Fraud suit against USF&G is dismissed

February 12, 1993|By Norris P. West | Norris P. West,Staff Writer

A federal judge has dismissed a consolidated fraud lawsuit against USF&G Corp., saying the insurance giant was frank in disclosing grim financial data to investors.

Chief U.S. District Judge Walter E. Black Jr. ruled on Wednesday that USF&G had warned investors of risks in real estate and other areas before it announced an operating loss of $19 million in the third quarter of 1990, cut its dividend by two-thirds and said Jack Moseley would retire as president and chief executive on Nov. 7, 1990.

Judge Black said the investors misread securities laws and believed companies were required to go beyond stating the facts.

"The laws do not require a corporation to make investment decisions for purchasers and holders of stock," he said. "Instead, a corporation simply must not mislead the investing public. "

Investors filed a lawsuit a day after the Nov. 7, 1990, announcement, saying USF&G had failed to disclose: statements about the company's core services, financial services and investments; statements about its future business prospects; and statements concerning dividends.

The suit, which consolidated 11 cases, alleged that the company concealed inefficiencies, misled current and prospective shareholders by inaccurately characterizing its investment strategy as conservative and concealed the fact that "the rate of non-performing real estate" had doubled since 1989.

Judge Black ruled, however, that the company's annual reports revealed company problems.

He said reports indicated that financial services failed to turn a profit in 1987, that diversification had high risks in 1988 and that it continued to reported losses in financial services in 1989. The reports warned that the strategy of investing early in real estate ventures carried certain risks, he said.

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