Genworth Financial Inc. has settled a class-action lawsuit alleging misrepresentations regarding its long-term-care insurance business for $219 million. Genworth, which is the biggest long-term-care insurance carrier, stated after the market closed last week that it had reached a preliminary settlement with plaintiffs.
The suit claims Genworth, its chief executive Tom McInerney, and former chief financial officer Marty Kelin violated securities laws between 2013 and 2014. The plaintiffs allege that the company and its officers misrepresented the profitability of Genworth’s long-term-care insurance business and issued false financial reports by understating necessary reserves. The fake disclosures resulted in a massive drop in the price of the firm’s shares, causing the shareholders damages.
“The Company believes that the Plaintiffs’ claims are without merit, but is settling the lawsuit to avoid the burden, risk and expense of further litigation,” according to the settlement announcement.
The court is expected to preliminarily approve the settlement around the middle of May and give final approval by late summer or early fall.
In October 2013, Genworth started reporting results of a review of its long-term-care insurance reserves and announced to shareholders that the firm had “adequate long-term-care reserves, with a margin for future deterioration,” according to the complaint. However, Genworth allegedly used outdated information, from 2010 and earlier, when making the disclosures to shareholders at the end of 2013.
Genworth ended up taking a charge of $531 million in November 2014 to increase reserves. Subsequently, the firm’s share price dropped by 55%, erasing more than $4.25 million in market capitalization, according to the suit.
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