Blogger's Note
Long-time readers may recall that I began this blog when I ended my monthly periodical, The Insurance Forum, with the December 2013 issue after 40 continuous years of publication. The first post was on October 7, 2013, and was entitled "Criminal and Civil Charges Against Two Credit Derivatives Employees at JPMorgan Chase." Since then there have been continuous posts at the rate of about five per month. I have now decided to take a vacation for two or three months, after which I plan to resume with No. 301. I would welcome emails during my vacation. Meanwhile, I hope you have happy holidays and a healthy 2019.
A Recent Article
On November 24, 2018, at 7:00 a.m. Eastern time, The Wall Street Journal posted online a 1,366-word article entitled "L.A. Dodgers Are Part of an Unorthodox $20 Billion Plan to Backstop Insurers." It is subtitled "Team Chairman Mark Walter, along with Magic Johnson and other owners, pledged personal holdings to support insurance companies connected with Guggenheim Partners." The reporters are Justin Baer (justin.baer@wsj.com), Margot Patrick (margot.patrick@wsj.com), and Leslie Scism (leslie.scism@wsj.com). The article did not appear in the print editions of the Journal. Here are the first three sentences of the article:
The "Opaque" Structure
The Journal article says that the structure of Safe Harbor is "opaque," and that "Guggenheim executives and Mr. Webb won't say when and where it was established or how its assets are valued." Also, a Journal "review of insurance filings found no references to Safe Harbor, and a search of corporate registries was inconclusive."
I sought brief statements for inclusion in this post from Commissioner Trinidad Navarro of Delaware, Director Jennifer Hammer of Illinois, and Commissioner Ken Selzer of Kansas. A spokesperson in Delaware said: "Let me see what I can do. I apologize. I'm just getting back into the office from a conference." I heard nothing further.
A spokesperson in Kansas said: "Regarding your inquiry, the Kansas Insurance Department has no comment." I heard nothing from Illinois.
Webb is co-executive chairman of the Winston & Strawn law firm, and appears to have been a source for some of the information in the Journal article. According to his biography on the firm's website, Guggenheim Partners is one of his corporate clients. I sought a brief statement from him for inclusion in this post. I heard nothing from him.
The Statutory Statements
I reviewed the "Notes to Financial Statements" in the statutory statements of the four insurance companies for the year ended December 31, 2017. I found no mention of Safe Harbor; however, it may have been formed subsequent to the filing of those statements. EquiTrust Life's statement, under "Information Concerning Parent, Subsidiaries, Affiliates, and Other Related Parties," includes this paragraph:
The 2014 Lawsuit Against Guggenheim
The Journal article contains a brief mention of an elaborate class action lawsuit filed on February 11, 2014. I wrote about the lawsuit in No. 110 (July 17, 2015). The lead plaintiffs were Clarice Whitmore, an Arkansas resident who bought an annuity in 2013 from Security Benefit Life, and Helga Marie Schulzki, a California resident who bought an annuity in 2013 from EquiTrust Life. The defendants were Guggenheim Partners LLC, Guggenheim Life and Annuity, Security Benefit Life, and EquiTrust Life. Ten attorneys associated with four law firms represented the plaintiffs. I do not know who would have represented the defendants. (See Whitmore v. Guggenheim, U.S. District Court, Northern District of Illinois, Case No. 1:14-cv-948.)
The complaint alleged phony reinsurance transactions with affiliates and violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act. Here are two paragraphs of the 366-paragraph complaint:
A Possible Explanation
When I wrote about the lawsuit in 2015, I had no idea of the reason for the voluntary and immediate dismissal of the case. When I saw the Journal article, I began thinking further about the matter. President George W. Bush nominated Judge Der-Yeghiayan in March 2003, and the Senate confirmed him in July 2003. He retired in February 2018 at age 66. He was an immigration judge. The plaintiffs' attorneys may have thought it would be difficult for the judge to handle a complex insurance case, and may have decided to dismiss the case without prejudice rather than seek to have the case assigned to another judge. If any readers have other possible explanations for the voluntary dismissal of the lawsuit, I would welcome such explanations.
General Observations
I have no confirmation, other than the Journal article, that the Safe Harbor program exists. As described in this post, I tried without success to obtain short statements from the states of domicile of the four insurance companies and from Webb.
