A New York jury recently found a cell phone distributor’s risk manager liable for his alleged role in a scheme to commit securities fraud. According to the SEC’s allegations, the scheme involved the cell phone distributor’s purchase of a multi-year finite risk insurance policy, which enabled the company to spread a loss over several years. The SEC claimed that by spreading out the loss, the company overstated its earnings in violation of securities law.
Pursuing entities that abuse finite insurance and reinsurance to misrepresent earnings has been a “priority” for the SEC, according to Mark Schonfeld, director of the SEC’s New York regional office. Last fall, the cell phone distributor’s insurer entered a substantial settlement agreement over SEC and Department of Justice allegations that it sold products specifically designed to help its clients “cook their books.”
For more information on the jury verdict, click here.