The original Complaint charges 21st Century and certain of the Company's executive officers with violations of sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and S.E.C. Rule 10b 5 promulgated thereunder. Among other things, plaintiff claims that defendants' material omissions and dissemination of materially false and misleading statements concerning the Company's business and prospects caused 21st Century's stock price to become artificially inflated, inflicting damages on investors. 21st Century is an insurance holding company that engages in insurance underwriting, distribution and claims processing, primarily in the United States. The Company is authorized through its wholly owned subsidiaries to underwrite homeowners' property and casualty insurance, commercial general liability insurance, and personal automobile insurance in various states with various lines of authority.
The Complaint alleges that during the Class Period defendants reported the Company's financial results in a positive manner and issued positive financial guidance touting the Company's purportedly strong financial performance and prospects. Defendants, however, failed to fully disclose, and their assertions misleadingly failed to take into account, (i) the negative effect on the Company's financial performance and prospects resulting from their decision to increase loss reserves through the hiring of new actuaries; (ii) the increased competition from the state-backed Citizens Property Insurance Corp.; and (iii) the impact of increased reinsurance rates, and as a result of the foregoing, during the Class Period Defendants made false and misleading statements of present fact and financial guidance which misrepresented 21st Century's business and financial performance.
On May 3, 2007, 21st Century shocked the market when it announced disappointing financial results for the first quarter of 2007 and substantially lowered its previously issued guidance for 2007 from $4.50 per share to $2.00 to $2.50 per share. The May 3, 2007 press release also reported that prepaid reinsurance premiums had grown from $8,671,572 in the first quarter of 2006 to $16,972,078 in the first quarter of 2007. Loss and loss adjustment expenses had increased from $7,568,843 to $14,102,655 during that same period. In a conference call that day, the Company's CFO attributed the disappointing quarterly results, which were below market expectations, to the increased cost of reinsurance.
This negative news caused the Company's share price to plunge the next day by $8.94 -- a drop of more than 44% from the previous day's closing price of $19.11, to close on May 4, 2007, at $11.05 per share on extremely heavy volume of over two million shares traded.
According to the Company’s FORM 10-Q For The Quarterly Period Ended March 31, 2008, from July 27, 2007 to August 7, 2007, several securities class action lawsuits were filed against the Company and certain of its executive officers in the United States District Court for the Southern District of Florida on behalf of all persons and entities who purchased the Company's securities during the various class periods specified in the complaints. A consolidated amended complaint was filed on behalf of the class on January 22, 2008. The complaint alleges that the Defendants made false and misleading statements and failed to accurately project the Company's business and financial performance during the putative class period. The complaint seeks an unspecified amount of damages and claim violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 and Rule 10b-5. The Defendants filed their motion to dismiss the consolidated amended complaint on February 25, 2008. The Plaintiff’s response to Defendant’s motion to dismiss was filed April 22, 2008.
On November 7, 2008, Judge James I. Cohn signed the Order granting in part and denying in part the defendants’ motion to dismiss the Consolidated Complaint, without prejudice. The plaintiffs were granted leave to file an Amended Complaint by December 8, 2008, but the plaintiffs did not file an Amended Complaint. The parties soon after engaged in mediation.
On September 9, 2009, a Stipulation of Settlement was filed, settling the action in the Securities Class Action and the related Derivative Action. The Class Settlement Fund is in the amount of $2,240,000 in cash. For Derivative Settlement, 21st Century has undertaken or has agreed to undertake certain corporate governance changes. According to the Stipulation, Defendants agree to the payment on their behalf by their insurance carrier of the sums of (1) $2.24 million in settlement consideration in the Class Litigation; (2) $160,000 in attorneys' fees and expenses in the Derivative Litigation; and (3) $75,000 for administration costs.
On January 29, 2010, the Court entered the Orders signed by Judge James I. Cohn approving the settlement, approving the plan of allocation, awarding attorneys’ fees and expenses and dismissing the action with prejudice.