Two lawsuits have been filed in U.S. District Court here charging that USF&G Corp. and its recently resigned chairman, Jack Moseley, misled investors by promising to continue dividend payments during good and bad times.
The two legal actions, one filed yesterday and other Thursday, allege that Mr. Moseley and the Baltimore-based insurance company violated federal securities laws by knowingly misleading investors in public statements related to its dividend policy.
USF&G said it would fight the suits.
"We have reviewed the lawsuits," said USF&G senior vice president and general counsel John A. MacColl yesterday, "and believe that they are without merit. . . . We intend to defend them vigorously." The suits are similar, said Charles K. Piven, a Baltimore attorney involved in both court actions on behalf of plaintiffs Eliezer Rabinovits of Kings County, N.Y.; Frank Tischler of Baltimore County; and David Schenning, whose address was not given in court papers. Mr. Tischler and Mr. Schenning were participants in the suit filed yesterday.
The suits claim that public statments made by the company and Mr. Moseley were "materially false and misleading" in that they unjustifiably misrepresented the true financial picture of USF&G and the likelihood that its dividend would be cut.
They both point to statements made by Mr. Moseley at the company's annual stockholders meeting May 2.
During that meeting, according to the court papers, Mr. Moseley said, "We believe that we have a basic duty to increase our shareholders' return value and total return to you. We have learned over the years that increasing our dividend to our shareholders through both good and bad cycles is sound business practice."
During another part of the meeting, Mr. Moseley is quoted in the papers as saying: "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."
The insurance company announced Wednesday that it was slashing its dividend and preparing for widespread layoffs to save hundreds of millions of dollars a year and that Mr. Moseley, who had been with the company for 37 years, was resigning.
The insurance giant said that its quarterly payment would be chopped to 25 cents a share from 73 cents a share.
USF&G also reported a $15 million third-quarter loss, compared to a loss of $17 million in the same period last year.
Based on the positive information about the company's future, Mr. Piven said the plaintiffs all purchased an unspecified number of USF&G shares. He said that Mr. Tischler and Mr. Schenning made their purchases on June 4, and Aug. 17, respectively.
The suits seek recovery of losses and damages suffered as a result their investments, court costs, attorney fees and any other relief the court may deem as just.
The suits also noted that Public Citizen, a consumer group founded by Ralph Nader, issued a report Oct. 15 stating that USF&G was one of five property and casualty insurance companies that would be threatened with insolvency in the event of a severe economic downturn.
USF&G strongly disputed the report.