United States District Court, D. Minnesota. In re: E.W. BLANCH HOLDINGS, INC. SECURITIES LITIGATION.

Civ. No. 01-258 (MJD/JGL) July 26, 2001.

Second Amended Consolidated Class Action Complaint for Violations of the Federal Securities Laws

SECOND AMENDED CONSOLIDATED CLASS ACTION COMPLAINT FOR

VIOLATIONS OF THE FEDERAL SECURITIES LAWS

Lead Plaintiffs, on behalf of themselves and all others similarly situated, for their complaint against defendants, allege the following based upon the investigation of plaintiffs' counsel, which included a review of E.W. Blanch Holdings, Inc.'s (“EWB or the “Company”) filings with the Securities Exchange Commission (“SEC”), securities analysts' reports about EWB, EWB press releases and conference calls, state insurance commissioner's orders, various court files, documents and other investigatory efforts.

SUMMARY OF THE CASE

1. This is a class action on behalf of Lead Plaintiffs (“plaintiffs”) and all other persons similarly situated, other than defendants and their affiliates, who purchased the common stock of defendant EWB during the period of April 20, 1999, through March 20, 2000, inclusive (the “Class Period”), and who sustained damage as a result of those purchases (the “Class”). On behalf of themselves and the other members of the Class, plaintiffs seek to recover damages caused by defendants' violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 promulgated by the SEC pursuant to the Exchange Act.

2. As detailed below, during the Class Period, EWB and its senior officers issued a series of false and misleading positive statements concerning the Company's business practices, revenues and profits. The Individual Defendants, however, were aware of the Company's true state of affairs and benefitted from this knowledge by selling 498,426 shares of EWB common stock at inflated prices for approximately $27.5 million in illegal proceeds. It was not until March 20, 2000, having already reaped millions in proceeds from insider sales, that the Company revealed its true revenues, profits and financial position. Specifically, the Company, in sharp contrast to statements made during the Class Period, stated that actual earnings would be materially below prior estimates. The market's response to these revelations was punishing. On March 21, 2000, the first day of trading subsequent to the disclosure, EWB common stock plummeted over 60%, from $55 per share to $20.34 per share on volume of 4.6 million shares. The price of the Company's common stock has not recovered and, instead, has declined further and now trades below $14.00 per share.

JURISDICTION AND VENUE

3. This action arises under Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§ 78j(b), 78t(a); and Rule 10b-5, 17C.F.R. § 249.10b-5, promulgated under the Exchange Act. This court has jurisdiction under Section 27 of the Exchange Act, 15 U.S.C. § 78aa; and Sections 1331 and 1337 of the Judicial Code, 28 U.S.C. §§ 1331, 1337.

4. Venue is proper in this district pursuant to Section 27 of the Exchange Act, 15 U.S.C. § 78aa, and Section 1391(b) of the Judicial Code, 28 U.S.C. § 1391(b). The wrongs alleged occurred in part in this district. At least two defendants reside in this district. Persons who have personal knowledge of the matters complained of herein reside in this district. Moreover, the Company has one of its corporate offices in this district and transacts business in this district. EWB is also involved in other related litigation in this district.

5. In connection with the acts and conduct alleged in this complaint, defendants directly or indirectly used the means and instrumentalities in interstate commerce, including interstate telephone facilities, the United States mail, and the facilities of a national stock exchange to accomplish their wrongdoing.

THE PARTIES

Chris Osheroff, William Hauenstein, and Ravi Bhola

6. Plaintiffs Chris Osheroff, William Hauenstein and Ravi Bhola purchased shares of EWB common stock during the Class Period, as set forth in their certifications attached to the motion for appointment of lead plaintiffs. Plaintiffs were appointed Lead Plaintiffs by Order of the Court dated May 1, 2001. Each was damaged by his purchase of EWB shares.

7. Defendant EWB is a Delaware corporation with its headquarters at 500 North Akard, Suite 4500, in Dallas, Texas. The common stock of EWB - under the New York Stock Exchange trading symbol, EWB - was traded in an efficient market at all times during the Class Period. E.W. Blanch Co. is a subsidiary of the Company.

8. EWB is a leading provider of integrated risk management and distribution services, including reinsurance intermediary services, risk management consulting and administration services, and provides a broad range of risk management services to a wide variety of entities, including Fortune 100 companies, government entities and financial institutions. The Company has domestic offices in California, Delaware, Florida, Georgia, Illinois, Minnesota, Massachusetts, New York, Ohio, Pennsylvania, Texas and New Jersey. The Company has international offices in Argentina, Australia,

Brazil, Chile, China, Denmark, Hong Kong, Malaysia, Mexico, Paraguay, Singapore, the United Kingdom, and Vietnam. On May 29, 2001, Benfield Grieg Group PLC announced that its tender offer for all EWB shares had been successful. As a result, EWB is now know as Benfield Blanch Holdings, Inc.

9. Defendant Edgar W. Blanch, Jr. (“Ted Blanch”) was Chairman and Chief Executive Officer (“CEO”) of EWB until January 26, 2001, on which date his employment was terminated. Because of his positions, Ted Blanch knew the adverse non-public information about the Company's business, services, and financial condition via access to internal corporate documents (including the Company's operating plans, budgets, and forecasts and reports of actual operations), conversations and contacts with other corporate officers and employees, attendance at management and Board of Directors meetings and its committees, and via reports and other information routinely prepared and provided in the ordinary course of business to him in connection with the operations of the Company. During the Class Period, while in possession of material adverse non-public information about the Company, Ted Blanch engaged in insider trades, as detailed in ¶ 138, infra, realizing gross proceeds of approximately $4,178,304.

10. Defendant Chris L. Walker (“Walker”) was President and Chief Operating Officer (“COO”) of EWB until January 26, 2001. He is now CEO, COO, and Chairman of the Board. He also has been a member of the Board of Directors of EWB since 1994. Because of his positions, Walker knew the adverse non-public information about the Company's business, services, and financial condition via access to internal corporate documents (including the Company's operating plans, budgets, and forecasts and reports of actual operations), conversations and contacts with other corporate officers and employees, attendance at management and Board of Directors meetings and its committees, and via reports and other information routinely prepared arid provided in the ordinary course of business to him in connection with the operations of the Company. During the Class Period, while in the possession of material adverse non-public information about the Company, Walker engaged in insider trades, as detailed in ¶ 138, infra, realizing gross proceeds of approximately $1,750,450.

11. Defendant Frank S. Wilkinson, Jr. (“Wilkinson”) was Executive Vice President and a member of the Board of Directors of EWB. Because of his positions, Wilkinson knew the adverse non-public information about the Company's business, services, and financial condition via access to internal corporate documents (including the Company's operating plans, budgets, and forecasts and reports of actual operations), conversations and contacts with other corporate officers and employees, attendance at management and Board of Directors meetings and its committees, and via reports and other information prepared and provided in the ordinary course of business to him in connection with the operations of the Company. During the Class Period, while in the possession of material adverse non-public information about the Company, Frances and Frank S. Wilkinson, Jr. and the Francis and Frank Wilkinson Foundation (which is controlled by Wilkinson) engaged in insider trades, as detailed in ¶ 138, infra, realizing combined gross proceeds of $17,369,480.

12. Defendant Ian D. Packer (“Packer”) was Executive Vice President and Chief Financial Officer of EWB as of the beginning of the Class Period. Because of his positions, Packer knew the adverse non-public information about the Company's business, services, and financial condition via access to internal corporate documents (including the Company's operating plans, budgets, and forecasts and reports of actual operations), conversations and contacts with other corporate officers and employees, attendance at management and Board of Directors meetings and its committees, and via reports and other information prepared and provided in the ordinary course of business to him in connection with the operations of the Company. During the Class Period, while in the possession of material adverse non-public information about the Company, Packer engaged in insider trades as detailed in ¶ 138, infra, realizing gross proceeds of approximately $4,251,549.

13. Rodman Fox (“Fox”), at all relevant times herein, was a director and/or a senior executive officer of E. W. Blanch Holdings. Because of his positions, Fox knew the adverse nonpublic information about the Company's business, services, and financial condition by virtue of his access to internal corporate documents (including the Company's operating plans, budgets, forecasts and reports of actual operations), conversations and contacts with other corporate officers and employees, conversations with persons associated with Benfield Grieg Group, PLC (herein “Benfield Grieg”), attendance at management and board of directors meetings and by reports and other information prepared and provided in the ordinary course of business to him in connection with the operations of the Company. At the same time, Fox was acting as a director and senior executive officer of EWB, he had been engaging in clandestine discussions with Benfield Grieg concerning a business alliance between Benfield Grieg, himself and Paul Karon (“Karon”). During that same time, Fox was privy to inside information concerning the operations and future prospects of EWB and the public pronouncements of EWB as detailed in this complaint. He also planned to leave the Company with significant clients of EWB, thereby precluding EWB's ability to meet revenue forecasts given by the Company to the investing public.

