Fidelity Life Mutual Conversion to Stock Ownership Class Action

When a mutual insurance company is converted to a stock insurance company, the plan may be complicated. The complaint for this class action alleges that when Fidelity Life Association underwent its conversion, the results were not what the mutual members believed would happen. The complaint brings suit against Fidelity Life and its Members Mutual Holding Company, along with conversion plan players Vericity, Inc., Apex Holdco, LP, and ten individuals.

The class for this action is all participating Members Mutual policyholders whose rights were reduced by the plan of demutualization.

A mutual insurance company is owned by its policyholders. Fidelity Life’s policyholders were automatically members of Members Mutual, the parent of Fidelity Life.

In 2018, Members Mutual decided to convert from a mutual ownership company to a stock ownership company. Under the plan, Vericity, a stock holding company, would acquire all of Members Mutual. Then, shares of Vericity would be listed on NASDAQ and offered to eligible members of Members Mutual at $10 per share.

Two requirements were needed to fully execute the plan: two-thirds of Vericity shareholders had to approve it, and at least 14 million shares of stock had to be sold. If not enough shares were sold, a standby purchaser called Apex Holdco would buy however many more were needed to meet the requirement.

However, the complaint alleges that the conversion plan “was structured and executed in such a fashion that it breached Vericity’s and its directors’ basic fiduciary duties to the members…”

The complaint alleges, “Publicly, Vericity reported that a total of 20,125,000 shares were offered on a first-priority basis to eligible members of Members Mutual … and on a second-priority basis to the directors and officers of Members Mutual.” However, the complaint claims that in reality, Vericity allocated just over 2 million shares to its directors and officers and limited the number of shares that members could buy at around 3.5 million. This meant that Apex Holdco bought over 11 million shares, or 76.5% of the outstanding shares.

This took control away from the former members. The prospectus for the plan contained a section called “Risks Relating to Ownership of Our Common Stock,” which warned that if Apex Holdco ended up with a majority of shares, it would become what Nasdaq called a “controlled company.” This would mean that “we will not be required [] to comply with certain corporate governance requirements” and “you will not have the same protections afforded to stockholders of companies that are subject to all of the Nasdaq corporate governance requirements.”

The complaint alleges this was always the intention of Vericity and the individual defendants in this case.

After the transition, the complaint says, “the Board of Directors announced a one-time cash distribution of $6.25 per share to common stockholders,” which provided a large windfall to the Board and to Apex Holdco.

This scheme, the complaint says, violated laws and posed an impermissible conflict of interest for the directors.

Article Type: Lawsuit
Topic: Securities
Tags: Conflicts of Interest, Demutualization, Omitting or Withholding Information, Securities