Fleming files lawsuit against James River for alleged securities fraud, breach of contract

Fleming files lawsuit against James River for alleged securities fraud, breach of contract | Insurance Business New Zealand

Reinsurance

Fleming files lawsuit against James River for alleged securities fraud, breach of contract

The JRG Re saga continues months after the sale’s completion

Reinsurance

By
Kenneth Araullo

Fleming Intermediate Holdings has filed a lawsuit against James River Group Holdings (JRGH), CEO Frank D’Orazio, and CFO Sarah Doran in the US District Court for the Southern District of New York, a few months following the completion of its purchase of JRG Reinsurance Company (JRG Re).

The lawsuit alleges that JRGH made misrepresentations to encourage Fleming’s acquisition of JRG Re and subsequently deprived JRG Re’s leadership of critical information and looted its assets, preventing Fleming from receiving the full value of the company.

The 113-page complaint also includes allegations of securities fraud, common-law fraud, and breach of contract, seeking damages from JRGH.

The lawsuit details that Fleming filed for securities fraud, common-law fraud, and breach of contract in federal court against James River, D’Orazio, and Doran, citing misconduct related to Fleming’s purchase of JRG Re from James River for approximately $300 million.

Fleming closed the acquisition of JRG Re on April 16, 2024, and conducted an extensive investigation of James River and JRG Re’s pre-closing conduct. Fleming alleges that the investigation revealed that the Stock Purchase Agreement, signed by the parties on Nov. 8, 2023, contained numerous misrepresentations by James River. Fleming also alleges that James River repeatedly breached the contract after its signing.

The complaint states that James River operated JRG Re in violation of Bermuda law and defaulted on significant reinsurance arrangements before the agreement was signed. Following the signing, James River allegedly looted JRG Re’s assets and withheld critical information from both Fleming and JRG Re’s leadership, ensuring Fleming would not receive the company’s full value.

Why did Fleming sue James River?

Fleming said that its allegations are supported by internal James River documents. Among the alleged misrepresentations are:

James River claimed JRG Re was in compliance with applicable laws, despite knowing that JRG Re had filed false and outdated information with the Bermuda Monetary Authority in 2022, which Doran referred to in emails as “very stale” and “unfortunately just wrong.”
Doran approved JRG Re’s plan not to submit mandatory annual filings to the Bermuda Monetary Authority in 2023
In February 2024, James River caused JRG Re to violate Bermuda’s Insurance Act and Companies Act by paying an illegal $90 million dividend to James River, followed by an additional $49 million payment
James River withheld actuarial reports from Willis Towers Watson (WTW), leading to an opinion that JRG Re’s reserves were unreasonable and deficient as of year-end 2023
James River claimed JRG Re had all necessary assets to continue operations, despite knowing it was leaving JRG Re on the brink of insolvency after taking $20 million in December 2023 (internal emails indicated JRG Re would soon be out of cash/assets)

To prevent JRG Re from running out of cash entirely in April 2024, Fleming alleges that James River refunded approximately $6 million, just days before the transaction closed. Fleming still had to supply additional funds after the transaction to maintain operations at JRG Re.

The complaint also includes examples of internal communications. On Jan. 11, 2024, Doran criticized the JRG Re CFO’s efforts to prepare for the sale closing as “completely unprofessional” and creating unnecessary work. The next day, the CFO also reported to HR that he experienced severe “abuse and bullying” during a one-on-one meeting with Doran.