HCC Insurance Holdings Inc. Case 03/08/2007
According to the U.S. Securities and Exchange Commission (SEC), the SEC filed a civil lawsuit on July 18th, 2008, against HCC Insurance Holdings, Inc. (HCC), a Houston, Tex. insurance company; its former Chief Executive Officer, Stephen L. Way, 59, of Houston; and its former General Counsel, Christopher L. Martin, 41, of Houston, alleging violations related to stock-options backdating. Without admitting or denying the allegations, all three defendants agreed to settle the matter. The SEC filed its complaint in United States District Court in Houston.
The complaint alleges that, on at least 38 and as many as 58 occasions from 1997 through 2005, Way looked back at HCC’s historical stock prices and, with the benefit of hindsight, chose grant dates for the options that coincided with the dates of low closing prices for the stock. At Way’s direction or with his knowledge, Martin, among other things, prepared documents indicating that HCC’s option grants had been made on earlier dates when HCC’s stock price had closed lower whereas in fact no such grants had been made on those dates. These inaccurate and misleading documents included written actions of HCC’s compensation committee, stock option agreements, and Forms 4 and 5 reporting the grants to the SEC. Among other things, the backdating of options caused the company to understate its compensation expense by approximately $26.6 million.
HCC consented to a permanent injunction from violations of the issuer-reporting, books-and-records, and internal-controls provisions of the federal securities laws, specifically Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Securities Exchange Act of 1934 (Exchange Act) and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder.
Way consented to a permanent injunction from violations of anti-fraud provisions of the federal securities laws and multiple other provisions, specifically Section 17(a) of the Securities Act of 1933 (Securities Act), Sections 10(b), 13(b)(5), 14(a), and 16(a) of the Exchange Act, and Exchange Act Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-3, 14a-9, and 16a-3, and aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder. Way agreed to pay a $200,000 penalty and to be barred from serving as an officer or director of a public reporting company for five years.
Martin consented to a permanent injunction from violations of anti-fraud provisions of the federal securities laws and multiple other provisions, specifically Securities Act Sections 17(a)(2) and 17(a)(3), Exchange Act Sections 13(b)(5) and 16(a), and Exchange Act Rules 13b2-1, 13b2-2, and 16a-3, and aiding and abetting violations of Exchange Act Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) and Rules 12b-20, 13a-1, 13a-11, 13a-13, 14a-3, and 14a-9 thereunder. Martin agreed to pay a $50,000 penalty. Martin also settled a related administrative proceeding pursuant to Rule 102(e) of the SEC’s Rules of Practice by consenting, without admitting or denying the SEC’s findings, to the entry of an order suspending him from appearing or practicing before the SEC as an attorney for two years. Settlement of the civil action is pending final approval by the court.