U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20875 / January 30, 2009
SECURITIES AND EXCHANGE COMMISSION V. JAMES N. STANARD, ET AL., Case No. 06 Civ. 7736 (GEL) S.D.N.Y.
JAMES N. STANARD, FORMER CEO OF RENAISSANCERE HOLDINGS LTD., HELD LIABLE FOR ACCOUNTING FRAUD
The Securities and Exchange Commission announced that on January 27, 2009, after a six-day bench trial, the Hon. Gerard E. Lynch of the U.S. District Court for the Southern District of New York issued an opinion and order that, among other things, held defendant James N. Stanard liable for securities fraud in the Commission's civil enforcement action against him. Stanard is the former chief executive officer of reinsurer RenaissanceRe Holdings Ltd. ("RenRe"). The court also held Stanard liable for making false or misleading statements to auditors, providing false officer certifications, and violating and aiding and abetting violations of reporting, books-and-records, and internal controls provisions of the securities laws.
The Commission charged Stanard and the other defendants with fraud in connection with a sham transaction whose purpose and effect was to fraudulently defer more than $26 million of RenRe's earnings from 2001 to later periods. With Stanard's knowledge, RenRe fraudulently accounted for the sham transaction as "reinsurance," when in fact, as Stanard knew, the transaction transferred no risk and could not properly be accounted for as reinsurance. As a result of RenRe's fraudulent accounting treatment, RenRe materially understated income in 2001 and materially overstated income in 2002.
In the court's January 27, 2009 opinion and order, Judge Lynch ruled in favor of the Commission on all of its claims, finding that Stanard "wanted to engage in a transaction that would have a particular balance sheet effect, without economic reality;" that "he knew the transaction was being structured in a way that would obscure its significance from the auditors;" that he "knew the facts, and he knew the [applicable accounting] rule, and he knew that the facts did not square with the rule;" and that "[a]ccordingly, he acted with knowledge that RenRe's earnings would be falsely stated." The court further found that "Stanard damaged his credibility by claiming repeatedly at trial that this was intended as a reinsurance transaction, when in fact it was intended only to have an accounting effect, and not to constitute true insurance against risk."
The court found that Stanard violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13a-14, 13b2-1, and 13b2-2 and that Stanard aided and abetted violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13. The court permanently enjoined Stanard from violating or aiding and abetting violations of all these provisions of the securities laws and imposed a civil penalty of $100,000 but denied the Commission's request for an officer and director bar. The court directed the Commission to submit an appropriate final judgment on or before February 17, 2009.
The Commission previously settled its claims against defendants Michael W. Cash and Martin J. Merritt and, in a related action, against RenRe.