14. The Individual Defendants signed various SEC filings during the Class Period. Packer signed the 10-Q for the second and third quarters of 1999. Ted Blanch signed the 1999 10-K form, and signed it as attorney-in-fact for Wilkinson and Walker. Walker signed the 2000 10-K form, and signed it as attorney-in-fact for Ted Blanch.

15. Defendants identified in ¶M¶ 9-13, supra are referred to collectively as the “Individual Defendants.”

CONTROLLING PERSONS

16. The Individual Defendants, by reason of their executive and board positions, were controlling persons of EWB during the Class Period and had the power and influence,

and exercised the same, to cause the Company to engage in the conduct described in this complaint.

17. During the Class Period, each Individual Defendant occupied a position that made him privy to non-public information concerning EWB. Because of this access, each of these defendants knew of the adverse material facts specified in this complaint and knew that they were being concealed.

18. Each of the Individual Defendants is liable for making false and misleading statements, and/or for wilfully participating in a scheme and course of business that operated as a fraud on purchasers of EWB common stock and damaged members of the Class in violation of the federal securities laws. All defendants pursued a common goal, i.e., artificially inflating the price of EWB common stock by making false and misleading statements and concealing material adverse information. The scheme and course of business was designed to and did: (1) deceive the investing public, including plaintiffs and other Class members; (2) artificially inflate the price of EWB common stock during the Class Period; and (3) cause plaintiffs and other members of the Class to purchase EWB common stock at inflated prices and to sustain damages.

19. Each defendant had the opportunity to commit and participate in the violations of the federal securities laws as described in this complaint. The Individual Defendants were top officers and members of the Board of Directors of EWB and they had authority to control and did control its press releases, corporate reports, SEC filings and communications with analysts. Thus, defendants controlled the public dissemination of, and could misrepresent, the information about EWB's business, products and finances that reached the public and caused the inflation in the price of EWB's common stock. Defendants also had the authority and the control to prevent the unlawful dissemination of materially false statements.

CLASS ALLEGATIONS

20. Plaintiffs bring this action as a class action pursuant to Fed. R. Civ. P. 23(a) and 23(b)(3) on behalf of a Class defined in ¶ 1, supra. Excluded from the Class are defendants, members of the immediate families of the Individual Defendants, any entity in which any defendant has a controlling interest, and the legal affiliates, representatives, heirs, controlling persons, successors, and predecessors in interest or assigns of any such excluded party.

21. The members of the Class are so numerous that joinder of all members is impracticable. As of March 23, 2000, the Company had about 13,200,000 outstanding shares of common stock. Throughout the Class Period, the Company's common stock was actively traded on the New York Stock Exchange (“NYSE”) under the symbol “EWB.” While the exact number of Class members can only be determined by appropriate discovery, plaintiffs believe that the Class members number at least in the

hundreds and that they are geographically disbursed throughout the United States. Record owners and members of the Class may be identified from the records maintained by the Company or its transfer agent and may be notified of the pendency of this action by mail, using the form of notice customarily used in federal securities actions.

22. Plaintiffs' claims are typical of the claims of the members of the Class because each plaintiff and all Class members purchased shares of common stock of EWB during the Class Period in an artificially inflated market and sustained injury as a result. Plaintiffs and each member of the Class relied on the integrity of the market for EWB stock in making those purchases.

23. Plaintiffs will fairly and adequately protect the interests of the Class members and have retained counsel who are experienced and competent in class and securities litigation. Plaintiffs have no interests that are contrary to or in conflict with members of the Class that plaintiffs seek to represent.

24. A class action is superior to all other available methods of fair and efficient adjudication of this controversy since joinder of all Class members is impracticable. Furthermore, as the damages suffered by individual members of the Class may be relatively small, the expense and burden of individual litigation make it impossible for the members of the Class to individually address the wrongs done to them. There will be no difficulty in the management of this class action.

25. Common questions of law and fact exist as to all members of the Class and these common questions predominate over any questions affecting solely individual members of the Class because defendants have acted on grounds generally applicable to the entire Class. Among the questions of law and fact common to the Class are:

a. Whether the federal securities law were violated by defendants' acts as alleged in this complaint;

b. Whether the Company's and the Individual Defendants' publicly disseminated releases and statements during the Class Period omitted and/or misrepresented material facts and whether defendants breached any duty to convey material facts or to correct material facts previously disseminated;

c. Whether defendants participated in and pursued the fraudulent scheme and common course of business complained of;

d. Whether defendants acted wilfully and/or recklessly in omitting and/or misrepresenting material facts;

e. Whether the market prices of EWB common stock during the Class Period were artificially inflated due to the material omissions and/or misrepresentations as stated in this complaint;

f. Whether the members of the Class have sustained damages and, if so, the extent and measure of damages sustained by the Class.

SUBSTANTIVE ALLEGATIONS

Background of EWB's Business

26. EWB is the holding company for E.W. Blanch Co., which provides reinsurance brokerage, risk management, and consulting services through several subsidiaries. The Company's core business historically has been and continues to be arranging for reinsurance coverage as an intermediary between insurers and reinsurers.

27. Reinsurance is a transaction in which an insurance company, known as a “reinsurer,” in exchange for a premium, agrees to indemnify or reimburse another insurance company, known either as the ceding company, cedent or reinsured, against all or part of a loss that the reinsured may sustain under insurance policies the reinsured has issued. For its efforts in arranging for reinsurance, EWB earns brokerage fees.

Background of Unicover Managers. Inc. and Its Relation to EWB

28. Unicover Managers, Inc. (“Unicover”) was a Bermuda based managing general underwriter (“MGU”). Beginning in 1995, Unicover and others underwrote a reinsurance program for primary workers compensation (property casualty) insurance carriers. This reinsurance was placed with a pool of domestic life (not property casualty) reinsurance companies assembled by Unicover and others. The pools, commonly known in the reinsurance industry as “Unicover pools,” are a group of reinsurers that combine capital and appoint a manager to assume risk and manage claims on their behalf. Pools are commonly used in workers compensation reinsurance. To attract business to its pools, Unicover agreed to pay reinsurance broker's commissions at a level materially higher than previous industry standards. Unicover also priced its policies well below expected losses, and then passed the bulk of the risk for the health-only portions of the workers compensation pool to reinsurers. At the same time, the reinsurers lowered their prices to attract more business. Then reinsurers passed business along to retrocessionaires, which cover reinsurers against losses.

29. Under the program established by Unicover, a primary workers compensation insurer such as AIG or Orion Capital's subsidiary, EBI Companies, would retain a reinsurance broker such as EWB to place reinsurance underwritten by Unicover with a fronting company such as ReliaStar Life Reinsurance (“ReliaStar”). The other brokers who produced business into Unicover's workers compensation pool included Aon Re, Sedwgick and Guy Carpenter & Co. The fronting company would then cede the reinsurance to the Unicover pool. The main Unicover pool was comprised of Phoenix Home Life Reinsurance, Lincoln National Life Reinsurance, Connecticut General Life Reinsurance (“CG”), ReliaStar and Cologne Re. Unicover also operated subsidiary pools.

30. The workers compensation insurance industry is a highly regulated, cyclical, property casualty insurance business. Workers compensation insurance has a number of components: life, accident, health, occupational disease trauma, cumulative trauma and employer liability. Moreover, the accident, life and health components of comp insurance differ from traditional life and health in that the exposures are limited to life and health problems arising “on the job.”

31. Unicover created a program which in effect separated the life, accident and health risks from the other components of the workers compensation exposure and reinsured those liabilities with life reinsurers through what's known as the “workers compensation carve out.” The Unicover pools wrote reinsurance business with reinsurance premiums of approximately $2.5 billion that would generate a combined ratio (losses and expenses as a percentage of premium) of 150%-200% and underwriting losses of $1.25-S2.5 billion for the life reinsurance industry, a potentially catastrophic event. Specifically, Unicover underwrote treaty reinsurance on behalf of a pool of insurance and reinsurance companies in approximately the following percentages: 35 percent, Connecticut General Life Insurance Company (“CG”); 23.75 percent, Phoenix Home Life Mutual Insurance Company; 18.75 percent, Lincoln National Life Insurance Company; 17.5 percent, Cologne Life Reinsurance Co. (“Cologne Re”); and 5 percent, ReliaStar Life Insurance Company.

32. The Connecticut Department of Insurance, which has a duty to assure the solvency of insurance companies domiciled in Connecticut, entered an order on February 25, 1999, subsequently amended, that provided that “Connecticut domestic life, accident and health insurers shall not accept any new or renewal exposures under existing contracts of reinsurance.” In effect, the February 1999 order meant that over 50% of the Unicover pool, CG and Cologne Re, were blocked from taking on additional exposure. Additionally, since the Commissioner of Connecticut's Insurance Department, George Reider, was also chair of the National Association of Insurance Commissioners, the industry assumed that similar orders would soon be adopted in states in which the other Unicover pool participants were domiciled. In other words, as of the end of February 1999, the Unicover program was over, as were brokerage commissions to EWB from that program.

