Tower Group International

Case Details

Class Period: March 1, 2010 - December 17, 2013
Date Filed: August 20, 2013
Case Number: 1:13-cv-05852
Jurisdiction: Southern District of New York
icon-casetype Case Type: Securities Case

Case Summary

The Complaint brought forth claims for violations of the Securities Exchange Act of 1934 against Tower Group International (“Tower” or the “Company”), and certain of its senior executives.  The Complaint alleged that Defendants made false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects on behalf of all persons or entities that purchased or otherwise acquired Tower common stock during the Class Period.

Tower is a property-casualty insurance provider, primarily for commercial lines of business including commercial multi-peril and workers’ compensation.   As an insurance provider, Tower established loss reserves to ensure that it had sufficient liquid capital to pay submitted claims.   Every dollar added to loss reserves comes at the expense of net income for insurance companies.   The Company’s loss reserves were required to properly reflect Tower’s cost of claims exposure, whether known or unknown.   The value of the Company was largely determined by the amount of its “surplus” – the capital it hold in excess of its loss reserves.

Specifically, the Complaint alleged that the Tower Defendants knowingly inflated Tower’s financial results, including its net income, by understating loss reserves and masking internal control deficiencies in order to inflate the Company’s reported income and overall value.  Tower’s loss reserves were systematically under-reported because the Company misapplied claims and loss reserves to the wrong lines of business throughout the Class Period.  These miscalculations caused the ultimately need for catastrophic loss reserve increases when the truth of the accounting fraud was revealed.  Beginning in August 2013, Tower began disclosing that its loss reserves needed to be increased, suggesting that reserves had been materially understated since 2009.  The Company then postponed the release of its second quarter 2013 financial results and stated that it would increase its loss reserves by as much as $110 million. Ultimately, the Company reported approximately $233.4 million in false profits from 2009 through 2012.  In response to Defendants’ numerous partial disclosures admitting to what amounted to grossly inadequate reserves and fatally broken internal controls, Tower’s stock price fell $18.81 per share from August 7, 2013 to December 17, 2013, representing a decline of nearly 90% in market value.   The Company increased its loss reserves by $570 million, and ultimately was forced to sell itself in a firesale.

On June 17, 2014, the Court appointed Saxena White  P.A. as Co-Lead Counsel. The Court ‘s order noted that Saxena White had “significant experience in [the securities fraud class action] area” and was “well qualified to manage this litigation.”

On August 22, 2014, Lead Plaintiffs filed their Amended Complaint.  Following an extensive investigation, full briefing on the Tower Defendants’ motion to dismiss, nearly two years of hard-fought litigation, mediation between the Plaintiffs and the Tower Defendants commenced on June 9, 2015.  Further discussions continued, and on June 22, 2015, Saxena White successfully negotiated an agreement to settle the claims for $20,500,000 for the benefit of the Class.  On August 13, 2015, the Court preliminarily approved the settlement, and then on November 23, 2015, the Court entered a final approval finding the settlement to be fair, reasonable and adequate in all respects.