Thursday, September 20, 2018

Note regarding 287

We inadvertently posted a preliminary version of No. 287. The final version will be posted within a few days. We apologize for the error.


Wednesday, September 12, 2018

No. 286: Stephen R. Leimberg Speaks Out

Stephen R. Leimberg is a professional fine art, portrait, and wildlife photographer in Amelia Island, Florida. He previously taught law at Temple and Villanova University Schools of Law in their Tax Masters programs. He is a good friend of mine. He shared with me an item he had prepared in July for possible publication in his local newspaper. I thought the item deserved wider circulation. I requested, and he granted, permission for me to provide it to my readers. I edited it lightly.

by Stephen R. Leimberg

Take It Back
Republicans—Take back the Grand in your Old Party—before it is unrecognizable. Recover Abraham Lincoln's honesty and integrity and Theodore Roosevelt's care for our land. Retake the principles that the federal government should not play a big role in people's lives, that there should be less government intervention in business and the economy, that the deficit should be kept as small as possible, that good government is based on the individual, and that each person's ability, dignity, freedom, and responsibility must be honored and recognized. Demand equal rights, equal justice, and equal opportunity for all, regardless of race, creed, age, gender, or national origin. Restore tolerance and inclusiveness and respect for different points of view. All those noble Republican principles are in great and imminent danger—not from others but from within.

The Environment
Car fuel economy and power plant emissions standards and research have been cut back. We no longer have a role in the Paris Agreement. The EPA has been emasculated—all but abandoning its stated purpose of protecting our air, water, and peoples' health and preventing toxic pollution. Sweeping cuts to research on renewable energy are proposed. What is most dangerous in all of this is the tampering with, denying, or ignoring of scientific evidence and data. The current administration continues to deny climate change—even in the face of extreme weather such as hurricanes, wildfires, rising seas, and poor air quality events. FEMA has stricken climate change from its strategic plan. The EPA's web content on the topic has been removed. Climate change is no longer listed by our government as a national threat—even though catastrophic events and their costs continue.

Consumer Protection
The Consumer Financial Protection Bureau isn't. It is dropping payday lending protections and suits against online loansharking—thus encouraging unfair, deceptive, and abusive business practices. Key consumer rules and regulations dealing with everything from credit access to car loans to baby crib safety and big bank abuses and student loan frauds by for-profit colleges have been delayed. Enforcement actions against shady financial practices have been dropped or dismantled. Labor Department protections for mom and pop investors have been gutted or delayed. It is almost as if the Great Recession had not occurred; the oversight to protect the most vulnerable is being stripped and our watchdogs deliberately defanged.

Tax Law
George Will, long-time staunch defender of conservatism, said of House Speaker Paul Ryan, "He sold his soul for a tax cut." And as most economists predicted, this huge tax cut (mainly enjoyed by our most affluent individuals and big businesses) resulted in stock buybacks making the richest richer. But it has not unleashed promised post cost-of-living increase wage growth for most people. To the contrary, the massive corporate tax breaks, coupled with multi-million-dollar estate tax exemptions for the ultrarich, have racked up almost $2 trillion—in national debt! Add this to the indirect tax the tariff war will impose on consumer goods, $12 billion in emergency bail-out relief for farmers (with taxpayer dollars), and income/wealth inequality continues to rise even as real wage growth stagnates, health care costs rise, and safety-net cuts accelerate.

Regardless of one's position on admission of new individuals to citizenship in our country, separating parents from children in the heartless and incompetent way this current administration did and failure to work toward immigration legislation resulted in a shame we will all long have to carry.

Astoundingly, even the far-right Koch brothers slammed the current administration's protectionism as causing long-term damage to our country. "When in order to win on an issue somebody else has to lose, it makes it very difficult to unite people." Other Republicans vented frustration at Republican leaders who voted for a whopping $1.3 trillion spending bill, calling it "crazy." Rather than bringing the country together, the head of the current administration acts as the prince of polarization, the ally of animosity, "the apostle of anger," the Arctic bear of bullies, the deacon of divisiveness, the denunciator of the press and "elites" (people who read and write?), and the comforter and encourager of supremacists and others who promote hatred, prejudice, and discrimination. Russia's Putin has been defended but fights have been picked with our allies Canada, England, France, and Germany. Our own intelligence, diplomatic, justice department, and FBI communities have been ignored, insulted, and alienated.

