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Case 6-10 SEC v. Zurich Financial Services
Background
On December 11, 2008, the SEC reached agreement with Zurich Financial Services (Zurich) to settle the commission’s charges against Zurich Financial Services Group for aiding and abetting a fraud by Converium Holding AG involving the use of finite reinsurance transactions to inflate improperly Converium’s financial performance. The commission’s complaint alleges that Zurich aided and abetted Converium’s violation of Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder. Under the settlement, Zurich consented to the entry of a final judgment directing it to pay a $25 million penalty plus $1 in disgorgement and, in a related administrative proceeding, consented to the entry of a cease-and-desist order against it.
http://devry.vitalsource.com/books/0077586859/content/id/id_0078025281_001_0071731 The accounting issue in question deals with the complex topic of reinsurance. The facts of the accounting fraud have been simplified as much as possible to focus mainly on the legal liabilities of the company.
Zurich is a corporation organized under the laws of Switzerland with its principal place of business in Zurich, Switzerland. Historically, Zurich operated its reinsurance business under the brand name Zurich Re, which operated as a separate division within Zurich Insurance Company (ZIC), a wholly owned subsidiary of Zurich, and through its North American subsidiary, Zurich Reinsurance (North America) Inc. (Zurich Re North America). Prior to Converium’s IPO, Zurich restructured its reinsurance operations and transferred substantially all of the reinsurance business operated under Zurich Re to Converium. In December 2001 and January 2002, pursuant to the Registration Statement and Prospectus, Zurich sold 40 million shares of Converium in the form of shares and American Depository Shares (ADSs), representing its entire stake in Converium, for proceeds of approximately $1.9…