Securities fraud class action filed on behalf of a class of investors who purchased or acquired the securities of Hallmark Financial Services, Inc. (“Hallmark” or “the Company”) between March 5, 2019 and March 17, 2020 (the "Class Period"). The action, filed in the U.S. District Court for the Northern District of Texas, alleges violations of the federal securities laws – in that the Company and its senior executives misled investors about its financial reporting related to reserves for unpaid losses.
Hallmark is a Dallas, Texas-based diversified property/casualty insurance group. Among other commercial insurance lines, the Company offers Binding Primary Commercial Auto (“BPCA”) insurance.
Plaintiff alleges that that throughout the Class Period, Defendants misrepresented and concealed material facts concerning the accuracy of Hallmark’s reported financial results. Specifically, Defendants allegedly promoted its sound underwriting and claims management for its BPCA line, while omitting: (1) the Company lacked effective internal controls over accounting and financial reporting related to reserves for unpaid losses; (2) that, as a result, the Company improperly accounted for reserves for unpaid losses and loss adjustment expenses related to its BPCA business; and (3) consequently, Defendants’ positive statements about Hallmark’s financial performance and outlook were false.
Investors allegedly learned the truth through a series of disclosures beginning on March 2, 2020, when Hallmark announced its decision to exit from its BPCA business and reported a $63.8 million loss development for prior underwriting years. Then, on March 11, 2020, Hallmark disclosed that it had dismissed its independent auditor, BDO USA, LLP ("BDO"), due to a disagreement regarding estimates for reserves for unpaid losses, among other things. Finally, on March 17, 2020, Hallmark disclosed a letter from BDO in which the auditor stated, “BDO expanded significantly the scope of its audit on January 31, 2020, with respect to which a substantial portion of the requests had not been received and/or tested prior to our termination.”
These disclosures caused Hallmark shares to decline over 75% lower between March 2 and March 18, 2020.