33. When the Unicover pool began to unravel in February 1999, Cologne Re, as both a client of Unicover and a supplier of retrocessionaire reinsurance to the pool, announced it expected $225 million in losses, later increased to $275 million, from its participation as a retrocessionaire in the Unicover pool. By March 1999, Cologne Re terminated Unicover's authority as a pool manager and its retrocessional contracts with Unicover.

34. Analysts ultimately estimated that the business generated by the Unicover pool would result in an industry-wide loss of between $1.65 and $2 billion. EWB was one of the only reinsurance broker placing business into the Unicover pools that did not take an immediate charge in connection with that line of business.

Revenue Recognition

35. EWB has published its revenue recognition policies. The most recent publication of these policies was in the 2000 Annual Report of the Company. The same revenue recognition policies are also articulated in earlier annual reports, which cover the Class Period.

36. According to the policy of EWB, revenue is recognized for reinsurance brokerage at the later of the billing or effective date of the reinsurance contract.

37. Pursuant to the EWB announced policies, consultant fees are recognized during the period when the services are provided or according to the terms specified in the contract.

38. Pursuant to EWB's policies, revenue for the sale of software and upgrades in software is recognized only upon delivery to the end user. If there are continuing obligations, a portion or all of the revenue will be deferred until the obligations have been fulfilled.

EWB has Wrongfully Recognized Unicover Related Revenues

39. Beginning in July and August 1998, American International Group (“AIG”), a United States based international insurance company and the largest underwriter of commercial and industrial insurance in the United States, sought placement of reinsurance business for AIG's workers compensation policies using EWB as its broker.

40. In July 1998, AIG issued a firm order for reinsurance but required of any reinsurance provider, such as Unicover, certain security and written confirmations from the company or companies represented by Unicover. That is, before coverage would be accepted, AIG required what was known as a “MGA security letter” from the company or companies that would be providing reinsurance. The purpose of this letter was for each reinsurer to confirm directly to AIG that it will stand behind the agreements made with AIG for the provision of reinsurance. EWB stood to earn millions of dollars in fees if the AIG deal took place.

41. Although the signed security letters were required for consummation of a contract for the providing of reinsurance for AIG, those letters were never provided.

42. On September 11, 1998, AIG told EWB of the failure of the reinsurers to provide the security letters required for the reinsurance to become effective. Without the security letters, there would be no fees paid to EWB.

43. In October 1998, AIG again informed EWB of the continuing necessity of documentation without which the deal for providing reinsurance would not be closed.

44. In December 1998, EWB was again informed of the failure to provide necessary documentation with which to consummate the reinsurance deal on behalf of AIG. It was also informed that the failure to provide the necessary documentation would mean that AIG would not pay any premiums. The failure to pay premiums would result in the failure of EWB to earn fees related to the placement of reinsurance. By February 1999,

neither EWB nor AIG had issued any confirmation indicating that the reinsurance placements were bound.

45. Perhaps recognizing the likely collapse of Unicover and the consequent inability to purchase reinsurance, AIG sued Unicover and ReliaStar in New York Supreme Court on February 16, 1999, claiming that defendants were responsible to reinsure $900 million of AIG's workers compensation business. E.W. Blanch Co., as subsidiary of EWB, was added as a third-party defendant to that action on March 23, 1999. E.W. Blanch Co. had acted as an insurance broker between AIG and ReliaStar - Unicover and would earn substantial fees if the reinsurance contracts were put in place. By Order dated July 7, 2000, the Supreme Court of the State of New York determined, because of the deficiencies noted above, that the reinsurance was never put in place. That is, required documentation and signatures had never been obtained. The Supreme Court's decision was affirmed on appeal. See AIU Ins. Co. v. Unicover Managers. Inc., 724N.Y.S.2d_____, Nos. 3784,3785 2001 WL 361714 (N.Y. App. Div. Apr. 10, 2001), aff'g AIU Ins. Co. v. Unicover Managers. Inc., Index No. 600 744/99 (N.Y. Sup. Ct. July 7, 2000). The Supreme Court and Appellate Court decisions are incorporated into this complaint.

46. Notwithstanding the failure to put in place a contract for reinsurance from which the Company would derive brokerage fees, the Company proceeded to recognize revenue related to the AIG/Unicover arrangement. As a consequence, it was not until the third quarter of 2000 that the Company established a reserve against the amount of reinsurance brokerage fees it had recognized in prior years as a result of the never completed AIG placements of reinsurance.

47. The Company assisted another client, EBI Companies, in procuring workers compensation reinsurance coverage through Unicover. Notwithstanding the failure of Unicover to provide the required reinsurance coverage, the Company booked revenues with respect to the placement of reinsurance coverage for EBI. As a result of a settlement between the reinsurance companies represented by Unicover and EBI, the Company established a reserve in the third quarter of 2000 for the difference between what it will receive under the EBI agreement and what had been previously recognized.

48. The total reserves recorded in the third quarter 2000 related to AIG and EBI matters is approximately $3.2 million; These reserves resulted from recognizing revenue without a contractual basis for doing so. They reflect revenues defendants claimed existed during the Class Period, which in fact did not exist.

49. At the same time defendants were assuring the market of little or no exposure to the Unicover debacle, the Company and the Individual Defendants knew that the Company was recognizing revenue related to Unicover without contracts in place necessary to create brokerage revenues for EWB.

IHA and Its Relationship to EWB

50. In addition to providing reinsurance brokerage services, EWB had a license to use certain insurance sales processing software through a license agreement with a company called Insurance Technology Services of America, Inc. (“ITSA”). ITSA was in turn owned by Insurance Holdings of America (“IHA”), a company that has since gone out of business. EWB had been a significant investor in IHA and Defendant Ian Packer served on IHA's board of directors. He was personally knowledgeable about IHA's business circumstances and made periodic reports about IHA to EWB and the Individual Defendants, particularly Ted Blanch. EWB also had certain employees serving in a management roll at IHA. IHA is currently in bankruptcy and EWB wrote off its multi-million dollar investment in IHA mainly during the Class Period.

51. As licensee of ITSA software, EWB sought to utilize such software in the marketing of insurance products. In that regard, EWB negotiated a contract with HomePlus Insurance Agency, Inc. (“HPA”), which is a subsidiary of Securian Financial Group, Inc. and a sister corporation of Minnesota Life Insurance Company. The contract was effective April 1, 1999 (although it was actually executed in June 1999), and is known as the “Master Agreement.” In the Master Agreement, EWB agreed to arrange for HPA to license the ITSA software and, among other things, adapt the software in order to enhance HPA's ability to market insurance products. Among other things, EWB was going to enable the ITSA software to connect with insurance carriers which it would recruit to participate in the HPA sales program. A key feature of the ITSA software was that it was supposed to offer a Single Entry Multiple Carrier Interface (SEMCI). SEMCI, as envisioned, would permit an agent to generate quotes from multiple insurance companies and discuss them with a consumer on the phone, thus offering greater consumer choice of price and coverage. The Master Agreement also called for EWB to develop a new, so-called “Breakthrough” homeowners insurance policy which could be efficiently written using the modified ITSA software.

52. By virtue of EWB's insistence on “back dating” the HPA agreement to reflect an April 1, 1999 effective date, it was able to recognize revenue earlier than it otherwise could.

53. Pursuant to the terms of the Master Agreement, HPA paid EWB a $500,000 initial payment on January 22, 1999, and a $1 million “installment payment” on June 1, 1999. All subsequent HPA installment payments were explicitly contingent upon EWB's meeting scheduled deliveries set forth in detail in Exhibit E to the Master Agreement. No additional payments were made after the June 1, 1999 payment because EWB was not able to provide software and related services as required by the contract.

54. HPA sued EWB in the United States Federal District Court for the District of Minnesota on May 1, 2000, for breach of contract related to the sale of ITSA software and related services to HPA. See HomePlus Ins. Agency, Inc. v. E.W. Blanch Holdings. Inc., No. 00-1099 DWF/AJB (D. Minn.).

55. In the HomePlus action, EWB maintains that its obligations under the contract are in the nature of the sale of software. Pursuant to EWB's Revenue Recognition Policy.

[r]evenue from the sale of software and specified upgrades is recorded upon delivery of the software product or specified upgrade to the end user. If there is a significant continuing obligation, then a portion or all of the revenue is deferred until the obligation has been fulfilled.

56. Although HPA has paid $1.5 million pursuant to the terms of the contract, it has refused to make subsequent payments by virtue of EWB's breach. EWB has been unable to deliver functional software as required by the contract and as a consequence, recognition of at least $4.1 million in revenue by EWB violated its own revenue recognition policies. Had EWB performed, said payments would have been due in August 1999 ($1,250,000), October 1999 ($1,250,000), January 2000 ($1,500,000), February 2000 ($1,500,000), April 2000 ($500,000), July 2000 ($500,000), October 2000 ($500,000), January 2001 ($500,000), and an additional $3 million to be paid over the next six quarters.

