Whistleblower lawsuit accuses Alignment of accounting fraud
Dive Brief:
- A former Alignment Healthcare executive is accusing the company of accounting fraud that made Alignment appear more valuable than it is and triggered lucrative bonuses for senior leadership, according to a lawsuit filed Tuesday in a California district court.
- In the complaint, Hakan Kardes, Alignment’s former chief data and transformation officer, alleges he was forced out after discovering that the Medicare Advantage insurer had misclassified about $8 million to $10 million as capital expenditures instead of operating expenses in 2024, inflating Alignment’s reported profits and earnings trajectory.
- Alignment said the allegations are meritless and that an outside audit performed after Kardes raised his concerns confirmed the company’s accounting is reliable.
Dive Insight:
The whistleblower suit questions the validity of Alignment’s accounting statements in 2024 and 2025, periods in which the MA insurer — which bills itself as a tech-forward, senior-focused disruptor in the privatized Medicare program — began improving its profitability.
The accounting errors weren’t a mistake, according to Kardes’ complaint. Instead, Alignment executives were allegedly cooking the books.
Kardes joined Alignment in 2019 as the company’s first chief data officer before steadily expanding his role. In January 2025, Kardes was named Alignment’s chief transformation officer and was told he would be elevated further and given oversight of a substantial portion of Alignment’s data and technology division, including its engineering teams, according to the complaint.
When reviewing the division’s budget and staffing, Kardes says he discovered that Alignment’s engineers were classifying day-to-day work, like software maintenance and bug fixes, as capital expenditures instead of operating expenses.
Personnel said they were being pressured to classify their time as capital expenditures, regardless of the nature of their work, by Mike Lewis, who managed the division’s financial reporting, and Alignment CIO Robert Scavo, according to the complaint.
Kardes determined at least $8 million to $10 million was improperly recorded in 2024, and $10 million in 2025.
Kardes said he reported his worries to CEO John Kao on March 18, 2025. After that, “everything changed,” according to the complaint. “Within a period of just 14 days, Kao had reversed every aspect of the promised promotions to Kardes and began a course of conduct designed to force Kardes out of the Company in retaliation for Kardes’ reporting.”
That included stripping Kardes of his responsibilities and denying his pending promotion, the complaint alleges. Kardes also says he faced hostility from other executives, especially Kao, and felt he had no option but to depart the company last spring.
The $8 million to $10 million in question is a rounding error for some larger insurance companies. But if Kardes’ allegations are true, it would negate entirely Alignment’s first-ever profitable year in 2024, when Alignment reported $1.3 million in positive adjusted earnings before interest, taxes, depreciation and amortization, or EBITDA.
Along with Kao and Scavo, the lawsuit names Dawn Maroney, Alignment’s president and chief operating officer, and Andreas Wagner, Alignment’s chief human resources officer, as defendants.
All were aware of the financial irregularities and took steps to keep them under wraps, in violation of federal securities laws and rules set by the Securities and Exchange Commission, according to the suit.
Alignment denied Kardes’ allegations, which the company characterized as an attempt from Kardes to recoup the value of equity he forfeited when he left. After Kardes communicated his concerns, Alignment’s board brought in outside legal counsel and an accounting firm to conduct a review, and that review upheld the integrity of its recordkeeping, a spokesperson told Healthcare Dive.
The company “intends to defend itself vigorously and is confident it will prevail,” they said.
The lawsuit is a potential blot on Alignment’s otherwise positive reputation in the capital markets. The company has consistently outperformed the broader insurance sector, with Alignment’s share price rising 81.1% in the past year compared to the industry’s 14.3% growth, according to Yahoo Finance.
However, some analysts had a sanguine reaction to the lawsuit, given Alignment’s defense.
“While we are not lawyers, this does not change our outlook for [Alignment’s] ability to grow in Medicare Advantage,” J.P. Morgan analyst John Stansel wrote in a Wednesday note.
Kao created Alignment in 2013 after his mother had a poor experience with the healthcare system. The company, which went public in 2021, has enjoyed explosive membership growth, with seniors in its MA plans growing more than 30% in the first quarter this year. Alignment now covers more than 280,000 people across five states.
The company posted net income of $11.4 million in the first quarter, compared to a $9.4 million loss in the prior-year period. Following the results, Alignment raised its 2026 guidance across all metrics, including adjusted EBITDA.
