Tuesday, September 16, 2014

No. 67: AIG Declares War against Coventry and the Buergers

On September 5, 2014, Lavastone Capital, a unit of American International Group (AIG), filed a complaint in federal court against Coventry First, an intermediary in the secondary market for life insurance. Later that day, Coventry filed a complaint in state court against Lavastone.

The Lavastone Complaint
The text of the Lavastone complaint is 151 pages long. There is an 89-page appendix showing "selected predicate acts" relating to 80 "fraudulently marked-up policies."

The plaintiff is Lavastone Capital LLC, an indirect subsidiary of AIG. The nine defendants are: Coventry First LLC (Fort Washington, PA), a wholly owned subsidiary of Montgomery Capital; LST I LLC and LST II LLC (Fort Washington, PA), wholly owned subsidiaries of Montgomery Capital; LST Holdings Ltd. (Dublin, Ireland), a wholly owned subsidiary of Montgomery Capital; Montgomery Capital Inc. (Fort Washington, PA), which is wholly owned by Alan Buerger, Constance Buerger, Reid Buerger, and/or other members of their families or trusts of which they are beneficiaries; Alan Buerger; Reid Buerger, son of Alan Buerger; Constance Buerger, wife of Alan Buerger; and Krista Lake, wife of Reid Buerger.

Lavastone makes 13 claims for relief. The first two claims, against all defendants, are for violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act and for conspiracy to violate RICO. Three other claims, against all defendants, are for fraud, fraudulent inducement, and unjust enrichment. Six other claims, against Coventry, are for breach of contract, breach of the implied covenant of good faith and fair dealing, indemnity, negligent misrepresentation, faithless servant doctrine, and breach of fiduciary duty. Two other claims, against all defendants except Coventry, are for aiding and abetting breach of fiduciary duty and tortious interference with contract.

Lavastone seeks general and compensatory damages; treble damages in accordance with statute; injunctive relief, including an order permitting Lavastone to unwind its relationship with Coventry in an orderly fashion at Lavastone's direction; and a series of declaratory judgments. Lavastone also seeks disgorgement of compensation and other payments to Coventry; disgorgement of moneys received by the defendants as a result of their misconduct toward Lavastone; Lavastone's attorneys' fees and costs; punitive damages; and prejudgment interest. (Lavastone v. Coventry, U.S. District Court, Southern District of New York, Case No. 1:14-cv-7139.)

An Excerpt from the Lavastone Complaint
In the text of the Lavastone complaint, the description of the "Nature of the Case" consists of 14 paragraphs. Here is the first paragraph:
Lavastone brings this action to seek redress for Defendants' egregious criminal scheme to defraud Lavastone out of hundreds of millions of dollars. Lavastone enlisted Defendant Coventry First LLC ("Coventry") with the responsibility of finding attractive life insurance policies ("life settlements" or "Life Policies") for Lavastone to purchase from policyholders on the open market, and paid Coventry more than a billion dollars in fees to do so. In return, Coventry was obligated to convey to Lavastoneat cost, meaning exactly what Coventry paidthe Life Policies that it procured for Lavastone. Instead of fulfilling that obligation, Coventry formed an illegal enterprise with its co-conspirators, including the other Defendants here, in which they abused Lavastone's confidences, bought Life Policies at prices below what it knew in confidence Lavastone would pay to purchase them, "laundered" the Life Policies' titles and purchase prices through affiliated shell companies, and then induced Lavastone to purchase those Life Policies at inflated prices, marked up to approach or reach Lavastone's ceiling, unbeknownst to Lavastone. Defendants' fraudulent conduct breaches not only the Racketeer Influenced and Corrupt Organizations ("RICO") Act, 18 U.S.C. §§ 1961-1968, but also Coventry's contracts and fiduciary duties owed to Lavastone. Moreover, it has resulted in Defendants being unjustly enriched at Lavastone's expense. In sum, Defendants are scam artists whose criminal scheme to defraud Lavastone falls squarely within the very racketeering conduct that the RICO statute was intended to redress.
A Possibly Related Pending Lawsuit
In 2009, Ritchie Risk-Linked Strategies Trading (Ireland) filed a complaint in federal court against Coventry. The Ritchie complaint differs from the Lavastone complaint; however, Ritchie alleges that it suffered significant losses when it was forced into bankruptcy, and that Coventry is responsible for the losses. In November 2013, U.S. District Court Judge Jed Rakoff of the Southern District of New York presided over a ten-day bench trial in the Ritchie case. In December 2013, each party filed proposed post-trial findings of fact, and they also filed a joint stipulated list of admitted trial exhibits. Judge Rakoff has not yet handed down his decision in the Ritchie case. (Ritchie v. Coventry, U.S. District Court, Southern District of New York, Case No. 1:09-cv-1086.)

