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Insurance Company and Former CFO Charged With Faulty Loss Reserves Disclosures

Defendants to Pay $10.5 Million to Settle SEC Charges


Washington D.C., June 17, 2020 —

The Securities and Exchange Commission today charged international insurance company AmTrust Financial Services Inc. and its former CFO Ronald E. Pipoly Jr. with failing to disclose material facts about how the company estimated its insurance losses and reserves.  They have agreed to pay a combined $10.5 million to settle the SEC’s charges.

According to the SEC’s complaint, AmTrust and Pipoly failed to properly disclose the company’s process for reporting management’s best estimate of loss reserves in its filings with the SEC.  The complaint alleges that AmTrust and Pipoly disclosed the company’s general actuarial process for estimating loss reserves, but failed to disclose that Pipoly made consolidated accounting adjustments that did not properly consider the actuarial analyses and diverged from the company’s actuarial estimates.  The complaint further alleges that AmTrust failed to disclose the specific factors or assumptions supporting Pipoly’s judgmental adjustments, and failed to maintain sufficient supporting documentation for management’s best estimate.  Further, AmTrust and Pipoly allegedly failed to disclose the loss contingencies created by Pipoly’s judgmental adjustments to the company’s historical experience.  According to the complaint, by the end of 2015, Pipoly’s total adjustments exceeded $300 million and impacted all of AmTrust’s reporting segments. 

“Disclosures regarding an insurance company’s loss reserve process allow investors to judge the reliability of the company’s numbers,” said David Peavler, Director of the SEC’s Fort Worth Regional Office. “As we allege, AmTrust never disclosed that Pipoly repeatedly deviated from the reserving processes described in the company’s filings, and changed the company’s actuarially determined reserves estimates.”

The SEC’s complaint, filed in federal court in the Southern District of New York, charges AmTrust and Pipoly with violating Section 17(a)(2) and (3) of the Securities Act of 1933, and violating or aiding and abetting violations of the reporting, recordkeeping, and internal controls provisions of the federal securities laws.  Without admitting or denying the SEC’s allegations, AmTrust and Pipoly have agreed to permanent injunctions against future violations of these provisions and to pay penalties of $10.3 million and $75,000, respectively.  Pipoly has also agreed to disgorge $140,000 and pay $22,499 in prejudgment interest.  The settlements with AmTrust and Pipoly are subject to court approval. 

The SEC’s investigation was conducted by Christopher W. Ahart, Kimberly Cain, Keith J. Hunter, and Franklin Wyman, and supervised by Jim Etri and Eric Werner of the Fort Worth Regional Office.  The SEC’s litigation is led by Keefe Bernstein and B. David Fraser of the Fort Worth office.


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