of its investigations, and it did so again last week.
"The only thing I can confirm is we've issued five subpoenas to National Medical Care. Beyond that we're not commenting," said Judy Holtz, a spokeswoman for the agency in Washington.
The company previously had denied a report in the August issue of Money magazine that the company was being investigated for bilking hundreds of millions of dollars through fraudulent Medicare charges.
Earlier this year National Medical Care was subpoenaed by federal grand juries in New Jersey and Virginia in connection with its dialysis services.
The New Jersey panel was investigating whether National Medical Care sold defective products and whether it properly handled customer complaints.
The Virginia probe concerned contracts involving the dialysis service business.