Lavastone, on the day it filed its complaint against Coventry, filed a "statement of relatedness" that the case is related to the Ritchie case. The Lavastone case has not yet been assigned to a judge, but it was referred to Judge Rakoff as a case that is possibly related to the Ritchie case.

In the Ritchie case, the plaintiff's proposed post-trial findings of fact include an incredibly detailed description of the events that led up to the filing of then New York Attorney General Eliot Spitzer's 2006 civil lawsuit in state court against Coventry. That case was settled in 2009 by then New York Attorney General Andrew Cuomo. (See the January/February 2007, December 2007, and December 2009 issues of The Insurance Forum.)

The Coventry Complaint
The text of the Coventry complaint is 20 pages long. There are five appendixes: a 28-page appendix showing a 2011 arbitration award in a dispute between an AIG subsidiary and a premium finance company, a 245-page appendix showing a 2010 registration statement filed with the Securities and Exchange Commission by Imperial Holdings, Inc., and three "Origination Agreements" between Lavastone and Coventry that Coventry says it will seek to file under seal.

The plaintiff is Coventry, and the defendant is Lavastone. Coventry makes two claims; one is for breach of contract, and the other is for a declaratory judgment. Coventry seeks monetary damages it suffered as a result of Lavastone's breach of the exclusivity provision of the Origination Agreements. Coventry also seeks a series of declaratory judgments. (Coventry v. Lavastone, Supreme Court of the State of New York, County of New York, Index No. 652712/2014.)

An Excerpt from the Coventry Complaint
Coventry's opening description of the "Nature of the Case" consists of eight paragraphs. Here is the first paragraph:
For more than a decade, Coventry First and Lavastone, along with their respective predecessors and affiliates, have been parties to a series of agreements ("Origination Agreements") by which Coventry First acquired life insurance policies on the secondary market and sold them to Lavastone. Lavastone, formerly known as AIG Life Settlements LLC, is an affiliate of American International Group, Inc. ("AIG") and acquired these life insurance policies for the asset portfolio of the AIG family of companies. Lavastone not only has breached the Origination Agreements, but also wants to change the terms of the deal it made. Thus, after many years of amicable and cooperative dealings under the Origination Agreements, Lavastone's new business team now refuses to honor its obligations. But instead of bargaining for its desired changesand in an effort to escape contractual provisions that affect Lavastone's ability to resell the policies (such as privacy restrictions to protect insureds)Lavastone now accuses Coventry First of breaches. The contractual provisions Lavastone seeks to escape have an estimated value to the portfolio, and to Coventry First, of $700 million. To date, to Coventry First's knowledge, AIG has not revealed these restrictions in its annual securities filings.
"Hank" Greenberg Got It Right in 2001
In May 2005, then Attorney General Spitzer and then New York Superintendent of Insurance Howard Mills filed a civil complaint in state court against AIG, then AIG chairman and chief executive officer Maurice "Hank" Greenberg, and another AIG senior officer. One section of the complaint dealt with "life settlements." The complaint said AIG entered the business with Coventry in 2001, and included the allegation that AIG was falsely reporting income from life settlements as underwriting income. The complaint said: "AIG and Greenberg decided as a public relations matter that it was best not to use the AIG name to handle its life settlements business...." The complaint said Greenberg had expressed this comment in April 2001 to the AIG executive heading up the life settlements initiative: "It seems to me that anybody doing anything in the field stands the risk of adverse PR.... I am uneasy about this." I think Greenberg was right to be "uneasy" about the life settlements business. (See the August 2005 issue of The Insurance Forum.)

