Insurers Sued Over Stock Declines
Chandler Insurance Company and Reliance Group Holding both have been hit with lawsuits claiming shareholders were harmed by actions that caused the companies' stock prices to fall.
Chandler, based in the Cayman Islands, said that three civil lawsuits were filed against Chandler Insurance Company, Ltd., Chandler (U.S.A.), and all of Chandler's directors in early June. The lawsuits were filed on behalf of three different plaintiffs in state district court in Oklahoma City, Oklahoma by the same law firm.
The suits allege that plans announced on June 1, 2000 by Brent LaGere, Chandler's chairman of the board and chief executive officer, to take Chandler private are detrimental to the public shareholders. The suits also request that they be certified as class actions and that the court enter a temporary restraining order to prevent completion of the announced plan.
The suits also claim that all defendants have breached and are breaching fiduciary duties owed to the plaintiffs and other shareholders.
The following week, CenTra, Inc. and certain of its affiliates made similar allegations in an already pending lawsuit involving a court-ordered divestiture of Chandler shares owned by CenTra. CenTra requested that the court enjoin and restrain LaGere and others from completing the announced plans.
Chandler has not responded to the allegations of the suits or the motions filed by CenTra. ``Chandler and its subsidiary, Chandler (U.S.A.), Inc., will respond to the allegations in a timely manner,'' said Pat Gilmore, general counsel to Chandler's U.S. based subsidiaries.
According to Gilmore, Chandler's board of directors appointed a three member special committee of independent directors to review any proposal submitted in connection with the announced plan. ``The Committee has not received a formal proposal for going private, but they have met and are in the process of identifying and retaining an investment banking firm at this time. The Committee, Mr. LaGere and Chandler's other directors are aware of the lawsuits and other filings and I am sure they are carefully considering the impact, if any, upon the announced plans,'' Gilmore said.
At the end of the month, the law firm of Wolf Haldenstein Adler Freeman & Herz LLP filed a class action lawsuit on behalf of purchasers of the securities of Reliance Group Holdings between Feb. 8, 1999, and May 10, 2000, inclusive.
The action is pending in the United States District Court for the Southern District of New York against the firm, as well as Saul Steinberg, chief executive officer and director; Robert Steinberg, president and chief operating officer; Howard Steinberg, chief of corporate operations; and Lowell Freiberg, chief financial officer and director.
The complaint charges that defendants violated Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated thereunder, by issuing a series of material misrepresentations to the market between Feb. 8, 1999, and May 10, 2000.
For example, as alleged in the complaint, on March 31, 1999, defendants, in their financial statement filed with the SEC for its fiscal 1998 operations, stated that the company's reinsurance contracts were valid, and that it expects to recover the full amount of such coverage.
"This statement was false and misleading, and defendants knew, or recklessly disregarded its falsity, because the company was notified, prior to making the statement, that several reinsurance companies terminated their obligations to the company," the law firm says. "Because the company's obligations to its insureds remained intact, the company's expected losses exceeded $150 million. Furthermore, this $150 million loss should have been reflected as a charge to income, under Generally Accepted Accounting principles, and was not, thereby, masking the company's true, and impaired, financial condition and prospects.
In May, the suit adds, the company reported that its first fiscal 2000 quarter would see an operating loss of $.31 per diluted share, which represented a greater loss than the comparable 1999 quarter. That day the price of Reliance Group stock closed at $2.625, a decline of more than 40 percent from the class period high of $11 per share.
RGH's spokesman did not return a call requesting comment.