Reinsurance Focus

PXRE Group Ltd. (“PXRE”) suffered significant losses following Hurricanes Katrina and Rita and sought to raise funds to pay out reinsurance claims through a public offering of common stock and a private offering of preferred shares. In October 2005, plaintiffs, a group of nineteen hedge funds, purchased preferred shares and were provided with a private placement memorandum in connection with the purchase. In February 2006, PXRE disclosed that actual losses were twice as much as previously announced. The plaintiffs then brought this action asserting claims for violations of sections 12(a)(2) and 15 of the Securities Act of 1933 and state law claims for fraud and negligent misrepresentation. The defendants subsequently filed a motion to dismiss.

On the section 12(a)(2) claim, which imposes liability for selling securities via a prospectus that includes a material misrepresentation, the court first ruled that this claim must fail because private offerings are not effected by means of a prospectus. Still, the plaintiffs sought to invoke the integration doctrine, arguing that the private offering of preferred shares was integrated with the public offering of common stock and therefore liability attached to the alleged misrepresentations in the private placement memorandum, but the court ruled that the plaintiffs failed to allege facts sufficient to invoke the integration doctrine. The court then dismissed the section 15 claim, which establishes control person liability for a violation of section 12(a)(2), and declined to exercise supplemental jurisdiction over the remaining state law claims. The district court thus granted the defendants’ motion to dismiss, but did grant the plaintiffs leave to amend the complaint. In a February 23, 2010 Order, the district court acknowledged receipt of the plaintiffs’ Second Amended Complaint and instructed the defendants to provide the court with a letter on whether the defendants intend to answer the complaint or renew their motion to dismiss. Anegada Master Fund, Ltd. v. PXRE Group Ltd., Case No. 08-10584 (USDC S.D.N.Y. Jan. 26, 2010).

This post written by Dan Crisp.