Part 4: A dysfunctional system

By 2000, it was clear that the expansion strategy had backfired spectacularly. Demand failed to keep pace with the supply of new beds. The stock price plummeted from a high of $35.25 a share in early 1998 to below $3 in 2000.

Company founder William F. Lasky, who did not respond to repeated requests for comment, resigned as chief executive in September 2000. He was replaced by Steven L. Vick, who also did not respond to phone calls and a letter seeking comment.

Alterra lost $300 million in 2001 and $222 million in 2002. In 2003, it filed for bankruptcy.

As the financial troubles worsened, the company had difficulty retaining staff. Alterra's human-resources chief later told a trade magazine that there was an astounding 145 percent turnover among its 14,000 employees in 2000.

In several lawsuits, families of Alterra residents alleged that Alterra's efforts to save money resulted in substandard care. Alterra has denied that claim.

In 1997, the year after the company went public, 85-year-old Clara Farr wandered away from an Alterra residence in Wisconsin and suffered frostbite. The ex-administrator testified that his corporate bosses ordered him to keep staffing hours down to a level that hampered the home's ability to deliver the best care.

"I felt that we needed additional help, especially from about 7 a.m. to about 11 a.m., with resident care," Ronald Wolf testified. "I just didn't have it in the budget."

One former senior Alterra official said he believes that no one at Alterra ever knowingly made decisions that compromised quality of care.

"There was never a directive that the company was going to skinny down on any quality of care because of lack of funds," said Anthony R. Geonnotti Jr. of Langhorne, who joined Alterra in 1996 and became senior vice president before resigning in September 2002.

Alterra specialized in units designed for people with dementia and Alzheimer's disease - some of the most difficult residents to care for.

Most of the worst cases happened in those units, records show.

Public records describing incidents during that period show that the same types of mishaps occurred repeatedly at Alterra facilities across the country. Alterra did not admit wrongdoing in any of the cases. They included:

Sexual assaults by staff and residents

In August 2003, Alterra agreed to pay $75,000 to settle charges by New York state regulators that it covered up allegations of sexual abuse involving one of its workers.

In July 2002, Alterra paid a $10,000 fine after investigators determined that employees knew about and failed to stop an 84-year-old male resident who sexually assaulted at least four female residents at a home in New Philadelphia, Ohio.

In 2000, at an Alterra facility in State College, a male resident repeatedly assaulted female residents and Alterra employees did not report the assaults to police or to state regulators, according to court testimony.

Residents who wandered off and died

In February 2003, an Alterra resident with Alzheimer's crawled out an open window, walked into rush-hour traffic and was struck fatally by a car outside Fort Worth. Alterra paid $32,000 to the Texas Attorney General's Office and $565,000 to settle the family's wrongful-death lawsuit.