In re SCOR Holding (Switzerland) AG Securities Litigation (F/K/A In re Converium Holding)
SRKW acted as co-lead counsel in the Converium/SCOR action, a landmark case on several fronts. First, the $143 million settlement was the first trans-Atlantic resolution of a U.S. securities class action (in the U.S. District Court for the Southern District of New York and the Netherlands). Second, the Amsterdam Court of Appeal, which had jurisdiction over the non-U.S. portion of the settlement, substantially expanded its reach in the matter making it much easier for U.S. and European investors to use Dutch law in the future to protect their interests.
The action was brought against Switzerland-based Converium Holding AG (“Converium” or the “Company”) and Zurich Financial Services (“ZFS”). (Converium was acquired in 2007 by the French company SCOR and is now known as SCOR Holding (Switzerland) AG).) Converium was a major multi-line re-insurance company that was spun off in an initial public offering ("IPO") by ZFS in 2001. Investors alleged that prior to this IPO, an independent actuarial firm identified a reserve deficiency of approximately $350 million at Converium's North American division. Despite being informed of that deficiency, the Company proceeded with the IPO without sufficiently increasing its loss reserves. Thereafter, the Company and its senior officers touted Converium’s continuously improved financial condition while concealing a growing reserve deficiency in North America. After a second independent actuary determined that the reserve deficiency had grown to approximately $437 million as of year-end 2002, the Company concealed that deficiency by “novating,” or transferring, millions of dollars in poorly performing contracts from North America to Converium’s Zurich division, and by reorganizing the Company to no longer report financial results by geographic division. Ultimately, the Company was unable to continue concealing its reserve deficiency and, on July 20, 2004, announced that it would take a charge of at least $400 million to increase its reserves. That disclosure caused the price of Converium’s U.S. listed shares to collapse by nearly 50%. Shortly thereafter, Converium put its North American business into runoff.
The Landmark Dutch Settlement
On January 17, 2012, the Amsterdam Court of Appeal declared binding the two non-U.S. settlement agreements in the litigation – for an aggregate recovery of $58,400,000. (The U.S. portion of the overall settlement totaled $84,600,000) In doing so, the Dutch court confirmed as final the expansive view of its jurisdiction set forth in its first landmark ruling on November 12, 2010, where it had announced that it had jurisdiction to declare the international settlements of the Converium/SCOR action binding, even though the claims were not brought under Dutch law, the alleged wrongdoing took place outside the Netherlands, and none of the potentially liable parties and only a limited number of the potential claimants were domiciled in the Netherlands. That decision, which is now final, recognizes that all other European Union Member States, as well as Switzerland, Iceland and Norway, must recognize the Court of Appeal’s ruling, under the Brussels I Regulation and the Lugano Convention.
As a result of these two decisions by the Amsterdam Court of Appeal, the Netherlands has taken the most pragmatic approach within Europe to aid investors and other claimants. It means that parties can reach a settlement of an action based outside the Netherlands and then use the Dutch courts and the Dutch Act on the Collective Settlement of Mass Claims (the “Dutch Collective Settlement Act”) to make that settlement binding on an entire class on an “opt out” basis as occurs under U.S. class action procedures. The approach taken in the Netherlands is important for all investors. This was underscored by the U.S. Supreme Court’s 2010 decision in Morrison v. National Australia Bank, which restricted the rights of investors to bring claims before U.S. courts for shares not purchased on a U.S. exchange. Thus, when U.S. courts will not hear their claims, European (and American) investors will more readily look to resolve them in European courts. The Dutch Collective Settlement Act, and the Court of Appeal’s recent ruling in the Converium/SCOR case, will make it easier for them to do so.
Details and relevant documents pertaining to the settlement are available at www.scorsecuritieslitigation.com.