Zurich pays $25m for ‘sham’

Zurich Financial Services will pay a $25m (£16.7m) penalty to settle civil securities-fraud charges from the US regulator the Securities and Exchange Commission after it was alleged to have used “sham” reinsurance deals to inflate accounts.

The SEC said Zurich's former reinsurance group, which was later named Converium and sold to Scor, designed three reinsurance deals to make it appear that risk had been transferred to third-party entities, when it handn’t.

The SEC said: “According to the SEC's orders, 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. Zurich and Converium agreed to settle the SEC's charges without admitting or denying the SEC's findings, and Zurich will pay a $25m penalty.”

Linda Chatman Thomsen, director of the SEC's Division of Enforcement said: "This was a scheme by former executives of Zurich Re, and later Converium, to manipulate their performance results through sham transactions and improper accounting. It had the effect of artificially boosting Converium's market standing and IPO offering price, causing significant harm to the investing public."

Without admitting or denying the SEC's findings, Zurich and Converium agreed to the entry of cease-and-desist orders.

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. 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. None of the individuals responsible for these transactions has been employed by Zurich for several years.”

SCOR said: “The events described in the Order occurred before the November 2005 restatement of Converium's financial statements for the fiscal years ended December 31 1998 through 2004. Nearly two years after that restatement, in August 2007, Converium was acquired by SCOR and is now known as SCOR Holding (Switzerland) AG ("SHS"). SHS consented to the issuance of the Order without admitting or denying any wrongdoing. Two former Converium officers who are referred to in the Order ceased to be associated with Converium before the acquisition, and neither was ever associated with SCOR. There are no fines, disgorgement payments or financial remedies associated with the settlement.

Denis Kessler, chairman and chief executive said: "We are pleased that we have been able to conclude this legacy matter with the SEC relating to historical conduct at the former Converium, on a basis where no financial burden will be incurred. With this legacy matter behind us, we will continue to implement our strategy in order to ensure the long-term success of our company.”