According to a press release dated February 8, 2008, HCC Insurance Holdings, Inc. announced that it has reached a settlement, subject to court approval, with the plaintiffs in class action litigation relating to the Company's historic stock option granting practices. The company previously announced on January 9, 2008 that it had reached a settlement in the shareholder derivative litigation regarding the stock option matter. With today's announcement, all private securities litigation pending against the Company regarding the stock option matter has been resolved. The terms of the settlement, which includes no admission of liability or wrongdoing by HCC or any other defendants, provide for a full and complete release of all claims in the litigation and payment of $10 million to be paid into a settlement fund, pending approval by the Court of a plan of distribution. The $10 million will be paid by the Company's directors' and officers' liability insurers, and will not have a material effect on HCC's financial results. Once approved, the settlement will resolve all class action litigation pending against the Company, as well as its former and current directors and officers.
On March 13, 2007, the plaintiff filed a First Amended Complaint. On May 30, 2007, Judge Sim Lake granted the motion to appoint the Massachusetts Public Pension Funds as lead plaintiff and for approval of selection of counsel. On July 20, 2007, a Second Amended Complaint was filed.
The original complaint alleges that Defendants violated Sections 10(b), 20(a) and 14(a) of the Securities Exchange Act of 1934 and Rule 10b-5, and Rule 14(a)-1 to 14(a)-9 promulgated thereunder. Specifically, the complaint alleges that Defendants: (1) backdated stock option grants, such that the description of the Company's granting practices in the Company's financial reports were untrue; (2) the Company's reported earnings and shareholders' equity was artificially inflated in each of its financial reports during the Class Period due to understated compensation expenses; and, (3) the Company's financial reports were not presented in accordance with GAAP and were artificially inflated and did not accurately present the Company's actual performance.
The complaint further alleges that on November 16, 2006, after the market closed, HCC announced that it had backdated option grant dates from 1997 through 2006 and that it would restate financial reports previously filed with the SEC and disseminated to investors in press releases. In response to this announcement, the price of HCC stock dropped materially falling from a close of $31.64 on November 17, 2006, to a low of $28.81 on November 20, 2006 (the next trading day), representing a one-day share price decline of 9% on volume of 6.6 million shares.
On July 17, 2008, an Order was entered approving a Plan of Allocation, another Order granted a Motion for Attorney Fees. On the same day, an Order and Final Judgment was also entered, thus settling the case.
On December 28, 2009, an order concerning distribution of net settlement fund to authorized claimants and related matters was entered into the court’s docket.