We are deeply disappointed that we fell short of our own high standards. Our customers deserve better. We are committed to making this right. We found the issue, we self-reported it, and we are committed to doing better. We are fully cooperating with regulators.
My first blog post about MetLife's lost pensioners was No. 246 (January 2, 2018). I wrote further on the subject in No. 252 (February 12, 2018), No. 254 (February 19, 2018), No. 256 (March 6, 2018), and No. 259 (March 27, 2018). Here I discuss two new developments—a class action lawsuit and an administrative complaint.
The Class Action Lawsuit
On June 18, 2018, Edward Roycroft filed a class action lawsuit against MetLife, Inc., Metropolitan Life Insurance Company, and Brighthouse Financial, Inc. The case relates to lost pensioners in employer pension plans that MetLife has taken over in its so-called pension transfer business. Here is the opening paragraph of the complaint:
Plaintiff Edward Roycroft ("Plaintiff"), individually and on behalf of all those similarly situated, files this Class Action Complaint against MetLife, Inc., Metropolitan Life Insurance Company, Brighthouse Financial, Inc. (collectively, "MetLife" or the "Company") for conversion and unjust enrichment relating to the Company's taking of retirement annuity benefits from retirees. Plaintiff also seeks an accounting from MetLife for the amounts taken, interest, and disgorgement of unlawful profits. Plaintiff makes the following allegations based upon personal knowledge as to himself and his own acts, based on the investigation conducted by his attorneys, and upon information and belief.
Major sections of the complaint are "Accounting of Unpaid Annuity Benefits and Court Supervised Notice," "Factual Allegations," "Tolling of the Statute of Limitations," and "Class Allegations." The "Claims for Relief" are conversion, unjust enrichment, accounting, and constructive trust. The plaintiff seeks, among other things, class certification, declaratory and injunctive relief, compensatory and punitive damages, pre-judgment and post-judgment interest, attorney fees, and costs.
The case was assigned to Senior U.S. District Court Judge Alvin K. Hellerstein. President Clinton nominated him in May 1998, and the Senate confirmed him in October 1998. He took senior status in January 2011. Magistrate Judge Barbara C. Moses was also assigned to the case. (See Roycroft v. MetLife, U.S. District Court, Southern District of New York, Case No. 1:18-cv-5481.)
The Administrative Complaint
On June 25, 2018, the Enforcement Section of the Massachusetts Securities Division filed an administrative complaint against MetLife accusing the company of violating the Massachusetts securities law. The alleged violations relate to lost pensioners in employer pension plans that the company has taken over. The preliminary statement in the complaint consists of these two paragraphs:
The Enforcement Section of the Massachusetts Securities Division of the Office of the Secretary of the Commonwealth files this Administrative Complaint in order to commence an adjudicatory proceeding against Respondent MetLife, Inc. for violations of Mass. Gen. Laws ch. 110A, the Massachusetts Uniform Securities Act, and the regulations promulgated thereunder at 950 Mass. Code Regs. 10.00-14.413. The Enforcement Section alleges that MetLife made materially misleading statements in its public filings. By doing so, Respondent MetLife engaged in acts and practices in violation of Section 101 of the Act.
Specifically, the Enforcement Section seeks an order: (1) finding as fact the allegations set forth below; (2) finding that all the sanctions and remedies detailed herein are in the public interest and necessary for the protection of Massachusetts investors; (3) requiring Respondent to permanently cease and desist from further conduct in violation of the Act; (4) censuring Respondent; (5) requiring Respondent to provide a quantitative and qualitative accounting of its group annuity contract reserves; (6) requiring Respondent to locate all Massachusetts residents eligible for benefits pursuant to group annuity contracts administered by Respondent, notify such residents of the benefits they are owed, and immediately effect all retroactive and continuing payments, plus interest, to those Massachusetts residents; (7) imposing an administrative fine on Respondent in such amount and upon such terms and conditions as the Director or Presiding Officer may determine; and (8) taking any such further action which may be necessary or appropriate in the public interest for the protection of Massachusetts investors.
The administrative complaint has a five-page summary. It discusses, among other things, MetLife's public filings, its admission that it used inadequate search methods in attempting to find pensioners, its release of reserves for benefits payable to lost pensioners, and the launching of the Massachusetts investigation. The relevant time period is from January 1, 1992 to the present. Among the respondents are MetLife subsidiaries and affiliates, including Metropolitan Life Insurance Company.
