Problems at Nutex, Part One: Booted From Over a Dozen ERs As Founder/CEO Accused of Fraud, Embezzlement, and Self-Dealing

Initial Disclosure: After extensive research, we have taken a short position in shares of Nutex Health Inc (NASDAQ: NUTX). This report represents our opinion and is not financial advice. Do your own due diligence and don't take financial advice from strangers on the internet. Please read our full disclaimer at the bottom of this report.

Executive Summary

This is part one of our investigative report on Nutex Health. Part two will be released soon.

Over a dozen Nutex partners, including physicians, medical directors, and board members, have accused Nutex and its CEO and Chairman, Thomas Vo of wrongdoing including fraud, embezzlement, and self-dealing. The allegations are corroborated by multiple independent sources including former insiders with first-hand knowledge. The allegations are also consistent over time, showing a pattern of misconduct spanning over 10 years.

The allegations center around three main themes:

1. Vo used his position to sign unfavorable contracts with companies that he secretly owned and controlled.

2. Vo used Nutex to steal millions of dollars from physicians and partner ERs.

3. Vo used the stolen money to fund his personal investments in other medical facilities, which are part of Nutex.

The allegations stem from Vo’s control over the various related entities that make up Nutex. Vo is the CEO, Chairman, and largest shareholder of Nutex. He also has a personal stake in many of the physician groups that staff Nutex ERs, as well as the real estate companies that own the ER properties. Nutex has no ownership in the physician groups or the real estate companies, but Nutex controls them through contractual agreements. Nutex does own the ERs, but many of those are also owned in part by partner physicians.

This web of insider-owned related entities, creates conflicts of interest that are ripe for abuse. The problem is amplified by the fact that Nutex, and therefore Vo, have managerial control of all these related entities, and handle their payments, billing, and accounting. These are the same conflicts of interest that Vo is accused of exploiting to extract millions of dollars for his personal benefit.

[Vo] is not an honest guy, there are things about his personality that are kind of psychopathic.

– Physician A, Former Nutex Medical Director

We found at least fourteen medical facilities that cut ties with Nutex, with physicians making allegations of serious wrongdoing. Nutex is now focused on expanding outside its home state of Texas where its reputation is tarnished in the tight-knit community of ER physicians. As Nutex’s wrongdoing becomes known to current and prospective partners, this will become a serious headwind.

Nutex faces a negative feedback loop that can lead to the company contracting or even breaking apart:

• A weak share price makes it harder to expand to new ERs because the physician owners exchange ER ownership for Nutex shares.
• Regulatory and reputation risks pressure the share price and increase the likelihood that existing ERs and physician groups break ties.
• Physician partners own a large percentage of Nutex’s public shares, and will likely sell when they break ties with the company.

Recent events indicate that the negative feedback loop has already begun:

• The physicians at Kyle ER recently took control of their facility, and booted Nutex. Litigation is ongoing. (Nutex has yet to disclose this material event to shareholders)
• Nutex is being sued for breach of fiduciary duty by the physicians at its two New Mexico facilities.
• Nutex’s was served a Draft Complaint by its partners at Fort Smith ER & Hospital.

Nutex’s reputation is catching up with it and partners are fighting back. We believe it’s only a matter of time before more physician groups and ERs part ways with the company, causing others to follow their lead.

If you are a Nutex partner or shareholder, we encourage you to do your own research into these serious allegations. In Nutex’s home market of Texas, it’s an open secret in the medical community that Vo and Nutex have a reputation of ripping off partners. It doesn’t take much to find a former partner or employee willing to share their experiences. There are also a number of civil lawsuits filed in state courts that pull back the curtain on how Vo and Nutex operate.

We’ve spent months investigating Nutex and its management. We interviewed over twenty people connected to the company, including physicians, partners, and employees. Our investigation included an extensive review of state filings, SEC filings, legal records, property records, medical billing data, and much more.

Key Findings

• Nutex has been booted from over a dozen ERs after physician partners accused the company and Vo of wrongdoing including fraud, self-dealing, and embezzlement.

