PwC Wins Dismissal of Securities Fraud Class Action Concerning Tower Group’s Loss Reserves

On September 18, 2015, Judge Analisa Torres of the United States District Court for the Southern District of New York granted a motion dismissing Cravath client PricewaterhouseCoopers LLP (“PwC”) from a consolidated class action suit brought on behalf of common stockholders of insurance company Tower Group, Inc. and its successor, Tower Group International, Ltd. (“Tower”), and a class of investors who acquired Canopius Holdings Bermuda Limited stock in the 2013 merger between Canopius and Tower Group, Inc.

Among other claims, plaintiffs sought to recover damages for alleged violations of Securities Exchange Act Section 10(b) and Rule 10b‑5 by Tower, its CEO and CFO, and its outside auditor, PwC, based upon alleged misrepresentations during 2010‑2013 about Tower’s loss reserves and internal controls. Plaintiffs alleged that PwC failed to evaluate Tower’s loss reserve estimates under Generally Accepted Audit Standards (GAAS) and failed to detect certain “red flags” during the audits. In dismissing the complaint against PwC, Judge Torres held that “[p]laintiffs have failed to plead scienter by establishing strong circumstantial evidence of conscious misbehavior or recklessness” and plaintiffs’ arguments regarding motive and opportunity were not persuasive. PwC was the only defendant who had not reached a settlement with plaintiffs.

The Cravath team included partner Antony L. Ryan and associates Nathan E. Denning and Rachel M. Fritzler. The case is In re Tower Group International, Ltd. Securities Litigation, No. 13‑cv‑5852 (S.D.N.Y.).