AmTrust Financial Services, Inc.
On May 11, 2017, Saxena White filed a shareholder derivative action on behalf of Plaintiff West Palm Beach Police Pension Fund in the United States District Court for the District of Delaware on behalf of AmTrust Financial Services, Inc. (NASDAQ:AFSI). The complaint charges the directors and officers of AmTrust with breaches of fiduciary duty, unjust enrichment, and violations of Sections 10(b) and 14(a) of the Exchange Act. West Palm Beach Police Pension Fund was appointed as Co-Lead Plaintiff and Saxena White was appointed as Co-Lead Counsel on July 12, 2017.
The complaint alleges that, since 2013, AmTrust’s Board of Directors and executive management knew or consciously disregarded that AmTrust was manipulating its financial results through an array of complicated maneuvers that included chronic underreserving of liabilities and inconsistent reporting of ceded losses in reinsurance agreements between the Karfunkels’ (the family that controls AmTrust) web of family-controlled businesses. As a direct result of defendants’ misconduct, AmTrust is now the subject of three government investigations and has been named as a defendant in four putative securities fraud class actions. Defendants’ misconduct also caused the Company to restate nearly three years of financial results and tarnished shareholder value by causing AmTrust to repurchase over 8 million shares at artificially inflated prices. Among other things, defendants consciously disregarded numerous red flags that should have alerted the board of directors to the Company’s fraudulent accounting practices.
On June 16, 2017, the defendants filed a motion to transfer the action to the U.S. District Court for the Southern District of New York. In their motion, the defendants argued that this derivative action should be transferred to the same court in the Southern District of New York that was presiding over a shareholder class action against AmTrust and certain of its directors and officers. The plaintiffs responded that AmTrust’s own corporate bylaws specifically provided that the sole and exclusive forum for any derivative action “shall be a state or federal court located within the State of Delaware,” and that the plaintiffs followed this provision by filing their derivative action in the Delaware District Court. The plaintiffs further noted that the United States Supreme Court has held that a valid forum selection clause should be given controlling weight in all but the most exceptional cases, and that there was nothing exceptional in this case that would allow a court to disregard a valid forum selection clause. The District Court agreed, denying the defendants’ motion to transfer.
The plaintiffs amended their complaint on December 11, 2017 after AmTrust announced massive increases in its loss reserves, which were directly related to the complaint’s existing allegations of misconduct. The defendants filed motions to dismiss and stay the action, which will be fully briefed in March 2018.
On January 22, 2018, Defendants moved to dismiss the Second Amended Complaint. We filed our opposition to this motion on March 5, 2018, and Defendants filed their replies on March 26, 2018.