57. Notwithstanding the fact that EWB had been unable to make deliveries under the Master Agreement, it recognized additional revenue in the amount of $4.1 million under the contract in violation of its Revenue Recognition Policy.

58. The contract between EWB and HPA allowed HPA to terminate the contract if EWB failed to deliver applicable software and services and such failure continued for a period of six or more months. Because EWB's failure continued for six months, the contract has been terminated.

Revenue Recognition of Reinsurance Brokerage

59. When an individual EWB broker arranges for a reinsurance contract, that broker is required to input data into what is known as the “Resolution” system. The data includes relevant information about the placement of reinsurance, the reinsurance rate, special directions, the amount of brokerage (i.e., fees) EWB would earn and when brokerage would be received. The data would then be shared with the contract drafting department, the claims department and the accounting department.

60. Reinsurance premiums are billed monthly or quarterly. EWB bills the ceding company a premium for the reinsurance. It is from the premiums paid on a monthly or quarterly basis that EWB derives reinsurance brokerage revenue.

61. Regardless of the billing cycle when premiums are billed and paid, EWB has a practice recognizing the predicted brokerage fees immediately.

62. The foregoing revenue recognition practice with respect to reinsurance brokerage commissions is inconsistent with the stated revenue recognition policies of the company.

Fox's Violation of the Securities Laws

63. Fox (and his confidant Paul Karon) resigned from EWB on March 20, 2000. They were initial stockholders in EWB when the Company went public in 1993 and as a result of their status, they received significant shares in the Company. At the time they became shareholders in the publicly traded Company, each entered into employment agreements containing various restrictive covenants.

64. Fox resigned from the Company on March 20, 2000 to join Benfield Grieg Group PLC. That resignation and the related conduct of Fox led to the initiation of a lawsuit in Dallas County, Texas (Court File No. 00-3215-C).

65. Since the Benfield Grieg acquisition of EWB, the new entity is now known as Benfield Blanch Holdings, Inc. Fox is the chief executive officer of the United States Benfield Blanch operation and Karon is its president.

66. Sometime prior to February of 1999, Fox and Benfield Grieg began discussions about Fox's possible employment at Benfield Grieg. Those discussions resulted in a meeting in New York city in February of 1999 attended by Fox, Karon and senior personnel from Benfield Grieg. The February 1999 discussions were serious and concrete.

67. As discussions became more serious in March and April in 1999, code names were given to Fox and Karon (“Quarry” and “Hunter” respectively). A further meeting was held in New York city in April of 1999. At about the same time, documents were circulated which reflected the basic structure of the proposed deal that was ultimately agreed to. That deal involved Fox and Karon receiving multi-million dollar signing bonuses, a 49% interest in Benfield Grieg's entire United States operation and substantial equity in the international London based parent company, Benfield Grieg Group, PLC.

68. Fox and Karon received an indemnification agreement from Benfield Grieg indemnifying the two of them from potential liability to EWB for their conduct. They also received an agreement from Benfield Grieg to hire attorneys on their behalf, apparently in anticipation of litigation with EWB.

69. At the same time Fox and Karon were engaged in negotiations with Benfield Grieg, they were employed by EWB, which compensated them in the “seven figure range.”

70. In order to negotiate the best possible financial deal with Benfield Grieg, Fox misrepresented to Benfield Grieg that he and Karon had options worth $30 million and they would lose those if they moved to Benfield Grieg. This misrepresentation to a proposed new employer formed the basis for substantial cash bonuses and equity interests each would receive upon resigning with E.W. Blanch and becoming employed at Benfield Grieg.

71. While Fox was negotiating with Benfield Grieg, he accepted an appointment to the board of directors of EWB. As a result of his board membership, he became privy to every secret and confidence in the Company and had an active and critical hand in all important strategic and tactical decisions at the Company.

72. From mid-1999 through the end of 1999, EWB engaged in highly confidential discussions with a potential suitor about the possible sale of the Company. Fox was intimately involved in the negotiations from the outset. Karon became involved in those discussions toward the fall of 1999. Both individuals would have profited from the acquisition. Nevertheless, from the outset of negotiations amongst Fox, Karon and Benfield Grieg, until the date of the resignations of Fox and Karon, discussions never broke off. Further formal negotiations occurred between Fox and Benfield Grieg in New York City. Karon was advised of the discussions.

73. During the later part of 1999, Fox was assisting Benfield Grieg in obtaining what had thereto for been EWB customers. In particular, the Tower Hill account was being solicited by Benfield Grieg at the same time Fox and Karon had assumed responsibility to attempt to preserve the Tower Hill business for EWB.

74. In early January 2000, Fox went to London for a celebration gathering with Benfield board members. The assumption at that meeting was that Fox was or would be on the board of Benfield Grieg.

75. Also in January 2000, the transaction documents relating to employment of Fox and Karon were finalized. By January 2000, the decision to move to Benfield Grieg had been sealed.

76. As of January 2000, EWB had met or exceeded earnings projections for 15 straight quarters and the stock price had risen accordingly. Fox and Karon had the lead responsibility to assure that EWB met its first quarter revenue projections. At about the same time, Fox joined a four-person “office of the chairman” which was the four most senior executive office in EWB. This small group was responsible for all significant strategic decisions, and of course was privy to - indeed, in many, incidences they generated - the most sensitive strategic and tactical information in EWB.

77. In February, a final meeting was held amongst Fox, Karon and Benfield Grieg. The meeting took place at the offices of Benfield Grieg's New York lawyers. Fox and Karon's lawyers (paid for by Benfield Grieg) were present and reviewed documents. Notwithstanding their responsibility for closing transactions in order to allow EWB to earn first quarter revenue in the year 2000, Fox and Karon, not surprisingly, were not interested in doing so. Rather, they were interested in benefitting Benfield Grieg, which was to be their new employer. On the evening of March 9, 2000, Fox and Karon met with their litigation attorneys about their anticipated resignations.

78. On the following day, Friday, March 10, 2000, Fox and Karon attended a series of pivotal meetings at EWB to discuss among other things, EWB's increasingly negative first quarter revenue outlook. In this meeting, Fox remained outwardly optimistic in indicating that he would personally close certain large revenue deals that would be necessary to achieve projected first quarter revenues. Both Fox and Karon indicated they would be working diligently to close various pipeline deals in the remainder of the quarter.

79. While Fox and Karon were negotiating their deal with Benfield Grieg, they were also absconding with EWB sensitive information, including information about salaries and bonuses, lists of EWB clients and revenue figures for each client.

80. On March 20, 2000, Fox and Karon submitted their resignations to EWB. When they left, not a single item of significance in the first quarter pipeline had closed despite their assurances that they would assume responsibility for accomplishing such closings. On March 20, 2000, when EWB issued its press release, EWB stock immediately fell but both Fox and Karon had protected themselves from the impact of the stock price fall through their deal with Benfield Grieg.

81. During the class period, Fox knew of the public statements being made by EWB to the investing public and knew that statements about future earnings would not be realized by virtue of his very specific conduct in leaving EWB and joining Benfield Grieg (in violation of his employment contract) and taking substantial business with him in the process.

Defendants' Materially False and Misleading Public Statements During the Class Period

82. Despite the Unicover fall-out that began in early 1999, EWB announced rosy first-quarter 1999 results on April 20, 1999, the beginning of the Class Period. In a press release issued on that date, EWB advised the investing public that its first quarter revenues were 32 percent higher than the same quarter in 1998, growing to $62 million from $47 million in 1998. EWB also stated that its net income rose 34 percent to $9.5 million versus $7.1 million for the same quarter in 1998. The press release further stated that basic earnings per share grew 32 percent to $0.74 and concurrently diluted earnings per share increased 32 percent to $0.70. Ted Blanch stated in the press release as follows:

We continue to be pleased with our progress, and especially with the growth in our primary insurance and capital markets activities. Despite relatively poor market conditions within the insurance industry, our core reinsurance brokerage business continues to show growth both domestically and abroad.

83. On the day of the April 20, 1999 press release in which the Company announced its earnings, EWB also conducted a conference call with securities industry professionals. During the question and answer phase with investment brokers, Ted Blanch was asked whether there was any reversal of AIG revenue in the first quarter. Ted Blanch responded that “in the first quarter we did not take any revenue. In the first quarter we did take a reserve for prior revenues taken in ‘98.” In a follow up question, Ted Blanch was asked to quantify the revenue reserve for the AIG business. He stated, “I suppose that I could [quantify the revenue reserve] but I'm not going to. The fact of the matter is, I stated that we think that AIG is right, but if the thing ends up going to trial, I mean hell, with the vagaries of juries and so on and so forth nobody ever knows exactly what's going to happen. We took a significant reserve.” When pushed further to explain “significant,” Ted Blanch vaguely replied:

All I'm trying to tell you is that one thing I found out over the years in dealing with the Street is that there are two kinds of surprises, good surprises and bad surprises. It's much more pleasurable to work with you when the only surprises we have are good ones.

