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Conseco denies charges
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February 14, 2001: 3:17 p.m. ET
Troubled insurer's chairman calls fraud allegations by two pension funds 'wild'
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NEW YORK (CNNfn) - Struggling insurer Conseco Inc. Wednesday dismissed as "wild" and "fantastic" a lawsuit alleging that the company doctored loan records in an attempt to reduce its loan-delinquency rate and boost the value of the company's securities.
The Wall Street Journal reported Wednesday that two pension funds sued the company last month in federal court in Indianapolis. The newspaper said the lawsuit, which is seeking class-action status, contends that the primary architect of the fraud was Conseco co-founder and CEO Stephen Hilbert, who resigned in April 2000 along with Chief Financial Officer Rollin Dick following declining profitability at the company.
Since the departures of Hilbert and Dick, the delinquency rate on manufactured-home loans, a large portion of the loan portfolio of Conseco's finance unit, has risen 50 percent, the newspaper said. The key to  Conseco's financial success, the lawsuit alleges, was its ability to maintain a low delinquency rate, the Journal reported.
In response to the report, Conseco Chairman and CEO Gary Wendt sent a letter to shareholders dismissing the allegations.
"The fraud allegations made in this complaint are so wild as to be, literally, fantastic," Wendt wrote, adding that "the data do not support the allegations."
The alleged fraud occurred from April 1999 to April 14, 2000, the Journal reported.
Wendt, a former General Electric Co. (GE: Research, Estimates) executive who became Conseco's chief in June 2000, called the lawsuit "old news." He said the lawsuit was filed a year ago and that an amended complaint was filed last month.
"It is not a surprising lawsuit," he wrote. "You will be hard-pressed to find any company whose stock price drops significantly that doesn't become a target of the plaintiffs' bar."
Wendt said the jump in the delinquency rate on manufactured-home loans reflects overall trends in the industry, saying that "our performance is better than the industry as a whole."
Conseco will seek to have the lawsuit dismissed in the spring, company spokesman Mark Lubbers told CNNfn.com.
The lead plaintiffs in the case are the Anchorage Police & Fire Retirement System and the State of Louisiana Firefighters' Retirement System, the Journal reported. The lawsuit does not seek specific damages, the Journal said, but the federal judge in the case has listed the losses of the two pension funds at $1.6 million. Total losses for all investors likely would be much higher.
Conseco's stock has plunged from around $56 in 1998, brought down by problems stemming from its $6 billion purchase of personal loan firm Green Tree Financial, which the company renamed Conseco Finance. In afternoon trading Wednesday, Conseco (CNC: Research, Estimates) shares slipped 84 cents, or 5 percent, to $14.16.
According to the Journal, the lawsuit names 10 directors and five officers of the Carmel, Ind.-based company. The lawsuit alleges that Bruce A. Crittenden, the president of Conseco Finance, and Hilbert, the former co-founder, made monthly trips to the unit's collection division in Tempe, Ariz., to oversee the falsification of accounts. The lawsuit contends that under their supervision, delinquent accounts suddenly became current, the newspaper reported.
Crittenden and Hilbert, through spokespeople, declined comment to the newspaper about the lawsuit. 
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