General Observations
I believe that the Coventry lawsuit is not a response to the Lavastone lawsuit. Rather, I believe that Coventry knew Lavastone was preparing to file a lawsuit, and that Coventry prepared a lawsuit in advance in order to be able to file it immediately after the filing of the Lavastone lawsuit. Indeed, in news stories published electronically on September 5, after the filing of the Lavastone lawsuit, Alan Buerger, the chief executive officer of Coventry, was quoted as saying he had not yet seen the Lavastone lawsuit. Although I was able to obtain the Coventry lawsuit from the state court late on September 5, I was not able to obtain the Lavastone lawsuit from the federal court until late on September 9.

The Lavastone lawsuit is a sweeping attack not only on Coventry, but also on the Coventry group of companies and the Buerger family. The allegations are so extensive and so detailed that I think the Lavastone lawsuit is an effort to destroy Coventry and the Buerger family. In my opinion, the Lavastone lawsuit is the beginning of an outright war.

I am offering two complimentary PDFs. One is the 151-page text of the Lavastone complaint and the other is the 20-page text of the Coventry complaint. Send an e-mail to jmbelth@gmail.com and ask for the two Lavastone-Coventry documents.


Thursday, August 21, 2014

No. 66: Lawsky's Strong Letter about Captives

On August 12, 2014, Benjamin Lawsky, Superintendent of the New York Department of Financial Services, wrote to his fellow insurance commissioners about the recent work of the National Association of Insurance Commissioners (NAIC) relating to captive insurance companies owned by life insurance companies. The letter is strongly worded and highly critical of the NAIC.

The Lawsky Letter
Lawsky refers to the February 2014 report prepared by the NAIC's consultant, Rector & Associates, Inc., and the revised and weakened June 2014 Rector report. At the end of the first paragraph of his letter, Lawsky says that if the NAIC cannot devise a better means of policing the use of captives by life insurance companies, it would all but invite federal authorities to do so. Here is the final paragraph of the Lawsky letter:
When the NAIC enlisted Rector to address the troubling boom of reserve financing through captives, it appeared to be doing so with a seriousness and urgency that recognized that these structures pose a clear and present danger to our system. Sadly, the revised and now-defanged [Rector] report simply permits more of the same. The NAIC's initial seriousness and urgency on this issue appears to have been overcome by industry lobbying. As we recognized last year, if the NAIC fails to take meaningful action with respect to captives, we will have left unresolved a gaping regulatory problem that is central to the safety and soundness of our system and the protection of policyholders. And that is where we find ourselves today.
Lawsky sent copies of his letter to three federal officials. They are Jacob Lew, Secretary of the Treasury; Mary Miller, Under Secretary of the Treasury for Domestic Finance; and Michael McRaith, Director of the Federal Insurance Office in the Department of the Treasury.

General Observations
I have long been critical of state insurance regulators for ignoring the need to strengthen rather than weaken financial requirements in the face of exotic new products. For example, in the March 2013 issue of The Insurance Forum, I wrote a major article entitled "A Review of More Than a Century of Efforts to Weaken Life Insurance Reserves." In that article, I expressed the opinion that so-called principles based reserves are contrary to the public interest and are a form of reserve weakening whose impact will not be fully revealed for many decades. I applaud Superintendent Lawsky for speaking out forcefully about the reserve weakening and artificial balance sheet inflation caused by the improper use of captives owned by life insurance companies.

I am offering a complimentary PDF of the four-page Lawsky letter. Send an e-mail to jmbelth@gmail.com and ask for Lawsky's August 12 letter about captives.


Wednesday, August 20, 2014

No. 65: A Life Settlement in a Bankruptcy Case

On August 13, 2014, Melville Capital issued a press release entitled "Melville Capital, LLC Brokers Sale of Initially Undisclosed Life Insurance Policy, Delivers $460,000 to Chapter 7 Estate." Melville calls itself "the country's premier Life Settlement Broker practicing in the area of restructuring and insolvency." The press release discusses a lumber company bankruptcy case where the trustee found life insurance policies that were not listed among the company's assets. The press release identifies nine other cases in which Melville was involved.

The Lumber Company Case
In the lumber company case, the bankruptcy trustee asked Melville to review the policies. Melville determined that one policy had value. The trustee retained Melville on a "success fee basis" to sell the policy through a life settlement in the secondary market for life insurance. Afterward, the trustee said he "was able to liquidate what appeared to be a worthless asset for a very significant amount of money for the benefit of the estate."