The "Statement of Facts" in the administrative complaint includes discussions of the manner in which MetLife assumed responsibility for paying retirees of many major employers. An appendix to the complaint lists 100 such employers, a few of which are American Express, Arthur Andersen LLP, Fannie Mae, General Dynamics, General Motors, Liberty Mutual Insurance Company, Marsh & McLennan, Merrill Lynch, United Airlines, and Wells Fargo & Company.
The administrative complaint alleges that MetLife was negligent in failing to pay retirees, used retirement reserves for its own benefit, made materially misleading statements to investors, and the misleading statements caused harm to investors. The complaint alleges one count of violating the Massachusetts securities law.
The administrative complaint seeks an order requiring, among other things, that MetLife cease and desist from further such violations, provide a qualitative and quantitative accounting of its group annuity contract reserves, locate all Massachusetts residents eligible for benefits, notify those residents of the benefits they are owed, and make such payments, including interest, to those residents. The complaint seeks to have MetLife censured and be required to pay an administrative fine. (See In the Matter of MetLife, Inc., Commonwealth of Massachusetts, Office of the Secretary of the Commonwealth, Securities Division, Docket No. E-2017-0119.)
Historical Background
The story of lost pensioners and lost life insurance policyholders dates back more than half a century, to the widespread sale of "industrial life insurance," later called "home service life insurance." Such insurance involved small policies on which premiums were collected weekly or monthly at the homes of policyholders by "debit" agents. John Hancock, Metropolitan Life, and Prudential Insurance became huge mutual companies to a substantial extent because of their sale of large numbers of industrial life insurance policies.
Several decades ago the companies ended their focus on that type of insurance. Also, they found it increasingly expensive to collect the small premiums on such policies. To solve the problem, the companies stopped collecting premiums and designated the policies "paid-up," thus requiring no further premiums. However, with no premiums coming in, the companies lost contact with many policyholders.
Several decades ago the companies ended their focus on that type of insurance. Also, they found it increasingly expensive to collect the small premiums on such policies. To solve the problem, the companies stopped collecting premiums and designated the policies "paid-up," thus requiring no further premiums. However, with no premiums coming in, the companies lost contact with many policyholders.
In the 1990s the three companies decided to convert themselves into shareholder-owned companies through "demutualization." State laws allowing demutualization require a company to obtain the permission of its policyholders, and to buy out the policyholders with cash and/or stock in the new company. The companies sent letters to policyholders asking for their permission to demutualize, and enclosed a lengthy policyholder information statement describing the plan in great detail. The postal service returned millions of the packages to the companies because the addresses were outdated and the packages could not be delivered.
Prominent news stories, especially in the Boston home of John Hancock, focused on the problem. Ironically the state agency that decided to look into the problem was not the insurance commissioner's office, but rather was the unclaimed property office, which operates under the Massachusetts Secretary of the Commonwealth. The reason was that insurance companies are required by law to turn over unclaimed insurance funds to the state's unclaimed property office. Very little of the unclaimed property ever reaches the owners of the property, and unclaimed funds are therefore a major source of state revenue. For example, New York State Comptroller Thomas P. Napoli recently said:
Prominent news stories, especially in the Boston home of John Hancock, focused on the problem. Ironically the state agency that decided to look into the problem was not the insurance commissioner's office, but rather was the unclaimed property office, which operates under the Massachusetts Secretary of the Commonwealth. The reason was that insurance companies are required by law to turn over unclaimed insurance funds to the state's unclaimed property office. Very little of the unclaimed property ever reaches the owners of the property, and unclaimed funds are therefore a major source of state revenue. For example, New York State Comptroller Thomas P. Napoli recently said:
Statewide, there are more than 39 million unclaimed funds accounts valued at $15.5 billion. In 2017 the Office of Unclaimed Funds returned a record $460 million in lost money and we want to do the same this year.Eventually state insurance regulators began to take an interest in the problem. However, it was state unclaimed property officials who tackled the problem initially.
General Observations
MetLife did not file an 8-K (material event) report with the SEC disclosing either the class action lawsuit or the administrative complaint. It remains to be seen whether MetLife will disclose these matters in its 10-Q report filed with the SEC for the second quarter of 2018, which is expected to be filed early in August. The lawsuit and the administrative complaint are in their early stages and have a long way to go.
Available Material
I am offering a complimentary 51-page PDF consisting of the complaint in the Roycroft lawsuit (29 pages) and the administrative complaint including the appendix (22 pages). Email jmbelth@gmail.com and ask for the July 2018 package about MetLife's lost pensioners.