Conseco Faces Proposed Class-Action Suit by Shareholders

Conseco Inc. is facing a proposed class-action lawsuit by shareholders alleging the U.S. long-term care and health insurer violated federal securities laws.

Filed in the U.S. District Court for the Southern District of New York, the law firm of Bronstein, Gewirtz & Grossman said it's representing investors who bought Conseco's stock from Aug. 4, 2005 through March 17, 2008.

According to the firm, on March 17, 2008, Conseco (NYSE: CNO | Quote | Chart | News | PowerRating) said it would restate its financials for 2004 and 2006, along with some consolidated financial data for 2003 and 2004, and quarterly financial information for 2006 and the first nine months of 2007. On the news, the company's stock dropped 12.9%, the firm said.

The suit says Conseco didn't disclose that its reported financial results were misstated and didn't present its true operating performance; that its financial statements weren't prepared under Generally Accepted Accounting Principles and that shareholders' equity was overstated, the firm said.

Tony Zehnder, a spokesman for the Indiana-based Conseco, said the company believes the suit "is without merit, and we intend to defend it vigorously."

In March 2008, Conseco posted a preliminary fourth-quarter 2007 loss as it said it continued to work with the U.S. Securities and Exchange Commission regarding its accounting policy for long-term care premium rate increases. It reported a net loss of $72.2 million and a loss of $196 million for that year. At that time, Conseco said it needed to increase the deferred income tax asset valuation allowance by $68 million (BestWire, March 17, 2008).

Earlier in 2008, Conseco said it would restate its financial statements for 2006 and 2005, along with some consolidated financial data for 2004 and 2003 and quarterly financial information for 2006 and the first three quarters of 2007 so it could correct several errors it previously found. The insurer said it would delay filing its 2007 Form 10-K and expected to file it around March 17, 2008. The extension would give it time to fix the errors and incorporate them into the 2007 financial statement (BestWire, Feb. 26, 2008).

Following a 2008 net loss of $1.13 billion, Conseco swung to a $24.5 million profit in the first quarter of 2009 from a net loss the same period a year ago, boosted in part by higher operating earnings in all three of its insurance businesses (BestWire, May 11, 2009).

The earnings momentum continued in the second quarter, as the insurer posted net income of $27.6 million, compared with a net loss in the prior-year second quarter, when earnings got hit with $513.7 million in net realized investment losses and losses related to discontinued operations.

Conseco subsidiaries currently have Best's Financial Strength Ratings of B (Fair).