Wall Street's Hope for Coverage On Penalties Is Clouded by Ruling
Wall Street firms could be out of luck in seeking to pass on the costs of regulatory penalties to their insurers.
In a decision that could have a broad impact on Wall Street, a state-court justice ruled that Credit Suisse First Boston can't use an errors-and-omissions insurance policy to pay $70 million to securities regulators in an IPO-abuses case.
Allowing such penalties to be covered by insurance would defeat the purpose of such "disgorgements" in settlements, New York Supreme Court Justice Karla Moskowitz wrote in the decision, dated July 8 but released Wednesday. "The purpose [of disgorgement] is to deprive CSFB of money that it obtained unjustly and to deter similar conduct in the future," Justice Moskowitz wrote.
CSFB, a unit of Credit Suisse Group, said it is "reviewing the court's judgment and will be evaluating the best course of action"; it has 30 days to appeal.
The decision could have repercussions as brokerage houses, many of them based in New York, and the insurance industry sort out who ultimately will pay for the $1.4 billion global settlement over Wall Street stock-research conflicts of interest. The 10 firms participating in the settlement agreed not to seek insurance reimbursement for $487.5 million of their costs labeled as penalties. But they didn't rule out using insurance policies to cover some or all of the remainder, a stance that drew criticism from Congress and elsewhere.
The CSFB ruling stems from a settlement between the firm and regulators in January 2002 regarding improper profit sharing between the company and investment clients who bought initial public offerings of stock. The "E&O" coverage was issued by Vigilance Insurance Co., a unit of Chubb Corp.
The ruling -- the first of its kind in the recent spate of Wall Street regulatory settlements -- is likely to influence cases even outside New York, said John Ellison, an attorney with Anderson Kill & Olick, which represents policyholders in similar disputes with insurers.
"This is going to be a formidable decision in this area," said Mr. Ellison. "Anyone who has a case like this coming up next is going to have to explain why they fall within this decision or why they fall outside it."
Given the recent settlements with securities regulators, a number of similar disputes are already brewing, with additional lawsuits likely, according to insurance executives and attorneys.
At least one has been filed. On July 9 three insurers owned by Chubb and Travelers Property Casualty Corp. filed suit against securities firm Bear Stearns Cos., in the same New York court. The suit seeks a determination that the insurers needn't reimburse the company for $55 million in disgorgement, investor education and independent-research costs required under the settlement.
Bear Stearns said it hadn't filed a claim under the policies but disagreed with the insurers over whether or not such claims would be covered. "In the normal course of business, we notify our insurers of potentially relevant events and keep them up to date," a spokeswoman said.
In the Bear Stearns case, much as in the CSFB case, the insurers say that the policies don't cover disgorgement. The suit also contends that payments for investor education and independent research amount to disgorgement and similarly aren't covered, said Joseph G. Finnerty III, head of litigation in New York for Piper Rudnick LLP, who represents Chubb against both CSFB and Bear Stearns.
Mr. Finnerty hailed the CSFB decision as a strong precedent. "It stands for the proposition that New York courts won't allow insurance to erode the impact of regulatory settlements," he said.
Under the CSFB settlement, in January 2002, CSFB paid $100 million to settle claims that it improperly split gains on IPOs with clients. CSFB sought to recover its disgorgement costs through its policy from Chubb's Vigilant Insurance as well as the cost of its legal defense, although not the remaining $30 million in penalties. Although Chubb didn't contest CSFB's position that defense costs are covered under the policy, they aren't likely to exceed CSFB's $25 million retention, similar to a deductible, Mr. Finnerty said.
