Leading waste management company Stericycle, Inc. (SRCL) is being investigated by the law office of Brodsky & Smith, LLC, on potential claims that the company’s management has been systematically overcharging government entities for its services.
On Jan 7, 2013, a 2008 qui tam action against Stericycle was disclosed, alleging that Stericycle methodically implemented automated price increases without giving notice of the same to government entities. A qui tam action is a whistleblower lawsuit filed by a private citizen against an entity believed to have violated a contract with the government.
The action claims that Stericycle programmed its billing system to automatically increase rates by 18% every 9 months, without any relevant cost hike to justify them. The price hike system, beginning in 2003, was designed to evade detection and increase its revenues and violated the terms of its contract with the federal customers.
The whistleblower lawsuit was filed by a former employee of the company, and came to light when New York Attorney General Eric Schneiderman announced a $2.4 million settlement between New York and Stericycle. The settlement was a compensation for overcharging public entities like schools, hospitals, and police and fire departments for waste management services. The state also imposed strict guidelines on the company for future rate hikes.
Now, 14 other states have joined the action, seeking compensation for the amounts that they were improperly charged. This could translate into a financial impact to the tune of tens of millions of dollars for the company. Further, it would significantly impair the company’s reputation and credibility.
The lawsuit also claims that Stericycle’s upper management was aware of and complicit in the illegal scheme. This investigation will seek to verify whether the company’s board of directors violated its fiduciary duties to shareholders and state or federal laws, thereby putting shareholders’ welfare at risk.
Stericycle currently has a Zacks Rank #3 (Hold). Other companies in the Business Services sector that are worth mentioning include Convergys Corporation (CVG), Deluxe Corp. (DLX) and HNI Corp. (HNI). All these stocks carry a Zacks Rank #2 (Buy).
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