Fleming accuses James River of securities fraud

Bermuda-based Fleming Re has accused James River Group of securities fraud over its purchase of JRG Re from the troubled insurer.  

Fleming's US subsidiary Fleming Intermediate Holdings has accused James River in a lawsuit of misrepresenting the state of the company and looting the company's assets before the sale. 

The lawsuit, filed in the Southern District of New York, comes after Fleming failed to force a discontinuation of the sale and was forced to buy it for $277 million from James River, which is also Bermuda-based. James River chief executive officer Frank D'Orazio and chief financial officer Sarah Doran are also named as defendants in the lawsuit.  

Fleming said that once the sales agreement was made, James River began “depriving JRG Re’s leadership of critical information about their own company and looting JRG Re’s assets to ensure that Fleming would not receive the full value of the company it bargained for”. 

The suit alleges securities fraud, common-law fraud, and breach of contract and seeks to recover damages caused by JRGH.

Fleming closed on its acquisition of JRG Re on April 16, 2024, after which time Fleming conducted an extensive investigation of James River and JRG Re’s pre-closing conduct. 

Fleming alleges in the lawsuit that the Stock Purchase Agreement governing the transaction was replete with misrepresentations made by James River, and that James River repeatedly breached that contract after it was signed by the parties on November 8, 2023.

Fleming said it alleges that James River operated JRG Re in violation of Bermuda law and in default under its most important reinsurance arrangements even before the Agreement was signed. Once the Agreement was signed, moreover, James River wrongfully began looting JRG Re’s assets while simultaneously depriving both Fleming and JRG Re’s leadership of critical information, ensuring that Fleming would not receive the full value of the company it had bargained for.

Fleming also alleges that: 

James River represented that JRG Re was in compliance, and had not violated, any applicable laws.  

But James River knew that JRG Re had filed false and outdated information with the Bermuda Monetary Authority in 2022, which Sarah Doran personally referred to in emails as “very stale” and “unfortunately just wrong".

Moreover, Ms. Doran personally knew and approved of JRG Re’s plan not to submit mandatory annual filings to the Bermuda Monetary Authority in 2023.

In February, 2024 Fleming also alleges that James River also caused JRG Re to violate Bermuda’s Insurance Act and Companies Act by paying an illegal $90 million dividend to James River, and illegally paying an additional $49 million to James River.

The insurer added that James River also withheld from JRG Re’s leadership reports from Willis Towers Watson actuaries serving as JRG Re’s “loss reserve specialists,” whose opinions are required to be submitted to the Bermuda Monetary Authority. This resulted in Willis Towers Watson formally opining that JRG Re’s reserves were unreasonable and deficient as of year-end 2023.

"James River represented that, as of the closing, JRG Re had all assets necessary to continue conducting its business as it had done prior to entering into the Agreement," Fleming said.   

"But James River knew that it was leaving JRG Re on the brink of insolvency after taking $20 million from JRG Re in December 2023, with contemporaneous December 2023 internal emails acknowledging that JRG Re “would be out of cash/assets” soon," Fleming said. "Subsequent internal emails reflect that JRG Re recognized its “cash [was] going to be exhausted in a week or two” shortly before James River caused JRG Re to pay $139 million to James River in February 2024."

In a February email included in the lawsuit, JRG Re chief financial officer Allan DeFante told JRG Re CEO Daniel Heinlein: "As mentioned, our cash is going to be exhausted in a week or two.| 

The email then shows how the company would need $75 million in deficit by the end of July, although this document did not include any "right-sizing from letters of credit or trusts". Fleming said James River ultimately had to refund approximately $6 million to JRG Re to keep JRG Re from running out of cash entirely in April 2024, just days before the transaction closed.  And Fleming nevertheless still had to supply millions more after the transaction closed to keep the lights on at JRG Re.

James River has been asked for a response to the lawsuit's claims.

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