Faustian Compact?
Have wealthy Republicans—as George Will said—sold their souls for tax cuts? Have we abandoned environmental safety for the sake of higher corporate profits? Has the segment of our population who fear pluralism made a deal with the devil to gain a president who will state—from the Oval Office—that it is okay to be bigoted? Has the religious right closed their eyes to moral and ethical debasement and corruption to further their goals?

Now Or Never
Republicans, take back the Grand in the Old Party. Repudiate the ugliness. Protect civil liberties and the rule of law! Silence is complicity. If inaction is your choice, the GOP's future is bleak. Choose your legacy. Stand up and demand a leadership with spine and integrity who will in turn insist upon what George Herbert Walker Bush called for, "A kinder, gentler America," and what Ronald Reagan wanted, "a shining city on a hill."


Tuesday, September 4, 2018

No. 285: The Public Citizen/Corporate Research Project Joint Report

In July 2018 two nonprofit organizations based in Washington, DC released a major joint report. It is entitled Corporate Impunity: "Tough on Crime" Trump Is Weak on Corporate Wrongdoing.

The Executive Summary
The one-page Executive Summary consists of two extraordinary tables. They compare, for twelve federal agencies, the aggregate dollar amounts of financial penalties imposed for wrongdoing and the number of enforcement actions taken during President Obama's last year and President Trump's first year. As examples, the three agencies where the aggregate dollar amounts of financial penalties declined by the largest percentages were the Environmental Protection Agency, the Department of Justice, and the Federal Communications Commission. Aggregate financial penalties imposed by EPA declined from $23.870 billion to $1.460 billion (minus 94 percent), by DOJ from $51.506 billion to $4.898 billion (minus 90 percent), and by FCC from $257.034 million to $39.631 million (minus 85 percent). [Blogger's note: I question whether it is fair to compare the first year of a new administration with the final year of an established administration. In other words, it might have been better to compare the first year of the Trump administration with the first year of the Obama administration.]

The Introduction
The Introduction consists of six pages. Here, without footnotes, are the second and third paragraphs:
Americans are virtually united in support for regulatory enforcement. Polling shows Americans favoring tough regulatory enforcement by an 87-12 margin. Democrats (89), Republicans (85), Independents (87) all agree, as do Americans from all parts of the country: Northeast (86), Midwest (88), South (88), West (84). In focus groups, Americans connect proper and fair enforcement of the rules to concerns about a rigged political and economic system. They favor enforcement to ensure that everyone has a fair shot in society. They want assurances that weak regulatory enforcement does not enable corporations and the rich to play by a different set of rules—with everyday people held to account, but the powerful able to disregard the rules because they know they won't be enforced against them. These views are durable, and withstand counter-messaging. Indeed, Americans express overwhelming support for stronger regulatory enforcement.
Americans' overwhelming support for tough law-and-order against corporate wrongdoers reflects three interconnected understandings. First, basic standards of justice require that the rules be enforced equally against powerful corporations as they are against vulnerable individuals. Americans of all political stripes perceive that the system is rigged, creating both a crisis of political legitimacy and a pervasive sense of injustice. Second, justice requires that wrongdoers be punished—and corporate violators, who can inflict damage on a scale vastly greater than street criminals, must be punished commensurate with the scale of the harms they impose. Americans of all income brackets, for example, expressed strong support for prosecuting and seeking jail terms for high-level Wall Street executives in connection with the 2008 financial crash. Third, strong enforcement is needed to ensure compliance with the laws and regulations that protect Americans' quality of life, from clean air safeguards to protections against predatory lenders.
Body of the Report
The body of the report consists of four major sections. They are Law Enforcement, Consumer and Worker Protection, Environmental Protection, and Financial Regulation. I think the report is well worth reading. The full report is offered at the end of this post.

The Two Organizations
Public Citizen is a national nonprofit organization with more than 400,000 members and supporters. It represents consumer interests through lobbying, litigation, administrative advocacy, research, and public education on a broad range of issues including consumer rights in the marketplace, product safety, financial regulation, worker safety, safe and affordable health care, campaign reform and government ethics, fair trade, climate change, and corporate and government accountability. [Blogger's note: In the interest of full disclosure, Public Citizen Litigation Group, a unit of Public Citizen, represented me pro bono several times over the years.]

