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Activist hedge fund Engine Capital has built a stake in one of America’s largest providers of mental health services, arguing that it needs a board refresh as it faces multiple federal probes.

Engine revealed its roughly 3 per cent stake in Acadia Healthcare in a letter to the board, seen by the Financial Times, which called for the company to review its asset portfolio, improve its board directors and halt capital-intensive projects for new facilities.

Engine’s move, which puts it among Acadia’s 10 biggest investors, came as the behavioural health company faces Department of Justice and Securities and Exchange Commission investigations into allegations of holding patients against their will and falsifying insurance claims.

Shares in Acadia, which operates more than 250 facilities nationwide, including psychiatric hospitals and opioid recovery clinics, are down 71 per cent over the past year, giving it an equity value of just over $2bn.

The company first told investors about the government probes last autumn. They cost it $84.5mn in legal costs in the first six months of this year.

Acadia did not immediately respond to requests for comment. Engine declined to comment.

In the letter, Engine accused Acadia of maintaining a “growth at any cost” approach that has given rise to a bloated corporate structure. It also wrote that a 2022 reorganisation left it with an unwieldy management structure that has stifled the company’s turnaround.

Engine called for the Tennessee-based company to add new directors with expertise in behavioural health and capital allocation.

“It is stunning that Acadia’s board does not have a single director with relevant operating experience,” Engine wrote in its letter to the board. It also encouraged the company to consider asset sales to free up cash to buy its “deeply undervalued” shares.

On an earnings call last month, Acadia’s chief executive Chris Hunter said he was “pleased” with the company’s progress. Hunter, a former executive at heath insurance group Humana, has led the company since 2022.

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Hunter added that “we’re committing to and have been committed to conducting a very thorough and independent review of our operations, while continuing to work very cooperatively with the DOJ and the SEC”. Acadia has already struck several settlements with authorities in past cases.

Founded in 2013 by Arnaud Ajdler, Engine Capital has targeted a wide array of companies, including industrials group Flowserve, oil and gas company Parkland Corporation and most recently diagnostics group Avantor.

Engine has claimed several victories this year. UK engineering business Smiths Group conceded to its calls for a break-up. Lyft made changes to its board and dual-class share structure not long after the hedge fund ended a campaign for these moves.