According to the Company’s FORM 10-Q for the quarterly period ended June 30, 2006, on March 19, 2004, amended complaints were filed in both the Azzolini and Bernstein actions. The amended complaints assert claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5 against UnumProvident and one of our officers. The Azzolini plaintiff seeks to represent a putative class of purchasers of certain CorTs certificates between March 21, 2001 and March 24, 2003. The Bernstein plaintiff seeks to represent a putative class of purchasers of a different series of CorTs certificates between February 8, 2001 and March 10, 2003. On April 19, 2004, the defendants moved to dismiss the complaints in each of these actions. On September 12, 2005, the court issued a Memorandum and Order granting the motion to dismiss filed by the Company. On January 12, 2006, the Azzolini plaintiffs filed a notice of appeal from the court’s decision dismissing this action. The Company has reached an agreement in principal to resolve the claims of the Azzolini plaintiffs.
On May 7, 2003, the first of three identical putative securities class actions was filed in the Southern District of New York, which were later consolidated under the caption Azzolini v. CorTs Trust II for Provident Financial Trust, et al. This action alleges claims on behalf of a putative class of purchasers of UnumProvident Corporate-Backed Trust Securities (CorTs) certificates that were issued by certain underwriter defendants unaffiliated with the Company. Plaintiff alleges that the Company and certain of our officers violated the Securities Exchange Act of 1934 and that the underwriter defendants violated the Securities Act of 1933, all premised on the same factual allegations as the earlier-filed putative securities class action. A fourth action, Bernstein v. CorTs for Provident Financing Trust I, et al., was filed in the Eastern District of New York on July 7, 2003. The Bernstein action makes identical allegations, but with respect to a different series of CorTs securities. These actions all were transferred to the Eastern District of Tennessee for coordinated pre-trial proceedings.
The original complaint charges CorTS Trust II for Provident Financial Trust I, UnumProvident, Salomon Smith Barney and certain UnumProvident officers with violations of the Securities Exchange Act of 1934 and with
violations of the Securities Act of 1933. UnumProvident Corporation is the parent holding company for a group of insurance and non-insurance companies that collectively operate throughout North America and in the United Kingdom, Japan and Argentina. UnumProvident's principal operating subsidiaries are Unum Life Insurance Company of America, Provident Life and Accident Insurance Company, The Paul Revere Life Insurance Company
(Paul Revere Life) and Colonial Life & Accident Insurance Company (Colonial). UnumProvident, through its subsidiaries, is a provider of group and individual disability insurance. It also provides a complementary portfolio of other insurance products, including long-term care insurance, life insurance, employer-and employee-paid group
benefits and related services.
According to the CorTS IPO prospectus, UnumProvident Corporation guaranteed the payment of distributions on the Underlying Capital Securities but only to the extent that the Underlying Issuer had funds legally and immediately available therefor. On April 18, 2001, the first day of the class period, the CorTS were issued pursuant to the Prospectus and Registration Statement and began to publicly trade. The trust consisted of a single class of certificates, which represented interests in the trust and the certificates would only be paid through the trust. Therefore, the CorTS would only be paid if UnumProvident paid the original trust.
During the Class Period, UnumProvident falsely reported financial results because it did not properly account for the long-term impairment of its investments. Moreover, the financial information was inflated due to UnumProvident's overzealous denial of legitimate claims of its insureds through, what one federal judge deemed "a comprehensive system for targeting and terminating expensive claims." The financial statements and related press releases by UnumProvident identified above contained statements that were materially false and misleading when
On March 24, 2003, UnumProvident issued a press release in which they stated their intentions to restate financial statements from previous years. This put the payments of the CorTS in jeopardy and caused the CorTS to lose almost 50% of their value.