Corporate Research Project is a nonprofit center that provides research assistance to organizations working on a wide range of corporate responsibility issues. It produces public resources such as a guide to online corporate research; Corporate Rap Sheet profiles of more than 70 large and controversial companies; and Violation Tracker, a database containing more than 300,000 entries relating to corporate regulatory violations and other forms of misconduct. Corporate Research Project is an affiliate of Good Jobs First, a national resource center on economic development accountability.

Availability of the Report
I am offering a complimentary 104-page PDF containing the full joint report prepared by Public Citizen and Corporate Research Project. Email and ask for the July 2018 report on Corporate Impunity.


Tuesday, August 28, 2018

No. 284: The Financial Accounting Standards Board Announces New Accounting Guidance for Life Insurance Companies

On August 15, 2018, the Financial Accounting Standards Board (FASB) issued a press release entitled "FASB Improves Accounting Standards for Insurance Companies that Issue Long-Duration Contracts." The new Accounting Standards Update (ASU) has five major components: (1) it requires assumptions for liability management to be updated at least annually, with the effect recorded in net income; (2) it standardizes the liability discount rate; (3) it provides greater consistency in measurement of market risk benefits; (4) it simplifies the amortization of deferred acquisition costs; and (5) it requires enhanced disclosures. The press release is in the package offered at the end of this post.

The Effective Date
The ASU is so detailed that implementation clearly will require extensive work by the affected companies. Here is what the ASU says about the effective date:
For public business entities, the amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022. Early application of the amendments is permitted.
The ACLI Response
I sought the views of the American Council of Life Insurers (ACLI), the most prominent of the life insurance company trade groups. A spokesperson sent me an ACLI General Bulletin dated August 16, 2018, and ACLI's most recent comment letter to FASB. The letter, dated June 20, 2018, was over the signature of Mike Monahan, ACLI's senior director of accounting policy. The letter dealt for the most part with the effective date of the ASU. Here is the second paragraph of the letter:
We are writing to express our significant concern with the effective date decision made at the June 6, 2018, meeting, which gives public companies just over 2 years to implement. We do not believe this date is realistic and strongly urge the Board to reconsider their decision prior to the issuance of a final standard by extending the effective date for at least one additional year. We do not believe it is advisable for the Board to "wait" and see if preparers will be able to implement by this date and "later" consider potentially extending the effective date.
I have not seen the effective date decision made in June 2018. However, I believe that FASB denied the ACLI's request to extend the effective date for at least one additional year. I asked the ACLI whether my belief is correct. The spokesperson confirmed my belief. The August 2018 ACLI general bulletin and the June 2018 ACLI comment letter are in the package offered at the end of this post.

The NAIC Response
I also sought the views of the National Association of Insurance Commissioners (NAIC). In response, a spokesperson said:
The NAIC is aware of the recent news release from FASB. Much of the guidance is consistent with previous exposure drafts on the same topic. The NAIC, through its Statutory Accounting Principles (E) Working Group, will be reviewing it more closely in the near future to begin considering it for statutory accounting, consistent with what is described in the introductory paragraph of our most recent comment letter to FASB on the topic.
The spokesperson also sent me the most recent NAIC comment letter. The letter, dated December 12, 2016, was over the signature of Dale Braggeman. He is a staff person in the Ohio Department of Insurance and chairs the NAIC's Statutory Accounting Principles (E) Working Group. The NAIC's 2016 comment letter is in the package offered at the end of this post. Here is the introductory paragraph:
The Statutory Accounting Principles (E) Working Group of the NAIC is responsible for the development and enhancement of Statements of Statutory Accounting Principles (SSAPs) used by U.S. insurers in their statutory filings. Statutory Accounting Principles (SAP) presents an effective, comprehensive and understood approach, which has been built using the framework established by U.S. GAAP [Generally Accepted Accounting Principles]. Under the SAP process, all new GAAP issuances are considered and ultimately adopted, adopted with modification, or rejected. Although SAP may make some modifications, it is preferred to have minimal differences in accounting methodologies between SAP and GAAP, with as limited variations as possible to meet regulatory objectives. Consequently, proposals that significantly revise GAAP standards are a vital matter for U.S. regulators.
The Long-Term Care Insurance Connection
The regulatory implications of developments in the long-term care (LTC) insurance market have been well known for a long time. The departure of major companies from the LTC insurance market has been going on for many years. The problems at Penn Treaty festered for many years before the company was finally placed in liquidation last year. The problems at Genworth have been well known for a long time, and we still await final word on the proposed takeover of the company by a Chinese conglomerate. And then there was the General Electric fiasco in January 2018, when the company shocked the market by announcing it had to take a whopping $15 billion charge after ignoring for many years its growing liabilities on a legacy block of LTC insurance business.

