Stockholders have charged USF&G Corp. and three former top-ranking officers with conspiring to mislead investors while they gambled on high-risk junk bonds and other speculative ventures to bolster revenues and earnings in view of pending financial disaster.
The amended complaint, filed Monday in U.S. District Court in Baltimore, added new allegations to earlier complaints and combined lawsuits filed against the company by 18 plaintiffs from Florida to Maine after USF&G reported $569 million in losses and a drastic dividend reduction last fall.
The 135-page suit named as defendants USF&G Corp.; Jack Moseley, the insurance company's former board chairman and president; James A. Flick Jr., former vice president, chief financial officer and director; and Paul J. Scheel, former executive vice president and director. All of those officers retired between July 1990 and March 1991.
Plaintiffs in the class-action suit bought USF&G stock between March 7, 1990, the day the company increased its first-quarter dividend, and Nov. 7, 1990, the day it announced a dividend cut from 73 cents to 25 cents per share.
USF&G stock traded at $29 a share at the beginning of the period but fell to $7.75 per share after the November dividend announcement, the suit said. USF&G stock traded at midday today at $9.87 1/2 , up 1/8.
Specifically, the suit accused the defendants of violating the federal Exchange Act and Securities and Exchange Commission financial disclosure rules, negligent misrepresentation and breach of contract.
USF&G spokeswoman Kerrie Burch-DeLuca declined to comment. "We certainly wouldn't want to discuss a lawsuit," she said.
The other defendants could not be reached for comment.
For the past several years, the suit alleged, company financial statements "gave the false impression that USF&G's investment portfolio was conservatively managed, when in fact a disproportionate amount of its investments were extremely high risk and threatened the security of [the company's] invested assets."
"Defendants . . . had embarked on a gambling junket with USF&G's assets" that crumbled under the weight of "extremely risky" junk bond investments, "speculative" real estate ventures and "questionable" oil and gas investments, the complaint said.
For example, the suit said, USF&G had "an extensive portfolio of extremely high-risk and volatile high-yield bonds that had a market value of over $50 million less than the book value."
The company and its officers also failed to "adequately disclose [to investors] that a large portion of USF&G's investments" were in stocks of banks that themselves had invested heavily in risky junk bonds and real estate deals, the suit said.
Moseley, Flick and Scheel could reap "significant personal financial benefits" as stockholders from the company's traditionally high dividends through alleged misrepresentation and concealment that kept USF&G's stock prices at artificially high levels, the suit said.
Meanwhile, the suit alleged, USF&G's senior officers spent wildly to feed their egos and live a high life through sponsorships of such "expensive and high-profile" events as the Sugar Bowl football game and the USF&G Golf Classic pro tournament, and they doled out millions of dollars to charities through a USF&G foundation that Moseley headed.