According to a press release dated July 25, 2011, the complaint charges the company and certain of its officers and directors with violations of the Securities Act of 1933 and the Securities Exchange Act of 1934.
The complaint alleges that during the Class Period, defendants issued materially false and misleading statements regarding the Company’s business practices and financial results. Specifically, the Company defrauded investors by inflating the value of its assets and concealing its lack of liquidity over the course of several years by fraudulently accounting for reinsurance contracts which were, in essence, loans by, among other things: (i) failing to employ adequate risk transfer tests to determine if reinsurance contracts qualified for “reinsurance” rather than “deposit” accounting; (ii) maintaining ineffective controls while assuring investors that the Company’s controls were effective; (iii) using privately held foreign assets domiciled in jurisdictions with lax oversight to permit the Company to manipulate its investment income; (iv) failing to properly account for losses in companies that should have been consolidated with Fairfax; (v) improperly accounting for intercompany transactions; and (vi) using “investments” to funnel money to cash strapped subsidiaries.
On March 22, 2006, the Company revealed that the Securities and Exchange Commission (“SEC”) had subpoenaed records of all of the Company’s finite reinsurance contracts in the previous year and that the SEC had subpoenaed the Company’s Chairman and Chief Executive Officer, in connection with his denials of the use of finite reinsurance contracts. In March 2006 the Company announced it also disclosed that the Company’s auditor, received a subpoena from the SEC. In response to these disclosures, the price of the Company’s stock fell $19.97 per share, or 13%, to close at $113.93 per share, representing a decline in market capitalization of approximately $300 million. Then, on July 29, 2006, the Company revealed that it would restate its financials going back to 2001.
On August 13, 2012, the Court issued an Order granting defendants' motions to dismiss. The Clerk of Court was directed to close this case.
On September 19, 2012, a Notice of Appeal was entered into the Court's docket. According to the Mandate by the US Court of Appeals issued on October 12, 2012, the parties filed a stipulation withdrawing the earlier appeal.