The AAC Share Price Crash – What a Corporate Murder Indictment Can Do to a Thriving Stock

Some situations cannot be foreseen, no matter how good your strategy skills are in business. Up until just a couple of weeks ago, AAC Holdings had one of the hottest stocks on the New York Stock Exchange, having grown 150% since its original public offering in October last year. However, now, the company has faced a sharp, shocking nosedive, with its share price dropping as much as 53% on August 4th, with trading on the stock briefly halted because of its volatility on the same day.

Why did AAC Holdings lose so much market confidence in such a short space of time? The short version of the story is that four of its employees, including its president Jerrod Nathan Menz, were indicted by California Attorney General Kamala Harris for the murder of a patient in the care of A Better Tomorrow drug and alcohol treatment center – a facility operated by American Addiction Centers, AAC’s key operating unit.

To understand the full story, however, we need to look back five years to July 2010, when AAC was operating as ForterusInc, and the death that sparked the scandal took place.

The Death of GaryBenefield at A Better Tomorrow

The patient Jerrod Nathan Menz and AAC have been indicted with the murder of a 52 year old man named Gary Benefield. MrBenefield lived in Springerville, Arizona, where he worked at a coal power plant. The day before his 53rd birthday, Gary Benefield left Arizona to fly to Los Angeles, where he then went on to A Better Tomorrow treatment center in Murrieta to receive treatment for an addiction which has not been specified in the notes concerning his case.

Gary Benefield had several pre-existing medical conditions. He suffered from emphysema, had chronic obstructive pulmonary disease, and had also recently been admitted to hospital with pneumonia. He had been using an oxygen tank prior to his trip to LA, which had been emptied at the airport.

The report from the investigation into MrBenefield’s case by the California Senate Office of Oversight and Outcomes, which was released in 2012, shows what happened when Gary Benefield arrived at the A Better Tomorrow rehab center. He was not provided with further oxygen, as would be expected for a patient in his condition, but was instead given some antidepressants and anti-anxiety medication. Staff at the clinic then reportedly failed to check in on MrBenefield from around midnight until the following morning. The next day – MrBenefield’s 53rd birthday – he died. The coroner concluded the cause of death was chronic obstructive pulmonary disease.

Indictment

Five years later, almost to the day, California prosecutors unsealed a murder indictment against Jerrod Nathan Menz, two employees who had left A Better Tomorrow in the time in between, and one Mignon Dean, who is still with AAC. This sparked the immediate resignation from the board by Menz, who was also one of the company’s founders and its second largest shareholder, as well as the massive stock downturn for AAC Holdings.

Other Incidents Examined by the California Senate Office of Oversight and Outcomes at A Better Tomorrow

The death of Gary Benefield is not the only death that has come under scrutiny at A Better Tomorrow drug and alcohol treatment center. The report from 2012 by the California Senate Office of Oversight and Outcomes also looked at four other patient deaths which had occurred in around the same two year timeframe as MrBenefield’s. In addition to these, there were also two patients who committed suicide, whose families took legal action against A Better Tomorrow for failing to take reasonable preventative action.

Jerrod Nathan Menz posted bond and is not expected to go to court for the criminal case until October. AAC filed stating that they do not admit liability for the death of Gary Benefield, and will fully defend those indicted.

Of course, a complicated case like this and the cost of what could be a lengthy defense has been more than enough to scare the markets away from AAC shares, and it will probably take a long time before confidence in the business resumes, if it ever does.