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U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 21300 / November 16, 2009

Accounting and Auditing Release No. 3069 / November 16, 2009

Securities and Exchange Commission v. Bancinsurance Corporation and John S. Sokol, Civil Action No. 1:09-CV-02155 (D.D.C.) (November 16, 2009)

SEC Charges Bancinsurance Corporation and its Senior Executive with Securities Fraud

The Securities and Exchange Commission today filed a settled civil injunctive action against Ohio insurance company Bancinsurance Corporation ("Bancinsurance" or the "Company"), and its chief executive officer, John S. Sokol ("Sokol"), charging them with securities fraud and other violations of the federal securities laws. The Commission's complaint alleges that Bancinsurance failed to account properly for more than $2 million of reinsurance claims, and that Sokol-Bancinsurance's president at the time-failed to ensure that the Company's principal financial officer or its external auditors were informed of the claims. As a result, the Company's financial condition in its Form 10-K for fiscal year 2003 and its Form 10-Q for the first quarter of fiscal year 2004 was materially misstated. Sokol agreed to pay a $60,000 civil penalty, and both Bancinsurance and Sokol agreed to be permanently enjoined from violating the antifraud and other provisions of the federal securities laws.

The complaint alleges: During the period 2001 through 2004, Bancinsurance participated in a bail and immigration bond program (the "Program") as a reinsurer. On or before March 11, 2004, shortly before Bancinsurance filed its Form 10-K for the fiscal year 2003, Bancinsurance and Sokol were notified that the Company would receive more than $1 million in reinsurance claims under the Program. Sokol understood, or was reckless in not understanding, that these claims represented 2003 losses and therefore were required to be reflected in Bancinsurance's fiscal 2003 financial statements. Sokol failed to ensure that the Company's principal financial officer or its external auditors were informed of the claims. As a result, the claims were not properly recorded in the Company's books and records, which caused Bancinsurance's 2003 financial statements to materially understate the Company's expenses and loss reserves.

The complaint further alleges: On or about March 25, 2004, Bancinsurance received invoices for more than $1 million in additional claims. Sokol understood, or was reckless in not understanding, that these claims were required to be included in Bancinsurance's financial statements filed with its Form 10-Q for the quarter ended March 31, 2004. Sokol again failed to ensure that Bancinsurance's principal financial officers or its external auditors were informed of the claims. As a result, the claims were not properly recorded in Bancinsurance's books and records, which caused its financial statements for that quarter to materially understate the Company's expenses.

Without admitting or denying the complaint's allegations, Bancinsurance agreed to be enjoined from violating Sections 10(b),13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 12b-20, 13a-1, and 13a-13. Without admitting or denying the complaint's allegations, Sokol agreed to be enjoined from violating Exchange Act Sections 10(b) and 13(b)(5), and Exchange Act Rules 10b-5, 13b2-1, and 13b2-2; and from aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13.

The Commission's settlements with Bancinsurance and Sokol are subject to the approval of the U.S. District Court for the District of Columbia.

SEC Complaint

 

http://www.sec.gov/litigation/litreleases/2009/lr21300.htm


Modified: 11/16/2009