U.S. Securities & Exchange Commission
SEC Seal
Home | Previous Page
U.S. Securities and Exchange Commission


Litigation Release No. 20360 / November 8, 2007

Accounting and Auditing Enforcement Release No. 2750 / November 8, 2007

SEC v. James N. Stanard, Martin J. Merritt and Michael W. Cash, Civil Action No. 06 Civ. 7736 (GEL) (S.D.N.Y.)

SEC Settles Accounting Fraud Case Against Former Senior Executive of RenaissanceRe Subsidiary For Sham Reinsurance Transaction

On November 2, 2007, the Hon. Gerald E. Lynch of the United States District Court for the Southern District of New York entered a final consent judgment against defendant Michael W. Cash, a former senior executive of a wholly-owned subsidiary of RenaissanceRe Holdings Ltd. Cash, without admitting or denying the Commission's allegations, consented to the final judgment that (i) enjoins him from violating the antifraud and internal controls provisions of the federal securities laws and from aiding and abetting violations of the record-keeping and reporting provisions; (ii) requires him to pay a civil penalty of $130,000; and (iii) bars him from serving as an officer or director of a public company for five years.

The Commission's amended complaint alleges that Cash, along with the other defendants, committed fraud in connection with a sham transaction that they concocted to smooth RenaissanceRe's earnings. Cash and the other defendants used two seemingly separate, unrelated contracts that were, in fact, intertwined. Together, the contracts created a round trip of funds. In the first contract, RenaissanceRe purported to assign at a discount $50 million of its recoverables to Inter-Ocean Reinsurance Company, Ltd. in exchange for $30 million in cash, for a net transfer to Inter-Ocean of $20 million. RenaissanceRe recorded income of $30 million upon executing the assignment agreement. The net $20 million was held by Inter-Ocean as a "bank" or "cookie jar" that RenaissanceRe used in later periods to bolster income. Cash and the co-defendants designed and executed a second contract in the guise of a "reinsurance" agreement with Inter-Ocean. In fact, this second contract was a complete sham and was only a vehicle to refund to RenaissanceRe the $20 million from the "bank" or "cookie jar" plus the purported insurance premium paid under the "reinsurance" agreement. Not only was RenaissanceRe certain to meet the conditions for coverage, it also would receive back all of the money paid to Inter-Ocean under the two agreements plus investment income earned on the money in the interim, less transactional fees and costs.

RenaissanceRe accounted for the sham transaction as if it involved a real reinsurance contract that transferred risk from RenaissanceRe to Inter-Ocean, when in fact, the amended complaint alleges, Cash knew that this was not true. As a result of RenaissanceRe's accounting treatment for this transaction, the amended complaint alleges, RenaissanceRe materially understated income in 2001 and materially overstated income in 2002, at which time it made a "claim" under the "reinsurance" agreement. It then received as apparent reinsurance proceeds the funds it had paid to Inter-Ocean and that Inter-Ocean held in a trust for RenaissanceRe's benefit.

Previously, RenaissanceRe's former controller, defendant Martin J. Merritt, without admitting or denying the Commission's allegations, consented to a partial final consent judgment that, among other things, deferred the determination of civil penalties and disgorgement to a later date. In a related civil action, RenaissanceRe without admitting or denying the Commission's allegations, also consented to a final judgment

The Commission's case against defendant James Stanard, RenaissanceRe's former chief executive officer, remains pending. For additional information, see:

Litigation Release No. 19847 / September 27, 2006.

Administrative Proceeding No. 3-12462 / October 27, 2006.

For additional information on a related Commission action, see Litigation Release No. 19989 / February 6, 2007.



Modified: 03/21/2008