I wanted to provide readers who are not subscribers to the online edition of the Journal with access to the entire article. However, I am not able to do so. First, the article is copyrighted, and I would not have been able to obtain the necessary permission within a reasonable time. Second, any version you find on the internet probably will provide only the beginning of the article and invite you to subscribe to see the entire article.
Available Material
When I posted No. 110, I offered a complimentary 172-page package consisting of the complaint against Guggenheim (105 pages) and the exhibits to the complaint (67 pages). The package remains available. E-mail jmbelth@gmail.com and ask for the February 2014 complaint in the case of Whitmore v. Guggenheim.
Long-time readers may recall that I began this blog when I ended my monthly periodical, The Insurance Forum, with the December 2013 issue after 40 continuous years of publication. The first post was on October 7, 2013, and was entitled "Criminal and Civil Charges Against Two Credit Derivatives Employees at JPMorgan Chase." Since then there have been continuous posts at the rate of about five per month. I have now decided to take a vacation for two or three months, after which I plan to resume with No. 301. I would welcome emails during my vacation. Meanwhile, I hope you have happy holidays and a healthy 2019.
A Recent Article
On November 24, 2018, at 7:00 a.m. Eastern time, The Wall Street Journal posted online a 1,366-word article entitled "L.A. Dodgers Are Part of an Unorthodox $20 Billion Plan to Backstop Insurers." It is subtitled "Team Chairman Mark Walter, along with Magic Johnson and other owners, pledged personal holdings to support insurance companies connected with Guggenheim Partners." The reporters are Justin Baer (justin.baer@wsj.com), Margot Patrick (margot.patrick@wsj.com), and Leslie Scism (leslie.scism@wsj.com). The article did not appear in the print editions of the Journal. Here are the first three sentences of the article:
A group of insurance companies associated with Guggenheim Partners LLC provided at least $300 million to help the firm's chief executive and co-investors buy the Los Angeles Dodgers for a record $2.15 billion in 2012—an unusual arrangement that drew scrutiny from regulators before they eventually concluded that nothing was amiss. Now the CEO is going public with an even more unusual arrangement he said is designed to protect policyholders and eliminate any potential conflicts of interest. He said he and a group of business associates have pledged more than $20 billion of their personal net worth to backstop the insurers if they run into financial trouble.Guggenheim's CEO is Mark Walter. Others are Dodgers co-owners Todd Boehly, Guggenheim's former president; Earvin "Magic" Johnson, the basketball legend; Robert Patton, a Texas businessman; Dan K. Webb, Guggenheim's outside attorney; and individuals not identified. The structure is called "Safe Harbor." The four insurance companies (and their states of domicile) are Delaware Life Insurance Company (DE), EquiTrust Life Insurance Company (IL), Guggenheim Life and Annuity Company (DE), and Security Benefit Life Insurance Company (KS).
The "Opaque" Structure
The Journal article says that the structure of Safe Harbor is "opaque," and that "Guggenheim executives and Mr. Webb won't say when and where it was established or how its assets are valued." Also, a Journal "review of insurance filings found no references to Safe Harbor, and a search of corporate registries was inconclusive."
I sought brief statements for inclusion in this post from Commissioner Trinidad Navarro of Delaware, Director Jennifer Hammer of Illinois, and Commissioner Ken Selzer of Kansas. A spokesperson in Delaware said: "Let me see what I can do. I apologize. I'm just getting back into the office from a conference." I heard nothing further.
A spokesperson in Kansas said: "Regarding your inquiry, the Kansas Insurance Department has no comment." I heard nothing from Illinois.
Webb is co-executive chairman of the Winston & Strawn law firm, and appears to have been a source for some of the information in the Journal article. According to his biography on the firm's website, Guggenheim Partners is one of his corporate clients. I sought a brief statement from him for inclusion in this post. I heard nothing from him.
The Statutory Statements
I reviewed the "Notes to Financial Statements" in the statutory statements of the four insurance companies for the year ended December 31, 2017. I found no mention of Safe Harbor; however, it may have been formed subsequent to the filing of those statements. EquiTrust Life's statement, under "Information Concerning Parent, Subsidiaries, Affiliates, and Other Related Parties," includes this paragraph:
On June 23, 2015, June Bug Insurance Holdings, LLC became the majority controlling shareholder of [EquiTrust Life]. Mr. Earvin Johnson is the sole owner of June Bug Lifetime Trust, which owns 100% of the common membership interests in June Bug Insurance Holdings, LLC. June Bug Insurance Holdings, LLC owns a controlling interest in EquiTrust Investor Holdings, LLC, and is 100% owner of [EquiTrust Life] through wholly-owned subsidiaries. [EquiTrust Life] is no longer an affiliate of Guggenheim Capital, LLC and its subsidiaries.The Guggenheim Life & Annuity statement refers to reinsurance agreements with many affiliates, former affiliates, and other companies, including Paragon Life of Indiana, Security Benefit Life, EquiTrust Life, and Clear Spring Life Insurance Company. I plan to check the 2018 statutory statements, which are to be filed on March 1, 2019.
