Wednesday, March 25, 2020

No. 361: Greg Lindberg—Trial, Conviction, and an Important Court Order

Blogger's Note
After posting this item, I am suspending work on this blog. I do not know how long the suspension will continue.

North Carolina resident Greg E. Lindberg is the founder and chairman of Eli Global, LLC, an investment company; and the owner of Global Bankers Insurance Group, a managing company for numerous insurance and reinsurance companies. In March 2019, a federal grand jury charged Lindberg and three other individuals with criminal wrongdoing. The other defendants are John D. Gray, a Lindberg consultant; John V. Palermo Jr., a vice president of Eli Global; and Robert Cannon Hayes, chairman of the state Republican party in North Carolina. The indictment charged the defendants with one count of conspiracy to commit honest services wire fraud; and one count of bribery concerning programs receiving federal funds, and aiding and abetting. Hayes was also charged with three counts of false statements. I first wrote about the case in No. 309 (April 17, 2019). (See U.S.A. v. Lindberg, U.S. District Court, Western District of North Carolina, Case No. 5-19-cr-22.)

My Previous Updates
In No. 320 (July 1, 2019), I reported that four Lindberg companies had been placed in rehabilitation by the North Carolina Department of Insurance. I also provided a brief update on the criminal case.

In No. 338 (October 24, 2019), I provided another update. I reported that Lindberg had filed a motion to dismiss the indictment. I also reported that Hayes pleaded guilty to one count of false statements. He is to be sentenced later.

In No. 355 (February 13, 2020), I provided another update. I reported that Gray and Palermo had filed motions to dismiss the indictment. I also reported that, on January 31, U.S. District Court Judge Max O. Cogburn Jr. issued an order denying the Lindberg, Gray, and Palermo motions to dismiss the indictment.

The Trial
The jury trial began February 18 and ended after eleven trial days. On March 5, the jury found Lindberg and Gray guilty on counts 1 and 2, and found Palermo not guilty on counts 1 and 2. The jury verdict form is in the complimentary package offered at the end of this post. Reportedly Lindberg and Gray will appeal. Post-trial motions are due April 2.

The Court Order
On March 18, Judge Cogburn issued an important court order directed at Lindberg, Gray, and others. I decided to report on the order without waiting for the post-trial motions, Judge Cogburn's rulings on them, and the likely notice of appeal. The order, without citations, reads:
This matter comes before the Court on its own motion. On March 5, 2020, a jury returned a verdict in this case, finding that Defendants Greg Lindberg and John Gray were guilty of Conspiring to Commit Honest Services Wire Fraud, and Aiding and Abetting in Federal Funds Bribery. Shortly thereafter, this Court learned that an individual affiliated with Defendants was reaching out to the jurors in this matter. When a juror declined to speak with that individual, they were allegedly told, "don't you know these men could get life?" Neither offense includes a possible punishment of life imprisonment.
The Court reported this behavior to the United States Attorney's Office to commence a criminal investigation for jury harassment and intimidation. The Court also e-mailed the parties and instructed them that jury harassment and intimidation would not be tolerated. In response, on March 17, 2020, the Court received an email from Matt McCusker, a Senior Consultant and President with Convince LLC. In an attachment, McCusker informed the Court that he was a "Litigation Consultant who was retained by the defense in US v. Lindberg, Gray and Palermo." McCusker stated that, after the verdict, "[he] began reaching out to jurors to see if they would be willing to discuss the case with [him]." He assured the Court that, if jurors declined to speak, he "thanked them for their time and told them that they would not be hearing from [him] again." Finally, he underscored, "[t]o be crystal clear, there was no harassment, intimidation, or bullying" because "[t]hat type of behavior is unethical."
The Court reviewed the website of Convince LLC. When describing its post-trial juror interview services, Convince LLC maintains it can "benefit" litigants by "find[ing] out if a juror Googled during deliberations," which will "arm [the parties] for an appeal" and "[p]repare for the next iteration of [the] trial." The Court will not tolerate attempts to taint the jury's verdict by applying undue pressure on jury members. To maintain the integrity of the jury and criminal justice process, the Court now enters the following Order.
IT IS, THEREFORE, ORDERED that Defendants Lindberg and Gray, as well as their attorneys and agents, including Matt McCusker, SHALL NOT contact the jurors during the ongoing investigation that is being conducted by the United States Attorney's Office and until further order of this Court.
The full order, including the citations and the McCusker attachments, is in the complimentary package offered at the end of this post. Readers may also visit McCusker's website at

General Observations
I have long been aware of litigation consultants who work with attorneys in selecting jurors and structuring presentations to appeal to jurors. However, I had not heard of litigation consultants who help in the appellate process through post-trial juror interviews (PTJIs). I recently learned that PTJIs have been discussed in legal circles for many years. The complimentary package offered at the end of this post includes a 1968 law review article on the subject.

The above court order suggests Judge Cogburn is not happy with PTJIs. It will be interesting to see the results of the criminal investigation he initiated and the extent to which it may delay post-trial proceedings.