We already know that the problems associated with LTC insurance are likely to cause major changes in the entire system of state guaranty associations. Now I wonder about the extent to which the problems associated with LTC insurance prompted FASB to move more rapidly with its long-planned ASU than it might otherwise have moved. After all, the first of the five major requirements in the ASU is that the companies must update, at least annually, the assumptions used in calculating their liabilities.

General Observations
I am not sufficiently familiar with life insurance accounting practices to comment on the full implications of the ASU. However, I believe that the changes will improve financial statements significantly and will be of great benefit to users of the statements. I also believe that the changes are so extensive that they will require enormous compliance efforts by the affected companies. It remains to be seen whether the companies will be ready to comply fully by the effective date.

Available Material
I am offering a complimentary 10-page PDF consisting of the FASB press release (2 pages), the ACLI general bulletin (1 page), the ACLI comment letter (3 pages), and the NAIC comment letter (4 pages). Email and ask for the August 2018 FASB/ASU package.


Thursday, August 23, 2018

No. 283: Jesse Eisinger's Superb 2017 Book

I am embarrassed to say I did not read Jesse Eisinger's July 2017 book until this summer. It is entitled The Chickenshit Club: Why the Justice Department Fails to Prosecute Executives.

Eisinger currently is an investigative reporter for ProPublica. Previously he worked for The Wall Street Journal Europe. He once worked at Conde Nast Portfolio, where he wrote a story in November 2007 that predicted the collapse of Bear Stearns and Lehman Brothers. In 2009 he began work on a series of stories co-authored with Jake Bernstein, for which they received a 2011 Pulitzer Prize for National Reporting.

In the introductory section of his book, Eisinger explains that James Comey was the source of the book's main title. Early in 2002, shortly after Comey was appointed by President George W. Bush to head the powerful Office of the U.S. Attorney for the Southern District of New York, Comey gave a talk to his prosecutors. He asked them: "Who here has never had an acquittal or a hung jury?" According to Eisinger, "Hands shot up," because they considered themselves the best in the country. Comey then said: "You are members of what we like to call the Chickenshit Club." Eisinger then said: "Hands went down faster than they had gone up." Comey then added: "If it's a good case and the evidence supports it, you must bring it." According to Eisinger, Comey then explained that government lawyers "should seek to right the biggest injustices, not go after the easiest targets."

The greatest hero in the book is Jed Rakoff, the famous senior judge in the U.S. District Court for the Southern District of New York. His name appears in the titles of two chapters of the 16-chapter book. Eisinger describes Rakoff's early life and career in detail. In April 2002 he handed down a decision against the death penalty.  He made the decision, which he knew would be reversed on appeal, with the full realization that it would prevent him from ever being nominated for an appellate court position. Another of his famous decisions was his initial refusal to approve the October 2011 "neither admit nor deny" $285 million settlement between the Securities and Exchange Commission and Citigroup. Although the ruling was reversed by the business-friendly Second Circuit, Rakoff's efforts on the case won the hearts of many court watchers and had a powerful impact on many other judges.

Another hero in the book is Paul Pelletier, a long-time prosecutor in the Department of Justice. As examples of his work, he was heavily involved in the PNC Bank case and in the trial of the Hartford Five in the AIG/GenRe case. According to Eisinger, when Pelletier left the Justice Department, the going-away party was attended by about 200 people who overflowed the restaurant and into an adjacent atrium.

Yet another hero in the book is Benjamin Lawsky, who was present at the 2002 Comey speech to prosecutors, and who had lost his first trial as a prosecutor. He later served as New York State Superintendent of Financial Services. According to Eisinger, Lawsky, after leaving his New York position, was blackballed by the New York bar, could not land a position at a major law firm, and instead became a consultant and attorney.

One of the leading villains in the book is Joseph Cassano, who eventually was forced to retire from his position at AIG Financial Products. That was the infamous unit that may have been most responsible for the collapse of AIG. Cassano was never indicted.

The first major case discussed in detail in the book is the Enron/Arthur Andersen case. Eisinger argues throughout the book that the destruction of Andersen—and the consequences for all the innocent employees of Andersen—was a major factor in later decisions on how far to carry prosecutions. Other cases Eisinger describes in detail are the Bank of America acquisition of Merrill Lynch, the BP Deepwater Horizon disaster, the PNC Bank case, the WorldCom case, the Tyco case, and the United Brands case. The latter case included the suicide of Eli Black.