• Austin ER kicked out Vo and Nutex, after partners discovered Vo was embezzling hundreds of thousands of dollars, and secretly redirecting money from physicians to entities he controlled. The Austin physicians, including a Nutex board member, filed a lawsuit alleging “brazen acts of fraud and embezzlement resulting in the loss of millions of dollars by Plaintiffs.” Vo settled the lawsuit out of court and got the plaintiffs to sign NDAs restricting them from disclosing his wrongdoing.

• In Dec 2023, Nutex was kicked out of Kyle ER after a physician, and Texas state senator, sued Nutex and Vo alleging fraud and breach of contract. Excluding Vo, six of the seven physician partners voted to remove Vo as operations manager and to terminate all contracts with Nutex. The partners then got a court order to enforce the removal of Vo and Nutex. Nutex is currently appealing the case on technical grounds. The physician group remains in control of the ER and is operating it without Nutex or Vo. Nutex has yet to disclose to shareholders that there’s an ongoing lawsuit or that it was booted from Kyle ER.

• Concho Valley ER booted Vo and Nutex, and filed a lawsuit alleging that Vo “intentionally and fraudulently injured the Concho Valley ER and its members through self-dealing and by blatantly breaching the fiduciary duties…” The plaintiffs sued to recover damages “in excess of $1,000,000.” Vo was accused of signing deals with companies that he secretly controlled, and then using those secret deals to divert money earned by physicians into an entity that he controlled and used “as a personal slush fund”. Vo settled the lawsuit and got the plaintiffs to sign NDAs restricting them from disclosing his wrongdoing.

• Vo is accused of directing Tyvan, Nutex’s billing subsidiary, to prioritize collections for some ERs while neglecting others. Vo allegedly prioritized collections for ERs in which he owned a larger stake, and he also neglected collections for some ERs to pressure and punish partners that questioned his fraudulent actions. These allegations were made by multiple unrelated physician groups and former Nutex employees who worked in billing and collections.

• Vo is accused of making large money transfers, often hundreds of thousands of dollars, from ER bank accounts and into other entities that he controlled. There were no invoices, documentation, or business justification for these transfers. Nutex Physicians allege that Vo used the money to fund other ERs which he owned. These accusations are corroborated by a former Nutex accountant with first hand knowledge of the transfers.

• Vo is accused of manipulating Nutex’s revenue by siphoning money from affiliated entities into Nutex via undocumented “fees”. Nutex physicians allege that the fees amounted to tens of thousands of dollars a month, per facility, and that Vo said they were to “support the stock price”.

• Vo secretly had the mature ERs guarantee equipment leases for new ERs that he was creating and which he personally invested in. When Vo’s new ERs had financial problems and missed lease payments, the physicians who owned the mature ERs bore the cost. Worse yet, according to the terms of the lease, once the ERs had fully paid for the equipment, it would become Nutex property. This is blatant self-dealing and a violation of Vo’s fiduciary duty to the ER owners.

• In 2023, Nutex conducted an internal audit after ER physicians pressured the company about large discrepancies in the payments they were receiving. The audit found that Nutex lacked the proper technology to handle billing and collections and that they failed to negotiate at least 30,000 claims. The auditor reported that “there were definitely more”, but poor recordkeeping made it hard to quantify. This all occurred the year after Nutex listed on the Nasdaq and with the same people who currently lead billing and collections.

• Nutex’s Director of Revenue Cycle, who is in charge of medical billing and collections, was fired from her previous job at Autimis Medical Billing & Coding, with a manager alleging that she was involved in fraud. A former Autimis executive also confirmed that she was fired, adding “All I can say is that I would never rehire her.”

• On two occasions the person in charge of Tyvan quit to start their own billing company and Nutex ERs left with them as founding clients. After leaving Nutex/Tyvan, the ERs reported drastically improved collections and profitability. Of the ERs that left, none have returned to work with Vo or Nutex.

