Long-term-care insurance company Genworth has reached a $219M settlement with plaintiffs of a class action securities case claiming misrepresentations related to its business. The complaint alleges securities law violations by the insurer, its chief executive Tim McInerney, and ex-CFO Marty Klein, including misrepresentations of its core business’s profitability and the reporting of financial results that understated the needed reserves.
The inaccurate disclosures played a part in the significant drop in Genworth share’s price, causing shareholders to sustain damages. Meantime, Genworth continues to argue that the plaintiffs’ claims have no merit. The company said that it decided to settle to avoid the further cost and burden of continued litigation.
The lead plaintiffs in the case are the Canadian province of Alberta, which purchased over 1.2M Genworth common stock shares during the class period at issue, and the Fresno County Employees’ Retirement Association in California, which purchased nearly 200,000 shares. Genworth started reporting results of a review of its reserves for long-term-care insurance in October 2013.
The reserves are the funds put aside to pay for future benefits that are payable on policies. Shareholders were purportedly told that the reserves were “adequate” and that it included a “margin for future deterioration.”
Unfortunately, contend the plaintiffs, Genworth allegedly used information that was dated—from 2010 and before that—to make disclosures at the conclusion of 2013. The plaintiffs also claim that when it was to the benefit of the defendants, they would use data that was more accurate for lobbying or marketing purposes to raise rates.
In November 2014, Genworth took a $531M charge to increase reserves. It share prices plummeted by 55%, eliminating over $4.25M in market capitalization.
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Genworth settles shareholder suit, Pension and Investments, March 14, 2016
Genworth settles lawsuit alleging LTC insurance misreporting for $219 million, McKnight’s, March 15, 2016