华尔街公司转嫁罚金的想法破灭
华尔街公司意欲将监管机构对其处以的罚金转嫁给保险公司，但它们可能没有那么幸运。
纽约州法院一位法官做出裁定：在一起首次公开募股不当行为案中，瑞士信贷第一波士顿(Credit Suisse First Boston)不得利用过失责任险向证券监管机构缴纳7,000万美元的罚金。这一决定将对华尔街产生深远影响。
纽约州最高法院(New York Supreme Court)法官莫斯柯维兹(Karla Moskowitz)在判决书中写道，倘若允许这些公司利用保险来支付罚金，将无法实现监管机构通过和解让华尔街公司"退缴不法所得"的目的。这份周三公布的判决书，落款日期是7月8日。
莫斯柯维兹写道，"退缴不法所得"就是为了让瑞士信贷第一波士顿退回它非法取得的收入，以示警戒，防止今后发生类似事件。
瑞士信贷第一波士顿是瑞士信贷集团(Credit Suisse Group)的子公司。该公司表示正在研究法院的裁定，思量最佳的应对之策。该公司有30天的上诉期。
这项裁定可能引起强烈反响。监管机构与券商就证券研究利益冲突问题达成了总额14亿美元的全球和解方案，但谁将是这笔钱的最终付款人，券商──其中很多总部就设在纽约──和保险公司正在就此进行激烈的争执。参与和解的10家华尔街公司，已经同意不会利用保险索赔来支付其中表明为罚金的4.875亿美元，但不排除会为其余的部分或全部款项寻求保险索赔。它们的这种态度遭到了国会和其他方面的批评。
这项裁定源于瑞士信贷第一波士顿与监管当局在2002年1月达成的和解。由于该公司与购买首次公开募股股票的投资客户之间存在不正当的利润分配，而遭到监管当局的罚款处置。瑞士信贷第一波士顿向Chubb Corp.旗下的Vigilance Insurance Co.投保了过失责任险。
在华尔街公司与监管机构达成的一系列和解中，这项裁定为此类诉讼开辟了先例。在类似纠纷中代表保险客户一方的Anderson Kill & Olick律师事务所的约翰．艾里森(John Ellison)说，这项裁定可能还会影响到纽约以外其他地区此类诉讼的判决。
"这项裁定将对类似案件产生重大影响，"艾里森说，"受理下一桩此类诉讼的法官，不管他是沿用还是推翻这项先例判决，都必须做出全面的司法解释"。
保险公司的管理人士和代表律师说，鉴于最近华尔街公司就利益冲突问题与监管机构达成了多项和解，许多此类纠纷已经在酝酿中，估计未来可能还会有诉讼发生。
目前至少已经提起了一桩诉讼。今年7月9日，三家Chubb旗下的保险公司和Travelers Property Casualty Corp.向同一家纽约州法院起诉证券公司贝尔斯登(Bear Stearns Cos.)，希望法庭裁定这些保险公司不需要向贝尔斯登偿还5,500万美元，用于支付和解协议要求的退缴不法所得、投资者培训以及独立研究成本。
贝尔斯登说，公司本来并没有提出索赔要求，只是后来与保险公司在罚金是否属于理赔范围的问题发生了分歧。公司发言人说，在正常业务联系中，贝尔斯登都会将可能涉及索赔的事件通知保险公司，使他们掌握最新的情况。
贝尔斯登的诉讼与瑞士信贷第一波士顿的共同点是，保险商都认为退缴不法所得不属于他们理赔的范围。Piper Rudnick LLP律师事务所驻纽约的诉讼负责人芬纳迪(Joseph G. Finnerty III)说，诉讼中还提出，投资者培训和独立研究费用，等同于退缴不法所得，因此也不属于理赔范围。Piper Rudnick LLP在瑞士信贷第一波士顿和贝尔斯登两桩诉讼中都代表Chubb。
芬纳迪先生说，瑞士信贷第一波士顿的诉讼裁定开创了一个有力的先例。他说："这项诉讼代表了这样一种观点，即纽约州法院不会允许通过保险来削弱和解方案的效果。"
根据瑞士信贷第一波士顿在2002年1月与监管机构达成的和解协议，该公司应当为不正当的利润分配支付1亿美元罚金。后来，瑞士信贷第一波士顿向Chubb的Vigilant Insurance提出索赔，希望就退缴不法所得的成本及法律诉讼费用得到补偿，不过其中不包括3,000万美元的罚金。芬纳迪说，虽然Chubb没有就法律诉讼费用的理赔问题提出异议，但赔付金额也不会超过瑞士信贷第一波士顿2,500万美元的保有额。