• The physician owners of one Nutex ER allege that an employee under Vo’s supervision stole an estimated $500,000 from their ER. They allege that the employee used company funds to pay for gift cards, Venmo transactions, and a home security system, among other things. Vo failed to detect this obvious theft, despite the fact that he was the managing partner responsible for the finances. The theft is now being investigated by the local police.

Ownership Structure and Conflicts of Interest

To understand Nutex, you first need to understand how the company is structured, what each entity does, and who actually owns them. Then, we can look at the glaring conflicts of interest, and examine how the CEO is accused of exploiting his position for personal gain.

Each Nutex ER is composed of three distinct entities:

• The ER company operates the ER and is majority owned by Nutex. It provides the operating equipment and supplies, and employs the local non-physician staff.
• The physician group responsible for staffing the ER with doctors. This entity is owned by physicians, including some of the doctors who work in the ER and Nutex executives who do not.
• The real estate company owns the land and buildings from which the ER operates. It is owned by related parties, most commonly Nutex’s CEO and sometimes the ER physicians.

Nutex does not have direct ownership in the physician groups or the real estate companies. However, Nutex manages the physician groups and real estate entities through contractual agreements, which grant Nutex operational control, which includes handling their accounting and billing.

source: Nutex 2024 10-K

CONFLICTS OF INTEREST

Nutex’s complex structure and insider ownership of related entities, creates conflicts of interest, which the CEO is accused of exploiting for personal gain.

• Vo is Nutex’s CEO, Chairman, and largest shareholder with 33% of shares outstanding.

• When Nutex expanded to new locations, Vo personally purchased the land, and had Nutex co-sign to guarantee the mortgages.

• Vo owns the real estate from which Nutex ERs operate. Nutex then pays Vo through long-term leases on a triple net basis, paying for all operating costs, repairs, and taxes.

• Nutex loaned millions of dollars to the real estate companies it leases from, and which are owned by related parties, including Vo. Similar loans were forgiven by Nutex when the company went public.

• Vo has ownership in most of Nutex’s affiliated physician groups. These entities are owned by physicians and contract with Nutex, which also manages them.

• Nutex, and therefore Vo, have managerial control over the affiliated physician groups and real estate companies, including their accounting, billing, and contracting.

• Nutex charges management fees and other expenses to related companies which it controls but does not own. These fees amount to millions of dollars a year.

• Nutex ERs paid millions of dollars in managerial fees to company insiders.

Physicians File Lawsuits and Allege Criminal Wrongdoing

Multiple physician partners have filed lawsuits against Nutex and its CEO, alleging fraud, self-dealing, and unethical business practices. The lawsuits include similar allegations, made independently and often years apart. They are also corroborated by other Nutex physicians who didn’t file lawsuits, but claim to have been defrauded through similar schemes. These persons include Nutex medical directors, ER physicians, and former board members.

“I did witness funds being transferred between the different locations.”

“I’ve seen [facilities] pay for billed services, and I’ve seen funds just transferred back and forth as well. It was kind of strange that the business and [Vo’s] personal stuff seemed to be intertwined.”

– K, Former Nutex insider

Kyle ER Sued Nutex and its CEO and Took Control of Their Facility

In December 2023, the physician partners at Kyle ER booted Nutex and took control of their ER company and the physician group. The entities had been controlled by Nutex and Vo, which they are accused of using to extract value at the expense of the physician partners.

source: Campbell v Nutex; Hays County, Texas; 274th Judicial District; Cause no. 23-2458

The physician partners allege Nutex and Vo charged excessive and arbitrary fees to their companies and Nutex refused to provide documentation to support the fees.

“[Vo] never paid me back and he was getting more every month, $30,000. Never invoiced us. Never said what that was for.”

– Physician B, Owner at Kyle ER and physician group

Vo is alleged to have justified the increased fees by saying they were necessary to support Nutex’s stock price.

