The PNC Financial Services Group, Inc. PNC has been asked by a federal jury in U.S. District Court on Monday that the company must pay $391 million in damages in a prearranged funerals lawsuit. Shares of the company dipped around 1.8%. Perhaps the price reaction was due to this revelation as well as the overall negative market sentiment.
The case filed in 2009 relates to the insurance fraud at the former National Prearranged Services (NPS), in which PNC Financial’s predecessor bank – Allegiant Bank was a trustee from 1998 to 2004. PNC Financial had acquired Allegiant Bank in 2008.
NPS, which was based in Clayton sold prearranged funeral contracts in several states, including Missouri, Illinois and Ohio in the period between 1992 and 2008. NPS affiliated insurance companies issued life insurance policies concerning the prearranged funeral contacts. Customers agreeing the contracts, generally made payment of a single upfront amount to NPS for covering the cost of funeral services and other related expenses.
NPS assured customers that customer funds for the prepaid funeral contracts would be safely held in a trust or insurance policy. However, federal authorities in their investigations found that NPS officers and others siphoned the funds for inappropriate purposes and personal gain. Over 97,000 customers, several funeral homes, and a number of financial institutions were defrauded, resulting in losses of more than $450 million.
The 2009 lawsuit was filed by state life and health guarantee associations and a special receiver set up to wind down NPS. The suit alleged that the trustees, including Allegiant Bank, failed to monitor assets of NPS. They were accused of negligence and failure to unearth the fraud, which enabled the company officials to swindle the money.
PNC Financial’s penalty amount consists of $355 million in compensatory damages and $35.5 million in punitive damages. The jury also ordered the now-defunct Forever Enterprises holding company to pay $100 million in damages.
PNC Financial intends to appeal against the ruling. Per Frederick Solomon, senior vice president of PNC Financial, “PNC respectfully disagrees with the jury regarding the liability of its predecessor bank, Allegiant, and we intend to appeal this verdict.” He further added that Allegiant served for just over five years of NPS’s thirty years in business, and not the final years. He also stated that NPS had adequate funds to cover every deposit when Allegiant resigned from the company in 2004, four years prior to the collapse of NPS.
Solomon stated that all the customers who purchased the prepaid funeral services will obtain those services.
While nothing can be concluded with certainty at this moment, we believe that any actual settlement by PNC Financial might weigh on the company’s expense base to some extent.
Currently, PNC Financial carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the finance space include Woori Bank Co., Ltd. WF, Provident Financial Holdings, Inc. PROV and Customers Bancorp, Inc. CUBI. All three stocks sport a Zacks Rank #1 (Strong Buy).
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