St. Paul Travelers' Big Charge Prompts Lawsuits

But the lawsuits filed in Minnesota U.S. District Court allege the registration statement was false and misleading because the statement didn't indicate that the accounting practices of the two firms were incompatible before the merger, and now the combined firm is taking the huge charge to blend them.

Top officials of the company said at the time the charge was taken that they were going to talk to officials of the Securities and Exchange Commission as to the correct accounting treatment for the increase in reserves. On Aug 2, St. Paul Travelers announced that the SEC staff had provided general guidance and that based on this guidance, the company would reflect the reserve adjustments in its income statement.

Three days, later, St. Paul Travelers reported its second-quarter financial results indicating that the charge would result in an operating loss of $310 million, or 47 cents a share.

Robert C. Finkel, the lawyer at Wolf Popper LLP who filed one of the lawsuits, said he would not be surprised if the SEC launched an inquiry into the decision?something investors and analysts are privately saying should be done because they were surprised by the decision.

A second announcement came from the law firm of Lasky & Rifkind.

"It wouldn't be surprising if the SEC investigated this," Mr. Finkel said. "The companies represented in the offering statement and other merger documents that their accounting was compatible, and now this. The SEC normally investigates when there is such a big discrepancy."

An SEC official would not comment today on what the agency was doing.

Mr. Finkel said he has as yet not computed how much he would seek in damages against the company. But he estimated that the charge was worth $5 a share for every Travelers shareholder in the merged company, and $2 to every St. Paul shareholder.

Joan Palm, a staff official at St. Paul Travelers in Minneapolis, made clear there is no SEC probe of the charge underway. She said the company decided to take the charge against earnings after discussions with the agency. "We just wanted to do the right thing, and consulted with the SEC before deciding on the appropriate treatment of the addition to reserves. There is no SEC investigation."