CASE BRIEFS

The case stems from an investigation by the Securities and Exchange Commission and the NASD into how Credit Suisse First Boston (CSFB) allocated shares in 'hot' IPOs for which it served as an underwriter. In a civil suit filed in January 2002, the SEC charged that CSFB had violated federal securities laws and regulations as well as NASD rules by allocating IPO shares to customers who agreed to pay excessive commissions in unrelated securities transactions. Shortly after the suit was filed CSFB agreed to settle. Without conceding any of the SEC's substantive allegations, CSFB nevertheless consented to the entry of a permanent injunction against 'sharing profits of CSFB customers in exchange for allocations of shares in [IPOs] underwritten by CSFB.' It also agreed to make payments of $100 million to the U.S. Treasury, the SEC and the NASD. Of that amount, $30 million was deemed to be a 'civil penalty' and $70 million was deemed to represent 'disgorgement of monies obtained improperly by CSFB ' '

After reaching its civil settlement, CSFB turned to the primary and excess liability insurers from whom it had purchased a $100 million 'Global Combined Specialty Insurance Policy'. Implicitly conceding that the $30 million fine was uninsurable, it demanded coverage of the $70 million 'disgorgement.' The insurers ' Vigilant Insurance Company, Lloyds, Continental Casualty, Travelers Casualty and Swiss Re ' responded with a denial of coverage and a declaratory judgment lawsuit in New York State Supreme Court.