Washington —
The settlement stems from civil securities fraud charges brought against Zurich and Converium Holding AG, which formerly operated under the name Zurich Re until it was spun off in 2001.
The SEC's orders find that the companies designed three reinsurance transactions to make it appear that risk had been transferred to third-party entities when, in fact, the risk remained with Zurich-controlled entities. According to the SEC, Zurich Re—and later Converium—improperly used reinsurance accounting for the transactions enabling them to artificially inflate their performance figures. This misconduct allowed Zurich to receive a significant windfall when it spun off Converium in a December 2001 initial public offering. Converium continued the fraudulent scheme following the IPO, the SEC says.
"This was a scheme by former executives of Zurich Re, and later Converium, to manipulate their performance results through sham transactions and improper accounting," says Linda Chatman Thomsen, director of the SEC's Division of Enforcement. "It had the effect of artificially boosting Converium's market standing and IPO offering price, causing significant harm to the investing public."
None of the individuals responsible for these transactions has been employed by Zurich for several years, Zurich said in a statement.
“Zurich concluded that it was in the best interests of the company to resolve this matter with the SEC and thus eliminate the burden, expense and uncertainty of potential enforcement proceedings by the Commission relating to historical events and former employees,” the statement reads. “In entering into the settlement Zurich does not admit or deny any of the factual or legal allegations in the SEC’s order or complaint.”
Zurich and Converium, now known as SCOR Holding AG, will pay a $25 million penalty.
Sources: Securities and Exchange Commission, Zurich Financial Services