I was startled to learn that the expression "white-collar crime" is generally attributed to Edwin Sutherland, an Indiana University sociology professor who came up with the phrase in the 1930s. Sutherland's classic work entitled White Collar Crime was published in 1949, a year before his death at the age of 67, and was censored until 1983.

Eisinger goes into considerable detail on why so few strong legal actions were taken against executives in the wake of the 2008 crash. Among the reasons he discusses is the major growth in the size and power of white-collar defense firms. He also describes the "revolving door," which is the manner in which attorneys associated with major defense firms move into government service for a time and then return to their defense firms.

Eisinger's superb book is a great read. I think it is required reading for anyone interested in the welfare of our financial system.


Thursday, August 16, 2018

No. 282: Cost-of-Insurance Increases—John Hancock Settles an Unusual Type of Lawsuit

In No. 145 (February 22, 2016) I wrote about an unusual type of cost-of-insurance (COI) class action lawsuit against John Hancock Life Insurance Company (U.S.A.). The plaintiff originally filed the lawsuit in December 2015. The case was unusual because, rather than alleging unlawful COI increases, the plaintiff alleged an unlawful failure to decrease COIs in response to decreasing mortality rates. The plaintiff also alleged unlawful charges for a rider. (See 37 Besen Parkway v. John Hancock, U.S. District Court, Southern District of New York, Case No. 1:15-cv-9924.)

Recent Developments
On March 30, 2018, an attorney for the plaintiff filed a class certification motion. On July 20 he filed a motion for preliminary approval of a proposed settlement. Accompanying the latter motion were four documents in support of the proposed settlement—a memorandum of law and the declarations of three individuals. The three-paragraph "Introduction" in the memorandum of law (without citations) reads:
The Settlement reached after more than two-and-a-half years of hard-fought litigation provides the Class with a $91.25 million cash payment. The money will be distributed directly to Class members, with no need for claims forms and no funds reverting to John Hancock.
On preliminary approval, the question is whether the Settlement's substantive terms fall within the range of "possible" approval, such that notice should be sent to the Class and a full fairness hearing should be held. The substantial recovery obtained for the Class in light of the risks of continued litigation easily meets that test. Class Counsel researched and discovered this alleged breach of contract on their own, without any governmental investigation, and filed the first suit alleging that John Hancock failed to decrease its cost of insurance rates. At the initial conference in this case, the Court expressed concern regarding whether Plaintiff can sustain a breach of contract claim in light of a "fundamental issue about the language in the policy that could be dispositive," questioned whether the key contractual terms at the heart of this litigation were even "enforceable," and invited John Hancock to file "a dispositive motion addressing" whether Plaintiff can even "get[] at the issue of [John Hancock's] expectations of future mortality experience." After persuading John Hancock not to file a proposed motion for judgment on the pleadings, Class Counsel reviewed and analyzed over 340,000 pages of documents (including over 2000 spreadsheets), had its experts spend 23 days onsite at John Hancock's offices in Boston, Massachusetts extracting reams of data about tens of thousands of Class policies and working with and investigating John Hancock's policy administration systems, took and defended 16 highly technical depositions (some over multiple days) involving subjects such as insurance financial reporting, statutory accounting, mortality tables, and actuarial science, and prepared a motion for class certification and supporting expert reports that totaled over eleven thousand pages. These efforts ultimately culminated in a mediation on May 24, 2018, which took place before Judge Theodore Katz (Ret.), a retired magistrate judge in this District, and resulted in an extraordinary amount of cash relief for the Class. The $91.25 million settlement fund will be used to compensate tens of thousands of elderly insureds, and is a remarkable result for an alleged breach of a contractual promise that this Court had preliminary concerns about being "awfully vague" and "almost sounds illusory."
At the final approval hearing, the Court will have before it more extensive submissions in support of the Settlement and will be asked to make a determination as to whether the Settlement is fair, reasonable, and adequate in light of all of the relevant factors. At this time, Plaintiff requests only that the Court grant preliminary approval of the Settlement so that Class members can receive notice of the Settlement and the final approval hearing.
The "Background" section of the memorandum of law describes the litigation, the settlement negotiations, and the proposed settlement. The proposed settlement provides that up to $1 million of the $91.25 million settlement fund may be used on a nonrefundable basis for "notice and administration costs." It also provides that class counsel may seek reimbursement of expenses and an award of up to one-third of the settlement fund, and may request incentive awards of up to $40,000 each for the two class representatives who testified on behalf of the class.