The Policy
In the press release, Melville says the policy was sold for $460,000, but provides no further details. I contacted Melville. A representative graciously answered several questions but, as will be seen, declined to answer two questions. I verified most of the information by reviewing public documents in the bankruptcy court file.

The policy was universal life with a face amount of $1 million and no available surrender value. It was policy No. B00399008 issued by Protective Life Insurance Company (Birmingham, AL). The policy was sold to Magna Life Settlements, Inc. (Austin, TX) for $460,000. Melville received a commission of 18 percent ($82,800), out of which Melville undoubtedly covered some expenses, and the bankruptcy estate received the remaining $377,200. (In Re: Hubert Moore Lumber Co., U.S. Bankruptcy Court, Middle District of Georgia, Case No. 13-71347.)

General Observations
I had never heard about the use of life settlements in bankruptcy proceedings. I am posting this item to call attention to the subject.

Melville says the bankrupty estate received the gross purchase price of $460,000. I think it would be more accurate to say the estate received the net amount of $377,200.

I was surprised that the gross purchase price was 46 percent of the face amount. Such a high ratio is reminiscent of viatical settlements involving terminally ill insureds. I asked Melville about the insured's age and also about the insured's general health at the time of the life settlement. Melville declined to answer those questions because of concerns about privacy and the Health Insurance Portability and Accountability Act (HIPAA). I tried without success to contact Magna and Protective. I think the insured must be very old, very ill, or both.

I am offering a complimentary PDF of Melville's press release. Send an e-mail to jmbelth@gmail.com and ask for Melville's release.


Thursday, August 14, 2014

No. 64: Coventry First—A Setback in the Griswold Case

In No. 27 posted February 3, 2014, I discussed a class action lawsuit filed against Coventry First LLC (Fort Washington, PA), an intermediary in the secondary market for life insurance. The plaintiff is Lincoln Griswold, a Pennsylvania resident.

The Underlying Lawsuit
In 2006, Griswold purchased an $8.4 million policy from United of Omaha Life Insurance Company. In 2008, he sold the policy to Coventry. Later he learned that an agent involved in the transaction received a much larger commission than what Griswold had been led to believe. In October 2010, Griswold filed a class action lawsuit against Coventry in state court. Coventry removed the case to federal court.

In December 2010, Coventry filed a motion to dismiss the complaint or compel arbitration. In June 2011, the district court judge conducted a hearing on the motion. In February 2013, the district court judge denied the motion. (Griswold v. Coventry, U.S. District Court, Eastern District of Pennsylvania, Case No. 2:10-cv-5964.)

The Appellate Ruling
Coventry appealed the decision. In January 2014, after extensive briefing, a three-judge appellate panel heard oral arguments.

On August 11, 2014, the appellate panel handed down a unanimous ruling. The panel said it lacked appellate jurisdiction to review the district court's denial of Coventry's motion to dismiss Griswold's complaint. The panel also said it affirmed the district court's denial of Coventry's motion to compel arbitration. (Griswold v. Coventry, U.S. Court of Appeals, Third Circuit, Case No. 13-1879.)

General Observations
As I said in No. 27, I think the Griswold case is important. It is reminiscent of the serious charges filed against Coventry in October 2006 by then New York Attorney General Eliot Spitzer, and the settlement of the charges in September 2009 by then New York Attorney General Andrew Cuomo. The Florida Office of Insurance Regulation also issued an order to show cause and later resolved the matter by issuing a consent order. (See the January/February 2007, December 2007, and December 2009 issues of The Insurance Forum.)

It remains to be seen whether Coventry will ask the panel to reconsider its ruling and/or ask the full Third Circuit to review the ruling, whether Griswold will seek class certification in the district court, whether discovery—including the taking of depositions—will occur, and whether a trial date will be set in the district court. Should a class be certified in this case, one can only imagine its huge potential impact on Coventry. Also, lurking in the background is the possibility that Coventry will try to settle the case and persuade Griswold to agree to keep the terms of the settlement confidential.

I am offering a complimentary PDF containing the Third Circuit panel's 22-page ruling. Send an e-mail to jmbelth@gmail.com and ask for the Griswold/Coventry appellate ruling.


Wednesday, August 13, 2014

No. 63: Life Partners—An Update Based on Recent Filings with the SEC

I wrote extensively in The Insurance Forum about Life Partners, Inc. (Waco, TX), which is an intermediary in the secondary market for life insurance and a subsidiary of Life Partners Holdings, Inc. (NASDAQ:LPHI). I also wrote about LPHI in Nos. 15, 22, 29, 30, 35, 36, and 37. This follow-up provides an update based on recent LPHI filings with the Securities and Exchange Commission (SEC).

