A law firm representing former St. Paul Travelers Cos. shareholders announced it has filed suit against the company relating to the $1.6 billion reserve charge the company took last month to bring St. Paul’s accounting standards into line with Travelers’.
The news initially sent shares down 89 cents, or 2.4 percent. When the company later reported second-quarter losses of $275 million, shares further dropped by $1.73 each, or 4.7 percent, to close at $34.75 on Aug. 5.
The suit, filed by the Washington, D.C., firm of Cohen, Milstein, Hausfeld and Toll, alleges that statements filed with the SEC were misleading because they left the impression that the St. Paul Travelers transaction was a “merger of equals.” The lawyers argue it was more of a “bailout” of St. Paul. The suit also alleges that executives with both firms knew before the merger was announced that a reserve charge would be necessary because of St. Paul’s less conservative reserving philosophy.
The complaint formally charges St. Paul Travelers, Jay Fishman, Thomas A. Bradley, John C. Treacy, and Robert I. Lipp with violations of the Securities Act of 1933 and the Securities Exchange Act of 1934.
Joan Palm, a spokeswoman for St. Paul Travelers, said the company is “still digesting the complaints, but our initial reaction is that the cases have no merit and we intend to contest them.”
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