84. In the same April 20, 1999 conference call, Ted Blanch said that EWB was trying to get “into a position where when the surprise comes it will be a good one.” In an effort to avoid unpleasant surprises, EWB did not recognize any income from AIG in the first quarter “with respect to certain aspects of that transaction.” When questioned about whether EWB has taken any significant action with regard to the Unicover situation as a whole, Ted Blanch stated:

We went through a period of time where it seemed like everyday there was a new, what could probably be reasonably categorized as unpleasant surprises that seemed to be corning out as that situation was unfolding. It now seems as if the surprises are not over, but the news that's coming out is considerably more affirmative. I think I saw the day before yesterday, I believe that's correct. Maybe it was Friday, that the Cologne Life Re situation has been pumped up. And the state of Connecticut is satisfied with their solvency. So it appears that everything is pretty well intact. I have not seen or heard anything or been involved in any discussion where there has been any inference that the Unicover pool and the other companies that Unicover wrote on behalf of will be doing anything other than responding appropriately [financially] to the reinsurance contracts that were placed.

85. The April 20, 1999, conference call also discussed pricing in the reinsurance market. Defendant Walker, who was then the President and Chief Operating Officer of EWB, explained that the reinsurance market pricing had not changed much, although there is more pressure and competition. More changes were noted in the retrocessional placement market, particularly some “tightening,” but EWB did not see “anything that's of great substance that's caused us to stand up and raise the flag.”

86. On May 4, 1999, EWB filed its 10-Q form for the quarter ended March 31, 1999, which discussed the AIG litigation against Unicover and ReliaStar, in which ReliaStar added E.W. Blanch Co. as a third-party defendant, as follows:

In this lawsuit, AIG as a plaintiff alleges that ReliaStar, through its agent Unicover, agreed to provide certain reinsurance protection to AIG, relating to workers compensation insurance policies issued by the plaintiff AIG companies in California and elsewhere in the United States. Defendants assert that the reinsurance coverages in issue never were bound, and defendant ReliaStar further asserts that if defendant Unicover in fact did bind those coverages, it acted beyond the authority granted to it by ReliaStar.

In ReliaStar's third party complaint against Blanch, ReliaStar alleges that Blanch, as AIG's reinsurance broker on the reinsurance replacements in issue, knew or should have known that the reinsurance coverages were not bound and knew or should have known that Unicover did not have the authority to bind ReliaStar to those coverages.

The relief being sought by ReliaStar in its third party complaint against Blanch is that, in the event ReliaStar is found to be liable to AIG, Blanch be required to indemnify and hold ReliaStar harmless for that liability, or in the alternative Blanch be required to make a contribution for a portion of that liability in an amount to be determined by the Court.

Blanch in turn has filed a counterclaim back against ReliaStar and Unicover. The counterclaim alleges that ReliaStar and Unicover in fact did bind the reinsurance coverages in issue, and therefore they owe Blanch the reinsurance brokerage to which Blanch is entitled under those reinsurance contracts, and, alternatively, if it is determined that Unicover misrepresented its authority to bind ReliaStar, that Blanch be awarded money damages resulting from its reliance on those misrepresentations.

The Form 10-Q noted that the lawsuit was in preliminary stages, but that “[m]anagement believes, based on current information, that these actions will not have a material adverse effect upon the financial positions or results of operations of the Company.”

87. EWB continued to issue favorable reports to the investing public for its second quarter 1999 operations. In a press release dated July 21, 1999, EWB advised the investing public that its second quarter revenues were 23 percent higher than the same quarter in 1998, growing to $58.4 million. EWB also stated that its net income rose 41 percent to $7.9 million versus $5.6 million for the same quarter in 1998.

88. The July 21, 1999 press release also noted that basic earnings per share grew 39 percent to $0.61 and diluted earnings per share increased 38 percent $0.58, compared to $0.42 for the second quarter of 1998. The press release also reported revenues, net income, and earnings for the first six months of 1999. Revenues increased 28 percent to $120.4 million compared to $94.3 million during the same period in 1998. Net income for the six months ended June 30, 1999, increased 37 percent to $17.4 million. Basic earnings per share for the six months ended June 30, 1999, rose 35 percent to $1.35. Diluted earnings per share for the six months ended June 30, 1999, likewise rose 35 percent to $1.28.

89. In the same press release, Ted Blanch informed the investing public that he was pleased with the quarterly results:

We are pleased with EWB's performance during the first half of 1999 despite the difficult market conditions we are faced with. During the second quarter we continued to develop consulting and advisory businesses while creating production in our core domestic reinsurance brokerage unit.

90. The 10-Q form for the quarter ended June 30, 1999, discussed EWB's involvement in Unicover-related litigation:

It has been publicly reported that certain lawsuits and arbitrations have been commenced that relate directly or indirectly to one or more reinsurance pools managed by Unicover Managers, Inc.... The Company has been named as a third-party defendant in one such

lawsuit, as described in more detail under “Legal Proceedings” on page 16. Management of the Company believes, based on current information, that this proceeding will not have a material effect upon the financial position or results of the company.

91. The June 30, 1999 10-Q further stated:

The Company is not currently a party to any other proceedings that relate directly or indirectly to the Unicover reinsurance pool, nor, to the Company's knowledge, do these proceedings place in issue the validity of the reinsurance programs the Company has placed through Unicover on behalf of its clients. Nonetheless, these proceedings, and the negative publicity concerning Unicover generally, could impact those reinsurance programs and thereby could have a material adverse impact on the Company's revenues, both prospectively and retroactively. The Company intends to monitor developments relating to Unicover closely and to review on a regular basis whether circumstances warrant changes in how the Company is accounting for those transactions.

The 10-Q thereafter provided the identical information about the AIG lawsuit as described in the 10-Q report for the first quarter of 1999.

92. On July 21, 1999, EWB also conducted a conference call. In the call, Ian Packer and Walker reported the financial results for the second quarter. Walker noted that EWB “remain[s] very optimistic and bullish on the opportunities that exist in the marketplace.”

93. Ted Blanch said during the July 21, 1999 conference call in discussing the ITSA software, “So, it's not like we're just working with an agent who thinks they have an idea and we think we have an idea. We have the technology, they have the customers. We're merging the technology with the customers in order to try to move the thing forward. It is - it really isn't any sort of start up operation. It's more trying to maximize on the fly.”

94. Similarly, in the October 11, 1999, conference call, Packer stated,“…the one thing that is really remarkable and continues to be remarkable is when we put the kiosks in the Sam's stores and when we turn oh the system the people are buying insurance at a greater volume than we had ever anticipated and from that perspective I think the future for IHA and for their product offering, not just in Sam's but also through Ford and in our Bancassurance program, it's looking increasingly positive.”

95. In its website during the Class Period, EWB continued to advise the public that its ITSA based product was viable. It stated on the web pages denominated “Distribution - Internet” and “Distribution - Kiosks” that:

Through our partnership with Insurance Holdings of America, Inc. (IHA), we are able to deliver the first internet-based sales and service platform for the property/casualty industry. For more information contact EWB.

96. On October 19, 1999, EWB issued a press release reporting its third quarter 1999 results and results for the nine months ended September 30, 1999. Defendants again

painted an optimistic picture of EWB and its financial performance and outlook. EWB advised the investing public that its third quarter revenues were 7 percent higher than the same quarter in 1998, growing to $59.0 million. EWB also stated that its net income also rose 25 percent to $10.8 million versus $8.6 million for the same quarter in 1998.

97. The October 19, 1999 press release also noted that basic earnings per share grew 24 percent to $0.83 and diluted earnings per share increased 20 percent to $0.78, compared to $0.42 for the second quarter of 1998. The press release also reported revenues, net income, and earnings for the first nine months of 1999. Revenues increased 20 percent to $179.4 million compared to $149.4 million during the same period in 1998. Net income for the nine months ended September 30, 1999, increased 32 percent to $28.1 million. Basic earnings per share for the nine months ended September 30, 1999, rose 31 percent to $2.18. Diluted earnings per share for the nine months ended September 30, 1999, rose 27 percent to $2.05.

98. In the press release, Walker informed the investing public he was pleased with the quarterly results, as follows:

EWB continued to perform during the third quarter, despite the worsening market conditions which continued to adversely impact our revenues. We are pleased with EWB's performance during the first half of 1999 despite the difficult market conditions we are faced with. During the second quarter we continued to develop consulting and advisory businesses while creating production in our core domestic reinsurance brokerage unit.

99. The 10-Q form for the quarter ended September 30, 1999, discussed EWB's involvement in Unicover-related litigation:

It has been publicly reported that certain lawsuits and arbitrations have been commenced that relate directly or indirectly to one or more reinsurance pools managed by Unicover Managers, Inc.... The Company has been named as a third-party defendant in one such lawsuit, as described in more detail under “Legal Proceedings” on page 16. Management of the Company believes, based on current information, that this proceeding will not have a material effect upon the financial position or results of the company.