Net Losses and Declining Settlements
LPHI incurred net losses in 11 of the 13 most recent fiscal quarters. During that period, the firm averaged about ten life settlements per quarter compared to about 56 per quarter during the preceding 52 quarters. Here are the figures for the 13 most recent quarters:

Net Income
Number of
---------- ---------
05/31/11 –$874
08/31/11 –323 16
11/30/11 –1,083 10
02/29/12 –843 18
05/31/12 1,037 10
08/31/12 –1,849 3
11/30/12 –754 12
02/28/13 –1,311 10
05/31/13 1,679 12
08/31/13 –1,793 3
11/30/13 –939 6
02/28/14 –1,399 5
05/31/14 –1,737 1

Despite the net losses and the declining volume of business, LPHI has continued paying dividends to its shareholders. The quarterly dividends were 20 cents per share during the first three quarters shown in the table above, ten cents per share during the next five quarters, and five cents per share during the last three quarters.

According to the proxy statement filed with the SEC on July 2, 2014, LPHI had 18,647,468 shares outstanding. Brian D. Pardo, LPHI's chief executive officer, beneficially owns 9,377,605 (50.3 percent) of the shares. Other officers and directors together own 484,651 shares.

Pardo Family Holdings, Ltd. (PFH) owns 9,363,470 of Pardo's shares. LPHI's latest proxy statement says PFH is located at LPHI's headquarters address in Waco, Texas. However, PFH's most recent filing with the SEC, in January 2009, says PFH is located in Gibraltar, a British overseas territory.

The dividends during the above 13 quarters add up to $1.35 per share. Thus Pardo received more than $12.6 million in dividends during those 13 quarters. Also, Pardo received total compensation of $570,742 for the fiscal year ended February 28, 2013, and $667,261 for fiscal 2014. However, the Pardo gravy train may end soon, in light of the following extraordinary paragraph at the bottom of page 20 in the 26-page 10-Q quarterly report that LPHI filed with the SEC on July 15, 2014:
We believe our existing working capital and future cash flows from operating activities will allow us to fund our current operations through fiscal 2015. Our recurring operations are not currently generating sufficient cash to support operations. To fund our short and long-term operations and to pay dividends, we have liquidated much of our investment portfolio, including most of our investments in policies. We presently hold policies carried at $1.6 million, of which $967,116 is classified as a current asset as we anticipate selling the policy interests within the next twelve months. We monetized our investment in the life settlement trust by assigning our current rights to future income. During the fourth quarter of fiscal 2014 we received a Federal income tax refund of $3,507,242, which aided our cash available. Except for our cash and cash equivalents, we have few sources of additional liquidity. As a result, we may not be able to continue to pay dividends at the historical rate and may reduce or eliminate dividends to conserve working capital until we can realize improved operating results.
General Observations
In 2010 LPHI share prices were close to $20, in 2012 they were around $6, and in 2013 they were around $4. The shares closed on August 8, 2014, at $2.04. It will be interesting to see what happens to share prices when dividends are reduced or eliminated. In any case, the paragraph quoted above suggests that the company is in liquidation mode.


Monday, August 11, 2014

No. 62: Pollock Financial and Florida Regulators Enter into a Consent Order Relating to Florida's Pasco County School District

In No. 53 posted June 16, 2014, I said the Pasco County School District (Land O'Lakes, FL) rejected a life insurance plan offered by Pollock Financial Group (Chagrin Falls, OH). The rejection came after the district received from the Florida Office of Insurance Regulation (FLOIR) a June 12 letter critical of the plan. This follow-up relates to a July 8 consent order filed by FLOIR and directed at Pollock.

The Consent Order
The consent order is similar to the FLOIR letter, but the language of the order is stronger. For example, the letter says the plan may violate Florida's insurable interest law, but the order says the FLOIR "finds" that the plan "lacks insurable interest."

