The Securities and Exchange Commission has announced securities fraud charges against James Stanard and Martin Merritt, the former CEO and former controller, respectively, of RenaissanceRe and also against Michael Cash, a former senior executive of RenRe's wholly-owned subsidiary, Renaissance Reinsurance Ltd.
The complaint, filed today in federal court in Manhattan, alleges that Stanard, Merritt and Cash structured and executed a sham transaction that had no economic substance and no purpose other than to smooth and defer over $26m of RenRe's earnings from 2001 to 2002 and 2003. The Commission also announced a partial settlement of its charges against Merritt, who has consented to the entry of an antifraud injunction and other relief.
Mark Schonfeld, director of the Commission's Northeast regional office, said: "This is another case arising from our ongoing investigation of the misuse of finite reinsurance to commit securities fraud. The defendants enabled RenRe to take excess revenue from one good year and, in effect, 'park' it with a counterparty so it would be available to bring back in a future year when the company's financial picture was not as bright."
Andrew Calamari, associate director of the Commission's Northeast regional office, said, "The investing public relies upon senior executives of public companies not to engage in transactions that are designed to misstate their companies' financial statements. Today's enforcement action underscores that the Commission will pursue culpable senior officials who are instrumental in constructing fraudulent transactions."