The Company is not currently a party to any other proceedings that relate directly or indirectly to the Unicover reinsurance pool, nor, to the Company's knowledge, do these proceedings place in issue the validity of the reinsurance programs the Company has placed through Unicover on behalf of its clients. Nonetheless, these proceedings, and the negative publicity concerning Unicover generally, could impact those reinsurance programs and thereby could have a material adverse impact on the Company's revenues, both prospectively and retroactively. The Company intends to monitor developments relating to Unicover closely and to review on a regular basis whether circumstances warrant changes in how the Company is accounting for those transactions.

The 10-Q for the third quarter provided the same information about the AIG lawsuit, as described in the 10-Q report for the second quarter of 1999.

100. On October 19, 1999, EWB also conducted a conference call. Before the question and answer phase with investment brokers, defendant Walker provided information on three subjects: (1) Unicover workers compensation pool; (2) revenue production; and (3) insurance/reinsurance marketplace conditions. As to Unicover, a subject that “continues to receive a fair amount of attention” in EWB's industry, Walker stated:

There's a lot of talk about a global settlement and while such a settlement may occur, our view is that there are simply too many parties involved with their own interests to protect to make such a global settlement a reality in any reasonable time frame. For that reason, our approach is to continue to actively work with our customers on a one-by-one basis on solutions that make sense for the parties involved. Each of our customers has different requirements so we fully expect the solutions to have different looks. Clearly, this is not a cookie cutter approach. We continue to have active dialogue with our customers to design solutions that will work.

Now, let me talk about some of our third quarter performance. It's very strong. We're very proud of it, especially considering the market conditions. Let me share some specific figures. We have 86 new client contracts thus far in 1999, representing approximately $13.5 million in revenues. Let me stress, these are contracts. We have 101 new contracts generated from existing relationships, which are worth about $29 million. On the flip side, we have lost about 45 contracts worth about $8.5 million. We've produced these results in a very difficult, competitive market; however that being said we are seeing some signs that a change, may be upon us. If the market does - if market pricing does in fact go up we should begin to see the impact on our revenues in the later stages of the year 2000.

101. During the question and answer phase with investment brokers, Ted Blanch was asked whether EWB anticipated any Unicover liability in its negotiations with customers and whether EWB was threatened with any Unicover lawsuits, to which he, and Dan O'Keefe, the general counsel of EWB, answered:

Well, I'll tell you what - that's always a tricky subject because one never knows what's around the corner. Our general counsel is here and I'll let him respond.... Well, we are parties to one lawsuit, the AIG ReliaStar lawsuit in which we are a third party defendant and a cross claimant. We have an affirmative claim in that case. Other than that, I think it is our company policy not to comment on any pending or threatened litigation of any type. So I'd just invoke the general company policy.

As to the AIG lawsuit, O'Keefe explained that it was generally old news, that EWB was on the “right side” of the lawsuit” and “to the extent there were any liabilities, we think we're adequately insured.”

102. In an October 28, 1999, press release, EWB announced that its board of directors had approved an increase in the Company's quarterly cash dividend from $0.12 to $0.14 for shareholders of record as of November 12, 1999.

103. According to SEC filings, on December 14, 1999, Ted Blanch entered into two zero-cost collar contracts, each with 150,000 shares, which are designed to limit his losses should EWB's stock fall dramatically by locking in gains. Ted Blanch sold “call” options obliging him, if called upon, to sell shares at $79.82. He used the proceeds to buy “put” options. The put options gave him the right to sell shares at $51.32. While Ted Blanch gave up any possible stock appreciation above $79.82 in exchange for protection against losses below $51.32 and the options are not exercisable until 2002, this collar has produced a paper gain for Ted Blanch in the amount of approximately $4.7 million.

104. On December 19, 1999, in a press release to the investing public, EWB announced that three employees would leave the Company in early 2000 to form Tobat Capital. The three included defendant Packer, then Chief Financial Officer, Scott T. Brock and Cory Moulton. Tobat Capital planned to make equity investments in early- and development-stage e-commerce companies, particularly in the financial services industry. EWB announced it would have a close relationship with Tobat as a limited partner, strategic advisor and user marketing arm.

105. On January 25, 2000, EWB released its fourth quarter 1999 results and 1999 year-end results. In a press release dated January 25,2000, defendants again painted an optimistic picture of EWB and its financial performance and outlook. EWB advised the investing public that its fourth quarter revenues were 3 percent higher than the same quarter in 1998, growing to $65.1 million. EWB also stated that its net income rose 11 percent to $11.6 million versus $10.5 million for the same quarter in 1998. The press release also noted that basic earnings per share grew 9 percent to $0.89 and diluted earnings per share increased 6 percent $0.84, compared to $0.79 for the second quarter of 1998. The press release also reported revenues, net income, and earnings for year-end 1999. Revenues increased 15 percent to $244.5 million compared to $212.7 million for 1998. Net income for 1999 increased 25 percent to $39.7 million. Basic earnings per share for the nine months ended September 30, 1999, rose 31 percent to $2.18. Diluted earnings per share for the nine months ended September 30, 1999, rose 27 percent to $2.05.

106. In the January 25, 2000, press release, Ted Blanch also informed the investing public he was very pleased with the 1999 results:

Despite the turmoil in the marketplace, in particular around Unicover, we are very pleased to have achieved our 1999 earnings goals. At the same time we continued to strengthen our global position through the acquisition of Crawley Warren and continue to be one the leading edge in providing technology tools to manage catastrophic exposures.... We are very please that during the later part of the year Kaj Ahlmann joined us as Vice Chairman and Director and Gerry Isom joined us as a Director.

107. The 10-Q form for the quarter ended December 31, 1999, like the 10-Q report for the third quarter, discussed EWB's involvement in Unicover-related litigation. Generally, the same information was provided.

108. Although in the third quarter reports EWB refused to discuss possible Unicover litigation, Ted Blanch finally acknowledged Unicover problems in the January 25, 2000 conference call:

For EWB, there are several specific identifiable groups of covers, some continue, some are being settled and some are in or may go into litigation. From our perspective, the largest number of covers can be identified as Reliance. Reliance has announced that their covers have been settled. We have compromised our revenue significantly as part of these settlements as our contribution to our ongoing relationship with Reliance who incidentally has on behalf of the industry, undertaken a Herculean task and performed it admirably. Our deal with Reliance has been agreed to so we can put that behind us. All revenue readjustments are reflected in 1999.

Despite these problems, Ted Blanch assured the investing public that 1999 was a “very good” year that beat expectations despite elimination of Unicover revenue and “apprehension that there is another shoe to drop.”

109. In the January 25, 2000 conference call, Ted Blanch also indicated he was “optimistic” about EWB for 2000 because “new business in progress is at historic high levels.” He stated that the Company was “dealing with a number of large transactions and several of these are periodic and recurring revenue deals.”

110. The Company also explained in the conference call of January 25, 2000, that its executives would not take their year-end bonus. The decision not to take bonuses was a “shock absorber” to ensure that the Company met the estimates of the street.

111. During the question and answer phase with investment analysts, Ted Blanch said that while EWB had work to do, “we're as comfortable as we can be at this point with our ability to perform to levels that will not disappoint the street.” He also disregarded some reports from reinsurance industry executives who do not find the future “terribly exciting”:

We don't share that view. Our view is that the future, it looks extremely bright. That there are all kinds of opportunities out there and we expect to have a very significant success in the coming years as a result of who we are, how we are organized, the people that we have, the way we go after business, but most importantly, the business is there to be gotten.

112. Walker and Ted Blanch shared the same enthusiasm for the future. For Walker, his “enthusiasm is probably the greatest it's ever been.” He continued:

We have … just a tremendous amount of activity, there are a lot of very large transactions in the pipeline, a lot of solid situations where the, we have a very, very high probability of success on those because we no only just, we don't just have a pipeline, but we also attach probabilities to those things. So it's tremendously large number plus in terms of not only number of transactions but large deals and the probability on most of those is very, very high so we're, we're very very optimistic and gee I hate to use the word very confident but we are very confident about what we have in that pipeline.

113. When questioned more specifically about the AIG/ReliaStar litigation, Ted Blanch acknowledged that EWB is recognizing only “very small parts of the revenue.” Because of the litigation expense, “practically no part of that revenue finds its way to the bottom line.” He continued:

[I]f AIG wins, it will have a very, very, very, very large transaction and I have every reason to expect that if they win we will get paid and if we get paid there's a good upside. If we, if the only issue that we had on all of the workers compensation things was in fact, AIG, I suspect that we might be under some pressure to show more than we're taking but I think when you mix that together with the other issues like Superior National, EBI, and up until a few days ago, the Reliance situation, there was to be some judgment used with regard to how you balance all these things out so that you come up with a reasonable presentation of where you are so that people aren't mislead either direction. That's what we've been trying to do.