Also, the order focuses on Pollock's inability to identify the life insurance company that would have issued the policies. The order says:
[Pollock] was unable to provide [FLOIR] with the name of the life insurance company that would be issuing the life insurance policies for the proposed products. [Pollock] represented to [FLOIR] that it had not yet identified the life insurance company that would issue the policies.
[FLOIR] finds that, by marketing a life insurance product in Florida to insure Florida lives without being appointed by an insurance company authorized to provide the product in the state of Florida, [Pollock] and its employees, including Mark G. Pollock and William "Bill" Olive, transacted insurance in the state of Florida without complying with the Florida Insurance Code, in violation of Sections 624.11 and 624.401, Florida Statutes.
Pollock does not admit violating any laws. However, Pollock agrees to comply with Florida laws and cease and desist from marketing the plan or any similar plan to Florida consumers. Pollock waives its right to a hearing and waives its rights to contest the order in any forum available to it. Each party bears its own costs. (In the Matter of Pollock Financial Group, Florida Office of Insurance Regulation, Case No. 155737-14-CO.)

General Observations
I do not know how Pollock illustrated the results of the plan over many years when it did not know what company was going to issue the policies. Perhaps the illustrated numbers were imaginary numbers.

This is my fourth post about the "too good to be true" plan Pollock offered Pasco. The earlier posts were Nos. 43, 48, and 53. From the first my unsolicited advice to the district was to reject the plan.

In No. 48, I offered a complimentary 14-page Pasco package of documents. In No. 53, I offered a complimentary 15-page second Pasco package of documents. Now I am offering a complimentary eight-page PDF containing the consent order. Send an e-mail to jmbelth@gmail.com and ask for the third Pasco package. The first two Pasco packages are still available.

Friday, August 8, 2014

No. 61: Stranger-Originated Life Annuities—SEC Actions Against Michael Horowitz and Others

On July 31, 2014, the Securities and Exchange Commission (SEC) issued an order directed at Michael A. Horowitz, a Los Angeles resident who the SEC says was the "architect" of "a fraudulent scheme to profit from the imminent deaths of terminally ill hospice and nursing home patients" through more than $80 million of variable annuities. I refer to such annuities as stranger-owned life annuities (STOLA).

The Order
The order says Horowitz submitted a settlement offer the SEC accepted. Horowitz agreed to admit wrongdoing; pay the SEC $850,000 consisting of disgorgement, prejudgment interest, and civil penalties; cease and desist from violating federal securities laws; and be barred from the securities industry. (Administrative Proceeding File No. 3-15790.)

The order consists of 23 pages, including a four-page annex containing Horowitz's admissions. This summary paragraph appears near the beginning of the order:
The scheme was orchestrated by Respondent Horowitz, then a registered representative of a large broker-dealer firm. Horowitz, together with others, made material misrepresentations and used deceptive devices to obtain the personal health and identifying information of terminally ill hospice and nursing home patients in order to designate them as annuitants on variable annuity contracts that Horowitz marketed to wealthy investors. Horowitz marketed these variable annuities—which are designed by their issuers to be long-term investment vehicles—as opportunities for short-term gains with a hedge against market losses. Horowitz recruited Respondent Cohen to facilitate the sale of additional "stranger-owned" annuities and they each obtained their firms' approval of variable annuity sales by making material misrepresentations and omissions on trade tickets, customer account forms and/or point-of-sale forms, which the broker-dealer principals used to conduct investment suitability and related reviews. As a result of the Respondents' fraudulent acts and practices, certain insurance companies unwittingly issued variable annuities that they would not otherwise have sold. The annuities sold during the scheme—which included five annuities sold to Horowitz's close relatives for profits in excess of $900,000—generated lucrative upfront sales commissions for the Respondents, with Horowitz receiving more than $300,000 and Cohen receiving more than $700,000 in commissions.
The Other Respondents
Moshe Marc Cohen (Brooklyn, NY) is referred to in the above mentioned order. He has not yet agreed to terms.

Seven others were the subjects of three SEC orders issued on March 13, 2014. They are Harold Ten (Los Angeles), Menachem "Mark" Berger (Chicago), Debra Flowers (Chicago), Howard A. Feder (Woodmere, NY), BDL Manager LLC (Woodmere, NY), Marc Steven Firestone (Los Angeles), and Richard Mark Horowitz (Los Angeles). (Administrative Proceeding File Nos. 3-15787, 3-15788, and 3-15789.)

Flowers, an "annuitant finder" recruited by Berger, agreed to cooperate in the investigation. She submitted a sworn statement of her financial inability to pay anything, and she was not charged.

