Amtrust Financial Services, Inc. and its former CFO, Ronald E. Pipoly Jr., have been charged by the Securities and Exchange Commission (SEC) for failing to disclose crucial information regarding the company’s estimation of insurance losses and reserves. To settle these charges, AmTrust and Pipoly have agreed to pay a combined penalty of $10.5 million.
The SEC’s complaint alleges that AmTrust and Pipoly did not adequately disclose the process used to determine management’s best estimate of loss reserves in SEC filings. While the company outlined its general actuarial process for estimating these reserves, it omitted the fact that Pipoly implemented consolidated accounting adjustments that deviated from actuarial analyses and estimates. The SEC claims that these adjustments lacked proper consideration of actuarial findings. Furthermore, AmTrust failed to reveal the specific factors and assumptions behind Pipoly’s adjustments and did not maintain adequate documentation supporting management’s best estimate. The SEC complaint also states that AmTrust and Pipoly failed to disclose the loss contingencies stemming from Pipoly’s adjustments to the company’s historical experience. By the end of 2015, these adjustments surpassed $300 million and affected all of AmTrust’s reporting segments.
Filed in the Southern District of New York, the SEC’s complaint charges AmTrust and Pipoly with violating antifraud provisions of the Securities Act of 1933, specifically Sections 17(a)(2) and 17(a)(3). They are also charged with violating or aiding and abetting violations of reporting, record-keeping, and internal controls provisions of the Securities Exchange Act of 1934, including Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Rules 12b-20, 13a-1, 13a-13, and 13a-15(a). AmTrust and Pipoly have consented to permanent injunctions against future violations of these provisions without admitting or denying the allegations. AmTrust will pay a $10.3 million penalty, while Pipoly will pay $75,000. Additionally, Pipoly agreed to disgorge $140,000 and pay $22,499 in prejudgment interest. These settlements are pending court approval.
The SEC’s Fort Worth Regional Office conducted the investigation, led by Christopher W. Ahart, Kimberly Cain, Keith J. Hunter, and Franklin Wyman, under the supervision of Jim Etri and Eric Werner. The litigation is being handled by Keefe Bernstein and B. David Fraser of the Fort Worth office.