114. Ted Blanch was specifically asked to paint the worst case scenario in terms of the workers compensation cover issue. He said:

What I am trying to tell you is that if we thought there was a reasonable potential need at some point in the future to write off revenues that we have recorded then I think we would have a responsibility to not be waiting around to do it. We'd have a responsibility to be doing it right now. Or to have already done it. So, our position is and it's not 100% percent, …we're not clairvoyant. But we have a business responsibility to try to do what we think is right and to record and report numbers, which we feel, are accurate relative to the facts, as we know them. That's what we've done.

115. Questioning during the conference call also addressed pricing, renewal and revenue generation. EWB acknowledged that it did not bring in as much revenue in December 1999 as it had hoped, which was “a little disappointing for us.” Ted Blanch, however, explained that he was “looking forward to having a strong first quarter” leaving the Unicover situation and all of its implications from 1999 behind. The Company stated with a “reasonable degree of confidence” that it could replace all the Unicover revenue.

116. Also in the January 25, 2000 conference call, Ted Blanch talked about trying to bring in revenue (unsuccessfully) in the fourth quarter of 1999 and instead having to push it into first quarter 2000. Ted Blanch stated the following:

I would say early December with regard to what we might bring during the last thirty days of the year. Without getting into the specifics, let's just say that that quantity of business, that the quantity of revenues as X. That was, X was the amount we thought that there was a reasonable shot to bring home. Actually, we only brought home about thirty to thirty five percent of X. That was a little disappointing to us for the fourth quarter but I kind of chuckled when I thought about it because what that really does is it throws it all into the first quarter and frankly, I'm looking forward to having a strong first quarter because I think it's, I think it in the end, important that we do that particularly since we as well as others and frankly you as well as others I think would like to try to get the aspects of the Unicover situations and all of it's implications from ‘99 well behind the scene.

An analyst asked a follow-up question later in the conference call about the outlook for the first quarter. Ted Blanch was specifically asked whether the 35% of X was reflective of the type of renewal period that it was. Ted Blanch answered that none of the “X” was renewals, “[i]t was all new business”:

This was not a problem at all with the placing of business. It was an issue around actually getting the orders and getting them so that the were a fourth quarter business as opposed to first quarter business. I mean, this wasn't the situation in every case but the way it works is that if you do something and it's effective December 31st, it's a fourth quarter thing. If it's effective January 1st, it's a fourth quarter thing … Just a matter of getting them closed.

Contrary to EWB's Statement that the Shoe Would Not Drop, the Shoe Drops

117. The shoe fell late on March 20, 2000, when EWB issued a press release that its earnings for the first quarter 2000 were expected to fall well below those for the same quarter of 1999 and below analyst's consensus estimates. The revenue which did not materialize in the 1999 fourth quarter and about which Ted Blanch “chuckled” (because it would come in the first quarter of 2000) did not exist. EWB finally acknowledged that the Unicover debacle did have a major impact on the Company and the impact would be continuing. The first quarter diluted earning were expected to be between $0.10 and $0.35, compared to the $0.70 from the first quarter of 1999, depending on whether certain deals closed before the end of the quarter.

118. Less than two months before the Company had said it did not anticipate problems replacing revenue and in fact expected “all” of the revenue which had been anticipated in the fourth quarter of 1999 to come in the first quarter of 2000. One of the principal reasons cited for the earnings decline was “reduction in domestic revenues, as compared to 1999, from workers compensation reinsurance placements and large non-recurring transactions.”

119. Also on March 20, 2000, EWB announced that Rodman Fox, a member of the Board of Directors and president and Chief Operating Officer of EWB's subsidiary, E.W. Blanch Co., had resigned.

120. The market responded negatively as a result of these adverse disclosures. On March 21, 2000, the day following the press release, shares of EWB fell from the price of the mid-$50s down to $20.75 per share, a plummet of nearly 62 percent on huge volume.

121. In its first quarter conference call on March 21, 2000, the Company's representatives, including Walker and Kaj Ahlmann, were questioned extensively about the performance of EWB and the hit the stock was taking based on the Company's announcements. When questioned about lost revenue from Unicover, the Company stated it has not disclosed those numbers and was hesitant to do so now. “

122. During the conference call, it was also revealed that EWB had repurchased shares on the open market and internally from Ted Blanch. The board of directors of EWB allowed for repurchase of 35,000 shares of common stock on the open market and 15,798 shares from Ted Blanch. The conference call noted that it was not a recurring transaction.

123. EWB also told the investing public that the very first indication it had that it would miss the first quarter estimates was Monday, March 20, 2000, the day before the stock plummeted. The Company claimed even it was surprised to have missed the estimates.

Undisclosed Adverse Information

124. As a result of the materially false and misleading statements and failures to disclose certain information, EWB's common stock traded at artificially inflated prices during the class period. The artificial inflation continued until the time EWB admitted that revenues were not being earned at the levels defendants had stated. Plaintiffs and other members of the Class purchased or otherwise acquired EWB common stock relying upon the integrity of the market price of EWB's common stock and market information relating to EWB and have been damaged as a result.

125. Notwithstanding the numerous statements made by defendants to the market touting rising income and the general absence of problems related to Unicover, defendants had been engaging in a practice of recognizing revenue with respect to the Company's Unicover-related brokerage business notwithstanding the fact that the contracts that would have resulted in revenue and profit for the Company had never been executed. ( See ¶¶ 39-49. supra.)

126. Recognition of revenue arising from the AIG and EBI agreements discussed above was inconsistent with the announced revenue recognition policies of the Company ( see ¶¶ 35-38, supra.) That is, reinsurance brokerage revenue was to be recognized only upon the later of the billing or the effective date of the reinsurance contract. Because revenue was recognized in advance of the contract being agreed to, the market was led to believe that material revenues were being earned by the Company. The contrary was true.

127. During the Class Period, defendants materially misled the investing public, thereby inflating the price of EWB's common stock, by publicly issuing false and misleading statements and omitting to disclose material facts necessary to make defendants'

statements not false and not misleading. These statements and omissions were materially false and misleading in that they failed to disclose material adverse information and misrepresented the truth about EWB, its business and its operations:

a. defendants knew or recklessly disregarded the impact Unicover would have on the operations of EWB and its revenues and earnings;

b. defendants knew EWB was recognizing brokerage revenue inconsistent with its stated Revenue Recognition Policy.

c. defendants recognized revenue related to Unicover which was based on one or more non-existent contracts.

d. defendants knew or recklessly disregarded the fact that ITSA software was untested and unproven and was indeed a “start up operation.” Nevertheless, EWB advised the investing public that utilization of that licenced software was a merger of a customer base with established technology allowing the Company to “maximize on the fly.”

e. defendants knew or recklessly disregarded that they had recognized, inconsistently with their announced revenue recognition policies, significant revenue related to the marketing of ITSA software in the HPA contract notwithstanding the fact that the Company had failed to comply with the terms of the HPA contract, thereby precluding revenue recognition.

f. throughout the Class Period, defendants knew or recklessly disregarded that the statements in EWB's website were false and misleading insofar as they claimed EWB was able to deliver the first internet-based sales and service platform for the property/casualty industry. It never could.

128. At all relevant times, the material misrepresentations and omissions particularized in this Complaint directly or proximately caused or were a substantial contributing cause of the damages sustained by plaintiffs and other members of the Class. As detailed above, during the Class Period, defendants made or caused to be made a series of materially false or misleading statements about EWB's business, prospects and operations. These material misstatements and omissions had the cause and effect of creating in the market an unrealistically positive assessment of EWB and its business, prospects and operations, thus causing the Company's common stock to be overvalued and artificially inflated at all relevant times. Defendants' materially false and misleading statements during the Class Period resulted in plaintiffs and other members of the Class purchasing the Company's common stock at artificially inflated prices, thus causing damages.

Sales by EWB's Top Management

129. At around the times that defendants were issuing false favorable statements about EWB's business, the impact of Unicover and its overall financial condition, the Individual Defendants and others benefitted from the illegal course of conduct described above by

selling shares of the Company's stock without disclosing the material adverse facts about the Company to which they were privy. Such sales were unusual in their amount and timing. A summary of the transactions is provided below at ¶ 138, infra. The Individual Defendants and the Frances and Frank Wilkinson Foundation, a foundation controlled by defendant Wilkinson, sold a total of approximately 498,426 shares for total proceeds of approximately $27.5 million.

NO SAFE HARBOR

130. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false statements alleged in this complaint. Many of the specific statements pleaded were not identified as “forward-looking statements” when made. To the extent there were any forward-looking statements identified as such, there were no meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the purportedly forward-looking statements. Alternatively, to the extent that the statutory safe harbor does not apply to any forward looking statement pleaded, defendants are liable for those false forward-looking statements because at the time each of those statements were made, the particular speaker knew that the particular forward-looking statement was false, and/or the forward-looking statement was authorized and/or approved by an executive officer of EWB who knew that those statements were false when made.