“On a phone call with all the partners, I said what is that money for? And he said, ‘Oh well, it’s to manage the stock. You’ve got to have money to support that’”

“… he was talking about how people have bought the stock. I mean school teachers, people that worked really hard…And this is why he said ‘we have to support the stock, make it strong, because for them.’ I said, I care about the amount that’s going out of this ER, that should be coming to me. And you’re taking it.”

– Physician B, Owner at Kyle ER and physician group

If true, this is a clear case of manipulating Nutex’s financials by diverting funds from related entities, which have owners other than Nutex, and into Nutex as reportable revenue.

Many of the physicians own large amounts of Nutex stock and would be amenable to go along with this ruse. These allegations are especially troubling given Vo’s history of fraudulently moving funds between Nutex’s related entities.

The Kyle ER physicians succeeded in getting a court order to take control of the facility away from Nutex and Vo:

Austin ER Physicians and Board Member Sued Nutex and its CEO for Fraud and Embezzlement

Austin ER, LLC v. Tom Vo, et al., D-1-GN-18-005394, 201st Judicial District Court, Travis County, Texas

Nutex and Vo settled the lawsuit with Austin ER, which is now managed by its physician owners. In fact, the Director of Operations at Tyvan, Nutex’s billing subsidiary, quit and started her own billing company with Austin ER as a founding client.

Concho Valley ER Sued Nutex and its CEO for Fraud

Concho Valley ER v. Tom Vo, et al., A190440C, 51st Judicial District Court, Tom Green County, Texas

Nutex and Vo settled the lawsuit. Concho Valley ER continues to operate and is now managed by its physician owners.

Nutex’s Albuquerque Physicians Sued Nutex and its CEO for Secretly Changing Contract

In Nov 2023, a group of physicians signed contracts to merge their hospitals into Nutex. The contract in question was signed on the same day that Nutex signed an agreement to go public through a reverse merger.

The contract between Nutex and the physicians details how many Nutex shares the physicians would receive in exchange for merging their hospitals into the company. However, the contract did not include a provision to adjust the number of shares in the event of a reverse stock split. This oversight became a major problem for Nutex when the company’s share price dipped below $1 and it needed to do a reverse split to maintain its Nasdaq listing.

VLS EMERGENCY MEDICINE LLC v NUTEX HEALTH HOLDCO LLC, 202526239, 157th Civil District Court, Harris County, Texas

In April 2024 Nutex executed a 1-for-15 reverse stock split. One month after the split was effective, Nutex CEO Thomas Vo unilaterally changed the contract to account for reverse stock splits. Vo signed the contract as the representative of both parties to the contract, Nutex and the sellers. Vo signed the contract without informing the sellers, or getting their consent, which is a clear violation of his fiduciary duty to the sellers.

Given their ongoing relationship operating the Albuquerque hospitals, it’s reasonable to assume that the sellers and Nutex could have resolved the matter amicably, with the sellers receiving some consideration for amending the contract. But, in a clear demonstration of Vo’s character, he never informed the sellers of the change. He disregarded his fiduciary duty to the sellers, signed the contract and hoped they wouldn’t notice.

The lawsuit is a prime example of Vo’s unethical business practices and his willingness to deceive and defraud partners for his personal benefit. Unfortunately for Nutex, the seller group includes the physicians who operate Nutex’s two Albuquerque hospitals and jeopardizes Nutex’s continued operation of these hospitals. We wouldn’t be surprised if the physicians cut ties with Nutex, as many others have in the past.

Summary

After extensive research including interviews with former insiders and partners, we believe that Nutex Health (NASDAQ: NUTX) and its founder CEO have engaged in a pattern of fraudulent and unethical business practices.

The company’s reputation is catching up with it, lawsuits are mounting, and partners are breaking ties. Nutex is dependent on its partners who own the physician groups and have ownership in the ERs. Nutex cannot operate without them and if the company loses their trust and support, the company will struggle to survive. Physicians can break ties with Nutex, sell their shares, and if necessary, they can work in alternative ERs. They are not captive to Nutex or its ethically challenged CEO.

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