The "Argument" section of the memorandum of law explains why the class should be certified and why the proposed settlement should be approved. The full memorandum of law is in the package offered at the end of this post.

Other Recent Documents
On July 20 Theodore H. Katz, a retired federal magistrate judge who presided at the settlement conference, filed a declaration in support of the motion for preliminary approval of the settlement. His declaration is in the package offered at the end of this post.

Also on July 20 an attorney for the plaintiff filed a declaration that included, among other things, the proposed notice to the members of the class and the proposed plan of allocation of the settlement fund. Those two items are in the package offered at the end of this post.

General Observations
At this writing (early August 2018) nothing further has happened. Presumably the next two important developments will be the judge's approval of the proposed settlement, and some months later the judge's final approval of the proposed settlement after the fairness hearing. I plan to report significant further developments.

Available Material
The complimentary 66-page package I offered in No. 145 is still available. Email and ask for the February 2016 COI/John Hancock package.

I now offer a complimentary 45-page PDF consisting of the plaintiff's memorandum of law (32 pages), Judge Katz's declaration (4 pages), the proposed notice to class members (7 pages), and the proposed plan of allocation (2 pages). Email and ask for the August 2018 COI/John Hancock package.


Thursday, August 9, 2018

No. 281: Senior Health Insurance Company of Pennsylvania Goes to Court

On July 24, 2018, Senior Health Insurance Company of Pennsylvania (SHIP) filed a complaint in federal court against Beechwood Re, several related entities, and several individuals. SHIP is running off the long-term care (LTC) insurance business of the former Conseco Senior Health Insurance Company. The lawsuit alleges massive wrongdoing by Beechwood in investing SHIP's assets.

I have written extensively about SHIP, including several posts about the company's deteriorating financial condition, and several posts about lawsuits in which disgruntled claimants were plaintiffs and SHIP was the defendant. I think this is the first case in which SHIP is the plaintiff. (See SHIP v. Beechwood, U.S. District Court, Southern District of New York, Case No. 1:18-cv-6658.)

In No. 263 (April 23, 2018), I wrote about SHIP's "outsourcing" of functions, as described in the compamy's "2017 Management's Discussion and Analysis." SHIP said it "operates from its offices in Carmel, Indiana, and utilizes third-party providers for key functions." Among those providers are "asset managers for investment portfolio management and accounting." That function is the subject of the recent lawsuit. SHIP also uses Long Term Care Group, Inc. as a third-party administrator for policy and claim administration, "actuarial professionals for pricing and valuation," an affiliate named Fuzion Analytics, LLC for administration of the company, and a public relations firm for media activities. There is no need to outsource the marketing function because the company is in runoff.

The Defendants
The company defendants are Beechwood Re Ltd.; B Asset Manager, L.P.; Beechwood Bermuda International, Ltd.; Beechwood Re Investments, LLC (aka Beechwood Investors, LLC); and Illumin Capital Management, LP. The individual defendants are Moshe M. Feuer (aka Mark Feuer), Scott A. Taylor, David I. Levy, and Dhruv Narain.

The Judge
The case has been assigned to Senior U.S. District Court Judge Jed S. Rakoff. President Clinton nominated him in October 1995, and the Senate confirmed him in December 1995. He assumed senior status in December 2010. Magistrate Judge Ona T. Wang was also designated.

The Thrust of the Case
The thrust of the case may be gleaned from the first three paragraphs of the "Nature of the Action" section of the complaint. They read:

  1. This action arises from Beechwood's deceit, intentional misconduct, and extreme incompetence in the promotion and sale of investments to SHIP and in Beechwood's subsequent mismanagement and misuse of $320 million in policyholder reserves entrusted to it by SHIP through and related to three Investment Management Agreements (the "IMAs").
  2. The IMAs guaranteed SHIP an annual return of 5.85 percent, based on what Beechwood represented to be a conservative investment strategy that would be appropriate to SHIP's status as an insurer in run-off. Beechwood failed to deliver on the guaranteed returns and also has failed to deliver all of SHIP's investment principal back to it. Defendants failed to deliver because, once they secured control over SHIP's funds for investment, they jettisoned their promises to invest safely and in SHIP's best interest. Beechwood instead used SHIP's funds to prop up and perpetuate highly speculative, distressed, and fraudulently valued investments that did not suit or benefit SHIP.
  3. Beechwood also favored its own interests and the interests of undisclosed but related third parties and affiliates who conspired with and effectively controlled Beechwood, all to SHIP's detriment. These related parties were associated with Platinum Partners, described in more detail below. Many of the individuals who were granted improper access to, and who benefited from the improper use of, SHIP's funds ultimately were indicted in federal court for their misdeeds. Defendant Levy and others are scheduled for criminal trial on January 7, 2019 for at least some of their Platinum-related actions.
The Related Litigation
SHIP's complaint mentions two criminal cases and two civil cases, all of which were filed in 2016. I have written about them. Here I provide brief updates, in the order in which they were initially filed.

U.S.A. v. Seabrook
When I wrote about this criminal case in No. 180 (September 19, 2016), I said Norman Seabrook was a former official of New York City's Correction Officers Benevolent Association (COBA) and his fellow defendant Murray Huberfeld was the founder of Platinum Partners, a hedge fund. They were charged with two criminal counts: (1) conspiracy to commit honest services wire fraud and (2) honest services wire fraud. The indictment alleged a "kickback scheme" under which COBA funds were invested in offerings of Platinum. A 17-day trial began October 24, 2017, and ended with a hung jury.

On May 17, 2018, a superseding three-count indictment was filed against the defendants. Eight days later a superseding one-count information was filed against Huberfeld, he entered a guilty plea, and his sentencing was set for September 14. The retrial of Seabrook was set for August 1. (See U.S.A. v. Seabrook, U.S. District Court, Southern District of New York, Case No. 1:16-cr-467.)

Bankers Conseco Life v. Feuer
When I wrote about this civil case in No. 182 (October 7, 2016), I said the complaint lists 12 counts of alleged wrongdoing, including three counts of violations of the federal Racketeer Influenced and Corrupt Organizations (RICO) Act. The plaintiffs were Bankers Conseco Life Insurance Company and Washington National Insurance Company, which are subsidiaries of CNO Financial Group, Inc. The defendants were Feuer, Taylor, and Levy.

On June 15, 2017, Taylor filed a motion to compel arbitration. On March 15, 2018, the judge granted the motion to compel arbitration and stayed the case pending arbitration. On April 27, 2018, the plaintiffs filed a motion for an interlocutory appeal; the motion has not yet been fully briefed. (See Bankers Conseco Life v. Feuer, U.S. District Court, Southern District of New York, Case No. 1-16-cv-7646.)

U.S.A. v. Nordlicht
When I wrote about this criminal case in No. 195 (January 3, 2017), I said that, in December 2016, seven individuals associated with Platinum were charged in an eight-count indictment. The defendants are Mark Nordlicht, David Levy, Uri Landesman, Joseph Sanfillippo, Joseph Mann, Daniel Small, and Jeffrey Shulse. In July 2018 the judge set the trial of the first six defendants to begin January 7, 2019, with the trial of Shulse to begin promptly after the trial of the other six defendants ends. (See U.S.A. v. Nordlicht, U.S. District Court, Eastern District of New York, Case No. 1:16-cr-640.)

SEC v. Platinum
When I wrote about this civil case in No. 195 (January 3, 2017), I said that the Securities and Exchange Commission (SEC) filled a complaint in December 2016 against two Platinum units and the same seven individuals charged in the Nordlicht criminal case. The complaint includes 11 claims for relief. In January 2017 the judge appointed a receiver. The case is proceeding, but no trial date has been set. (See SEC v. Platinum, U.S. District Court, Eastern District of New York, Case No. 1:16-cv-6848.)

General Observations
SHIP's lawsuit against Beechwood's entities and several individuals is in its early stages. I think it will end in a confidential settlement. However, the defendants are wrapped up in other litigation—both criminal and civil—that is likely to leave them without the resources necessary for a significant settlement. I think the fate of the lawsuit rests heavily on the outcomes of the other cases discussed in this post. I am puzzled about the long delay in SHIP's filing of its lawsuit, and I am in doubt about the wisdom of SHIP's use of its limited resources to mount this legal action. Despite these concerns, I plan to follow the case and report on significant developments.

Available Material
I am offering a complimentary 86-page PDF containing SHIP's complaint. Email and ask for the August 2018 package containing SHIP's lawsuit against Beechwood.