APPLICABILITY OF PRESUMPTION OF RELIANCE FRAUD-ON-THE-MARKET

DOCTRINE

131. At all relevant times, the market for EWB common stock was an efficient market for the following noninclusive reasons:

a. EWB's common stock met the requirements for listing, and was listed and actively traded on the NYSE, a highly efficient and automated market;

b. As a regulated issuer, EWB filed periodic public reports with the SEC and NYSE;

c. EWB regularly communicated with public investors via established market communication mechanisms, including regular disseminations of press releases on the national circuits of major news wire services and other wide-ranging public disclosures, such as communications with the financial press, conference calls, and other similar reporting services; and

d. EWB was followed by several securities analysts employed by major brokerage firms who wrote reports which were distributed to the sales force and certain customers of their

respective brokerage firms. Each of these reports was publicly available and entered the public marketplace.

132. As a result of the foregoing, the market for EWB's stock promptly digested current information regarding the Company from all publicly available sources and reflected such information in EWB's stock price. Under these circumstances, all purchasers of EWB common stock during the Class Period suffered similar injury through their purchase of EWB's common stock at artificially inflated prices and a presumption of reliance applies.

ADDITIONAL SCIENTER ALLEGATIONS.

133. At the same time defendants were refusing to tell the truth about Unicover exposure as explained above, the Company was involved in merger and/or sale discussions with Benfield Grieg Group PLC (“Benfield”). Ultimately, Benfield agreed to purchase EWB as announced on April 16, 2001. As such, the management of the Company had an extraordinary motivation to keep the price of EWB stock artificially inflated so as to reap the highest possible price for EWB stock in the event of a merger and/or purchase by Benfield.

134. As noted previously, EWB was recognizing significant brokerage revenue related to AIG and others even though it was fully aware that the contracts necessary to generate brokerage fees for the Company were not signed or otherwise effectuated and that such recognition of revenue was inconsistent with its announced recognition policies.

135. As noted previously, EWB was recognizing significant software sales related to HPA notwithstanding the fact that the contract on which said revenue was based (backdated to be effective April 1, 1999) had been breached by EWB and as a result, the recognition of $4.1 million in receivables pursuant to that contract was inconsistent with the announced revenue recognition policies of the company.

136. As noted previously, rather than recognizing reinsurance brokerage in accordance with its announced revenue recognition policies, brokerage revenue was recognized upon the earlier of the billing or effective date of the insurance contract.

137. In view of the foregoing, defendants acted with scienter in that defendants knew that the public documents and statements issued or disseminated in the name of the Company were materially false and misleading; knew that such statements or documents would be issued or disseminated to the investing public; and knowingly and substantially participated or acquiesced in the issuance or dissemination of such statements or documents as primary violations of the federal securities laws.

138. While falsely misrepresenting that EWB had absorbed the impact of Unicover in earlier quarters and while recognizing revenue inconsistent with the announced revenue

recognition policies, the Individual Defendants, the executives and senior officers of the Company, sold over 498,000 shares of EWB stock, for a total of approximately $27.5 million, to profit personally from the artificial inflation in EWB stock that defendants' fraudulent scheme had created. Notwithstanding the Individual Defendants' access to confidential corporate information as a result of their status as directors, officers, and insiders of the Company, and their corresponding duty to disclose adverse material facts before trading in EWB stock, the Individual Defendants named below sold significant amounts of EWB stock at artificially inflated prices in order to profit from the fraud, and did so while in possession of material, non-public information, as follows:

Name Date Stock Sold

Trans. Price Total

Edgar W. Blanch, Jr.

3/2/00 72,000 144 47.50 $ 3,420,000

Edgar W. Blanch, Jr.

Qtr. 1 15,798 Repurch. 48.00[FN1] $ 758,304

Frank S. Wilkinson

3/1-8/00 25,000 Open mkt.

47.12-50.00

$ 1,220,000

Frank S. Wilkinson

3/6/00 5,000 Open mkt.

50.00 $ 250,000

Chris L. Walker

3/8-9/00 10,000 Open mkt.

50.09-50.00

$ 500,450

Chris L. Walker

3/8/00 25,000 144 $ 1,250,000

Frank S. Wilkinson

2/22/00 54,788 Open mkt.

48.92 $ 2,680,000

Wilkinson Foundation

2/4/00 6,103 144 48.92 $ 300,000

Wilkinson Foundation

2/24/00 5,000 144 48.00 $ 240,000

Frank S. Wilkinson

2/2-28/00

11,130 Open mkt.

49.00-47.07

$ 530,000

Ian D. Packer

12/6-7/99

74,607 Open mkt.

57.94-56.04

$4,251,549

Frank S. Wilkinson

11/1/99-11/10/99

46,500 Open mkt.

64.24 -61.00

$2,911,830

Frank S. Wilkinson

11/1-2/99

10,000 Open mkt.

64.00[FN2] $ 640,000

Wilkinson Foundation

11/1/99 12,500 144 $ 800,000

Frank S. 11/1/99 75,000 144 $ 4,800,000

Wilkinson Frank S. Wilkinson

5/3/99 5,000 Open mkt.

60.25 $ 301,250

Frank S. Wilkinson

4/27-28/99

10,000 Open mkt.

59.94-59.51

$ 597,500

Francis & Frank S. Wilkinson

4/27/99 25,000 144 $ 1,500,000

Frank S. Wilkinson

4/27/99 10,000 Open mkt.

59.89 $ 598,900

TOTAL 498,426 $27,549,783

1. Estimated based on the approximate share price during the first quarter.

2. Estimated based on the average of prices over these dates.

COUNT I

(Against All Defendants Under Section 10(b) of the Exchange Act)

139. Plaintiffs incorporate ¶¶ 1 through 138 of this complaint as if fully set forth here.

140. Each of the defendants: (a) knew or had access to material adverse non-public information about EWB's financial results and then-existing business conditions, which was not disclosed; and (b) participated in drafting, reviewing and/or approving the misleading statements, releases, conference class, reports and other public representations of and about EWB.

141. During the Class Period, defendants, with knowledge of or reckless disregard for the truth, disseminated or approved the false statements specified above, which were misleading in that they contained misrepresentations and failed to disclose material facts necessary in order for the statements made, in the circumstances in which they were made, not to be misleading.

142. Except as alleged in this complaint, the underlying information relating to defendants' misconduct are not available to plaintiffs and the public and lie exclusively within the possession and control of defendants and other insiders of EWB, thus preventing plaintiffs from further detailing defendants' misconduct at this time.

143. Defendants violated § 10(b) of the Exchange Act and Rule 1 Ob-5 in that they:

a. Employed devices, schemes and artifices to defraud;

b. Made untrue statements of material facts or omitted to state material facts necessary in order to make the statements made, in light of the circumstances under which there were made, not misleading; or

c. Engaged in acts, practices and a course of business that operated as a fraud or deceit upon plaintiffs and others similarly situated in connection with their purchase of EWB common stock during the Class Period; and

d. Plaintiffs and the Class have suffered damages in that, in reliance on the integrity of the market, they paid artificially inflated prices to acquire EWB common stock. Plaintiffs and the Class would not have purchased EWB common stock at the price they paid, or at all, if they had been aware that the market prices had been artificially inflated by defendants' materially misleading statements.

COUNT II

(Against Edgar W. Blanch, Jr., Chris Walker, Frank Wilkinson, Rodman Fox and Ian D. Packer Under Section 20(a) of the Exchange Act)

144. Plaintiffs incorporate ¶¶ 1 through 143 of this complaint as if fully set forth here.

145. The claim asserted against the Individual Defendants is based on § 20(a) of the Exchange Act, 15 U.S.C. § 78t(a).

146. The Individual Defendants each acted as controlling persons of EWB within the meaning of § 20(a) of the Exchange Act. By reasons of their positions as directors and officers of EWB, the Individual Defendants had the power and authority to cause EWB to engage in the wrongful conduct described in this complaint.

147. By reason of such wrongful conduct, the Individual Defendants are liable pursuant to § 20(a) of the Exchange Act. As a direct and proximate result of the Individual Defendants' wrongful conduct, plaintiffs and other members of the Class were damaged in connection with their purchase of EWB stock during the Class Period.

148. The Individual Defendants are jointly and severally liable with and to the same extent as EWB's violations of § 10(b) of the Exchange Act and Rule 10b-5.

PRAYER FOR RELIEF

WHEREFORE, plaintiffs, on behalf of themselves and the Class, pray for judgment as follows:

(1) Declaring this action to be a proper class action within the meaning of Fed. R. Civ. P. 23(a) and 23(b)(3) and declaring plaintiffs to be proper class representatives;

(2) Awarding plaintiffs and all members of the Class compensatory damages in an amount to be determined at trial, together with pre-judgment and post-judgment interest;

(3) Awarding plaintiffs and all members of the Class their costs and expenses incurred in this action, including reasonable attorney fees, together with expert witness fees and other costs; and

(4) Granting plaintiffs and the Class such other and further relief as the court deems just and proper.

JURY DEMAND