Amtrust Financial Services Inc., a global insurance company, and its former Chief Financial Officer, Ronald E. Pipoly Jr., have reached a settlement with the Securities and Exchange Commission (SEC) regarding charges of inadequate disclosure of critical information about the company’s estimation of insurance losses and reserves. The settlement involves a combined payment of $10.5 million to resolve the SEC’s allegations.
The SEC’s complaint outlines that AmTrust Financial Services Inc. and Pipoly failed to provide a transparent account of the methodology employed to report management’s best estimate for loss reserves in filings submitted to the SEC. While AmTrust disclosed its general actuarial process for estimating these reserves, the company neglected to reveal that Pipoly implemented consolidated accounting adjustments that did not align with actuarial analyses and deviated from the company’s own actuarial estimates. Furthermore, AmTrust Financial Services Inc. allegedly did not disclose the specific factors or assumptions underpinning Pipoly’s judgmental adjustments. The SEC also argues that AmTrust failed to maintain sufficient documentation to support management’s best estimate and did not adequately disclose the loss contingencies arising from Pipoly’s adjustments to the company’s historical data. By the close of 2015, these adjustments made by Pipoly had reportedly surpassed $300 million and affected all of AmTrust Financial Services Inc.’s reporting segments.
Filed in the Southern District of New York federal court, the SEC’s complaint accuses AmTrust Financial Services Inc. and Pipoly of infringing upon the antifraud provisions of Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933. Additionally, they are charged with violating or aiding and abetting violations of reporting, record-keeping, and internal controls provisions under Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934, along with Rules 12b-20, 13a-1, 13a-13, and 13a-15(a). Without admitting or denying the SEC’s accusations, both AmTrust Financial Services Inc. and Pipoly have consented to permanent injunctions against future violations of these regulations. As part of the settlement, AmTrust will pay civil penalties of $10.3 million, and Pipoly will pay $75,000. Pipoly has also agreed to disgorge $140,000 and pay $22,499 in prejudgment interest. The settlements remain subject to court approval.
The SEC’s investigation into AmTrust Financial Services Inc. was a collaborative effort led by Christopher W. Ahart, Kimberly Cain, Keith J. Hunter, and Franklin Wyman, under the supervision of Jim Etri and Eric Werner, all from the SEC’s Fort Worth Regional Office. The SEC’s litigation is being spearheaded by Keefe Bernstein and B. David Fraser, also from the Fort Worth office.