The other six respondents agreed to pay various amounts to the U.S. Treasury as disgorgement, prejudgment interest, and civil penalties. The total amounts were: Ten ($292,000), Berger ($231,000), Feder ($130,000), BDL Manager ($3.3 million), Firestone ($186,000), and Richard Horowitz ($370,000). They agreed to cease and desist from violations of federal securities laws. Ten, Berger, Feder, and BDL Manager also agreed to cooperate in the investigation and be barred from the securities industry.

My First Article about STOLA
The June 2009 issue of The Insurance Forum carried a short article entitled "Money Laundering through Annuities." The article lacked detail because I had heard about the subject only through an unsolicited telephone call. I did not mention STOLA, and hoped to learn more later. What I learned later was more than I wanted to know.

My Second Article about STOLA
The lead article in the April 2010 issue of The Insurance Forum was entitled "Stranger-Originated Life Annuities." The first section of the article dealt with an interpleader lawsuit filed by MetLife Investors USA. It involved a premium wired to the company by a trust. The forged application was for a large variable annuity on the life of a Chicago nursing home patient facing imminent death. Upon her death 12 days after the annuity was issued, the company was uncertain where to send the death benefit. The same trust had applied to other companies for large variable annuities on the same life: Genworth Life & Annuity, Hartford Life & Annuity, ING USA Annuity & Life, New York Life Insurance & Annuity, and Sun Life of Canada US.

The second section of the article dealt with a series of civil lawsuits filed by Transamerica Life and Western Reserve Life of Ohio. The defendants were Joseph Caramadre, a Rhode Island attorney, and Raymour Radhakrishnan, an employee of Caramadre. They had arranged for large variable annuities on the lives of terminally ill individuals for the benefit of Caramadre and his clients.

As my April 2010 article was going to press, The Wall Street Journal carried an article on February 16, 2010 by reporters Mark Maremont and Leslie Scism. The article was entitled "Investors Recruit Terminally Ill To Outwit Insurers on Annuities."

My Third Article about STOLA
The March 2012 issue of The Insurance Forum carried a major article entitled "Recent Civil and Criminal Cases Relating to Stranger-Originated Life Annuities." The first section of the article dealt with the ongoing Rhode Island civil cases.

The second section of the article dealt with the fact that the U.S. Attorney in Rhode Island had filed criminal charges against Caramadre and Radhakrishnan. The charges related not only to the variable annuity scheme, but also to a "death-put bond" scheme. The latter involved corporate bonds owned jointly by two parties—an investor and a terminally ill person—with right of survivorship. The bonds were purchased at prices well below their face value. At the death of a co-owner, the surviving co-owner redeemed the bond at full face value.

The third section of the article provided an update and a major elaboration on the interpleader case. Here are some of the names of individuals mentioned in the public documents I reviewed: Menachem (Mark) Berger, Marc (Moshe) Cohen, Eli Finestone, Debra Flowers, Abraham Gottesman, Asher Gottesman, Akiva Greenfield, the late Dr. Mark Harvey, and Daniel A. Zeidman. I expressed this opinion about the interpleader case:
I think the outright lies, fraudulent misrepresentations, deceptive practices, concealment of material information, forgery of documents, bribery of relatives, perjured testimony, identity misappropriation, and other forms of wrongdoing that allegedly occurred in the case warrant investigation into the existence of a criminal conspiracy—sweeping across the country from New York to Illinois to California—to misappropriate the identities of terminally ill individuals....
My Later Articles about Caramadre
I did not write further about the interpleader case. However, I wrote follow-up articles about the Caramadre criminal case in the February 2013, April 2013, and October 2013 issues of The Insurance Forum. Also, in No. 17 posted January 2, 2014, I wrote about the sentencing of Caramadre to a six-year prison term and the sentencing of Radhakrishnan to a one-year prison term.

General Observations
As stated in my third article about STOLA, I think the nature and scope of the case involving Michael Horowitz and others amounted to a criminal conspiracy. It is hard to believe that using hospice patients and others facing imminent death does not warrant criminal prosecution.

I am making available, as a complimentary PDF, the July 31 SEC order including the annex with the Michael Horowitz admissions. Send an e-mail to jmbelth@gmail.com and ask for the SEC/Horowitz order.