The 2014 Lawsuit Against Guggenheim
The Journal article contains a brief mention of an elaborate class action lawsuit filed on February 11, 2014. I wrote about the lawsuit in No. 110 (July 17, 2015). The lead plaintiffs were Clarice Whitmore, an Arkansas resident who bought an annuity in 2013 from Security Benefit Life, and Helga Marie Schulzki, a California resident who bought an annuity in 2013 from EquiTrust Life. The defendants were Guggenheim Partners LLC, Guggenheim Life and Annuity, Security Benefit Life, and EquiTrust Life. Ten attorneys associated with four law firms represented the plaintiffs. I do not know who would have represented the defendants. (See Whitmore v. Guggenheim, U.S. District Court, Northern District of Illinois, Case No. 1:14-cv-948.)
The complaint alleged phony reinsurance transactions with affiliates and violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act. Here are two paragraphs of the 366-paragraph complaint:
11. In addition to saddling the Guggenheim Insurers with the highly illiquid affiliated promissory notes and billions of dollars of highly illiquid mortgage and other risky asset-backed securities, Guggenheim Chief Executive Officer Mark R. Walter, Guggenheim President Todd L. Boehly, and Guggenheim business associate Robert "Bobby" Patton Jr. used the Guggenheim Insurers as a cash machine to buy the most expensive sports franchise in world history, the Los Angeles Dodgers, with over a billion dollars in policyholders' funds.
14. At the center of this scheme was a shell game that Defendants hoped no one could follow, where money and liabilities were continuously shifted between companies with whom the Guggenheim Insurers acknowledged an affiliation (Security Benefit Life, Guggenheim Life, EquiTrust Life, and Paragon Life Insurance Company of Indiana) and with a separate, secretly affiliated company that Defendants acquired and corrupted to facilitate the fraudulent scheme, Heritage Life Insurance Company (AZ).On the day the complaint was filed, it was assigned by lottery to U.S. District Judge Samuel Der-Yeghiayan. The next day, the plaintiffs' attorneys filed a notice of voluntary dismissal without prejudice (subject to refiling), giving no reason for the dismissal. One day later, the court clerk dismissed the complaint without prejudice. I asked one of the plaintiffs' attorneys why they dismissed the case, but received no reply.
A Possible Explanation
When I wrote about the lawsuit in 2015, I had no idea of the reason for the voluntary and immediate dismissal of the case. When I saw the Journal article, I began thinking further about the matter. President George W. Bush nominated Judge Der-Yeghiayan in March 2003, and the Senate confirmed him in July 2003. He retired in February 2018 at age 66. He was an immigration judge. The plaintiffs' attorneys may have thought it would be difficult for the judge to handle a complex insurance case, and may have decided to dismiss the case without prejudice rather than seek to have the case assigned to another judge. If any readers have other possible explanations for the voluntary dismissal of the lawsuit, I would welcome such explanations.
General Observations
I have no confirmation, other than the Journal article, that the Safe Harbor program exists. As described in this post, I tried without success to obtain short statements from the states of domicile of the four insurance companies and from Webb.
I wanted to provide readers who are not subscribers to the online edition of the Journal with access to the entire article. However, I am not able to do so. First, the article is copyrighted, and I would not have been able to obtain the necessary permission within a reasonable time. Second, any version you find on the internet probably will provide only the beginning of the article and invite you to subscribe to see the entire article.
Available Material
When I posted No. 110, I offered a complimentary 172-page package consisting of the complaint against Guggenheim (105 pages) and the exhibits to the complaint (67 pages). The package remains available. E-mail jmbelth@gmail.com and ask for the February 2014 complaint in the case of Whitmore v. Guggenheim.
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Email: jmbelth@gmail.com
Blog: www.josephmbelth.com