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.)
Outsourcing
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:
- 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").
- 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.
- 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 jmbelth@gmail.com and ask for the August 2018 package containing SHIP's lawsuit against Beechwood.
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 jmbelth@gmail.com and ask for the August 2018 package containing SHIP's lawsuit against Beechwood.
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Email: jmbelth@gmail.com
Blog: www.josephmbelth.com