Three stockholders claim in federal lawsuits filed today and yesterday that USF&G Corp. and its lame-duck chairman, Jack Moseley, misled investors by promising continued dividends on company stock.
The suits were filed in U.S. District Court in Baltimore by local attorney Charles J. Piven on behalf of plaintiffs Frank Tischler of Parkton and David Schenning of Ellicott City, and for Eliezer Rabinovits, of Kings County, N.Y. Rabinovits also is represented by three New York law firms.
The suits claim that Moseley and USF&G knowingly misled stockholders and prospective investors by issuing public statements that the company was in good financial health and that it would continue to follow its longstanding policy of paying high dividends. Those statements violated the Securities and Exchange Act and Security and Exchange Commission rules, the plaintiffs alleged.
Plaintiffs also claimed that the defendants pursued a "scheme and continuous course of conduct to inflate the market price of USF&G stock."
The lawsuits closely followed USF&G's announcement Wednesday that it had a net loss of $15 million, or 22 cents per share, during the third quarter of this year, and that it would cut its its quarterly dividends from 73 cents to 25 cents a share. The dividend reduction means a cut in the annual payout to $1 a share from $2.92.
Lawyers for the plaintiffs requested certification of the suits by a federal judge as class-action proceedings, to represent all investors who purchased USF&G's common stock between May the day of the company's annual stockholders' meeting, and Nov. 6.
Rabinovits' suit estimated that there are at least "hundreds" of stockholders in the class. The Tischler-Schenning suit said USF&G had about 44,000 stockholders of record, with more than 86.6 million shares of stock outstanding, as of March 16.,
Both suits said damages to each investor might be "relatively small," but said class action certification was requested because "the expense and burden of individual litigation makes it impossible" for each class member to seek redress from the company.
The suits sharply attacked Moseley for telling stockholders at the May meeting that "USF&G, as a corporation, is prepared to act and profit from change, no matter what its form. But I can't remember when I felt more excited -- and more secure -- about the future of USF&G."
Armed with that information, the plaintiffs purchased USF&G stock. Schenning bought 1,000 shares at $25 per share, Tischler bought 200 shares for more than $28 per share and Rabinovits bought an unspecified number of shares in the company.
But the stock price dropped and, as a result of Wednesday's announcement, so did the plaintiffs' expected dividends.
In addition, the nearly identical suits noted that Public Citizen, a Ralph Nader consumer organization, reported Oct. 15 that USF&G and other insurance companies would be threatened with insolvency in the event of a severe economic downturn.
A day later, the company denied that it would be vulnerable to a downturn.
Moseley hotly called the Nader report "irresponsible in the worst extreme" and said USF&G had received high marks from several insurance rating agencies.
On Wednesday, the company announced its third quarter losses, the dividend reduction, Moseley's retirement after nine years as chairman and a $75 million cost-cutting plan that includes an estimated 2,500 layoffs or job reductions by attrition.
"Throughout the class period, defendants knew or were reckless in not knowing, based on facts available to them, that their statements made and disseminated [to the public] were false and misleading," Rabinovits' suit said.