Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Monday, February 2, 2009

Former RenRe CEO Found Liable for Sham Reinsurance Transaction

On January 27, 2009, after a six-day bench trial, the Hon. Gerard E. Lynch of the U.S. District Court for the Southern District of New York issued an opinion and order that held defendant James N. Stanard, the former chief executive officer of reinsurer RenaissanceRe Holdings Ltd. ("RenRe"), liable for securities fraud, including making false or misleading statements to auditors, providing false officer certifications, and violating and aiding and abetting violations of reporting, books-and-records, and internal controls provisions of the securities laws.

The SEC charged Stanard and the other defendants with fraud in connection with a sham transaction whose purpose and effect was to fraudulently defer more than $26 million of RenRe's earnings from 2001 to later periods. With Stanard's knowledge, RenRe fraudulently accounted for the sham transaction as "reinsurance," when in fact, as Stanard knew, the transaction transferred no risk and could not properly be accounted for as reinsurance. As a result of RenRe's fraudulent accounting treatment, RenRe materially understated income in 2001 and materially overstated income in 2002.

The court found that Stanard violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 and that Stanard aided and abetted violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13. The court permanently enjoined Stanard from violating or aiding and abetting violations of all these provisions of the securities laws and imposed a civil penalty of $100,000 but denied the Commission's request for an officer and director bar.

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