Available Material
I am offering a complimentary 31-page package consisting of the jury verdict form (2 pages), Judge Cogburn's order including attachments (6 pages), and the 1968 law review article about PTJIs (23 pages). Email and ask for the March 2020 package about Lindberg.


Wednesday, March 18, 2020

No. 360: Dan Rather on the Current Crisis

It seems appropriate to step back this week from our usual insurance posts and consider the current crisis facing our country and the world. Dan Rather, now aged 88, served a long career with CBS News. He covered such events as the assassination of President John F. Kennedy, the Vietnam War, Watergate, the resignation of President Richard M. Nixon, and the Challenger disaster. Over the years he became a prominent journalist. In his retirement, he continues to express his views. On March 14, 2020, he posted these thoughts about the current crisis.
We will not be the same country when this is over. We can't be. We shouldn't be. Right now, the focus is, as it must be, on the immediate crisis at hand. It looms over us with a darkness that stretches forth without a horizon in sight.
These will be sad and scary times. People will suffer, and many will die. It will reach into everyone's life. For some, the loss will be marked in the passing of friends and loved ones, close and personal. Others might escape such an immediate toll, but the economic pain will be widespread. Here too, it will be uneven, inflicting the greatest cost on the poorest, most vulnerable, and most desperate. It will also strike some industries much deeper than others.
I can't help but reflect on other moments of hardship, anxiety and suffering. I was born into the Great Depression, and the images of abject poverty among my neighbors, the hopelessness of job searches, the ache of empty bellies, are etched in my consciousness. So too are memories of the war that soon followed. The very real sense that the world might end with a triumph of evil. The fathers who went off to battle and never returned. The dawning of the atomic era that ended the conflict. In the course of my work I have seen many other moments like these, where fear and tragedy raged, although most were more localized.
What I have also seen is that from crisis can emerge opportunity. We humans tend not to be good at anticipating problems. We seem to think good times will continue, even as we make decisions that leave ourselves vulnerable. But we are good at fixing things. We are capable of great energy, ingenuity, and that most important quality, empathy.
This nation, and the larger world, long have been broken in ways that have too often gone unaddressed. This is a wake-up call to our economic and healthcare insecurity. It is a reminder of why we must work with other nations to fix global problems. It is evidence that competency and truth-telling in government are paramount for the security of the United States. It is a rallying cry to strengthen the common bonds of our humanity.
We are being tested. In part, it is because we have let ourselves get to this point. That is where we are. We cannot change the past. But we can work our might on the present, and then resolve to fix our weaknesses going forward.
It is easy to blame leadership. They deserve the blame they are getting. But the rot that led to this moment is more systemic. When we emerge from this crisis, and we surely will, we must follow a path of renewal and improvement of how we structure our society, its economy, its health, its social obligations, and its politics. We are seeing the cost of failure. We have no choice but to forge ahead. And forging into a better, more just future, has been the American way. I, for one, continue to believe with all my heart, it will be that way yet again.

Friday, March 13, 2020

No. 359: Pittsenbargar, Shapiro, and a $1.3 Billion Ponzi Scheme

On February 20, 2020, the Texas State Securities Board (TSSB) issued a press release entitled "Austin Insurance Agent Indicted for Alleged $9 Million Fraud on Elderly." The agent was Brett Pittsenbargar. When I explored the matter, I learned about the involvement of California resident Robert H. Shapiro, a massive Ponzi scheme, the involvement of the U.S. Department of Justice, and the involvement of the Securities and Exchange Commission (SEC). Here I discuss the case.

The Texas Indictment of Pittsenbargar
On February 4, 2020, a grand jury in Travis County (Austin) indicted Pittsenbargar for alleged violations of Texas securities laws. He was arrested on February 19, and was booked into the Travis County jail.

Pittsenbargar was not licensed to offer or sell securities. The indictment alleges he sold or offered securities, and did so without disclosing important information. The indictment, which lists many victims by name and shows dates and amounts, is in the complimentary package offered at the end of this post.

On March 3, 2020, in the morning, I visited the Texas Department of Insurance (TDI) website to learn about Pittsenbargar's agent license. The license type was "life agent individual," the license number was 1530748, the original issue date was October 14, 2008, the "status" was "active," the effective date was October 14, 2008, and the expiration date was January 31, 2021. He had "active" appointments with ten life insurance companies: American National Insurance Company, Americo Financial Life and Annuity Insurance Company, Fidelity Security Life Insurance Company, Genworth Life Insurance Company, Government Personnel Mutual Life Insurance Company, Guggenheim Life and Annuity Company, Life Insurance Company of the Southwest, North American Company for Life and Health Insurance, PHL Variable Insurance Company, and Sentinel Security Life Insurance Company.

On March 5, I checked the TDI website again. The "status" of Pittsenbargar's license was "inactive." The "effective date" was March 3, 2020. The "status" of his appointment with each of the ten companies was "inactive." The "termination date" was March 3, 2020.

On March 6, I filed with TDI a public records request. I asked for a copy of the letter to Pittsenbargar notifying him that his agent's license had been revoked, and a sample copy of the letter sent to each of the companies notifying them that his appointments with them had been terminated.

On March 11, TDI sent me three one-page documents. The first, dated March 3, is a "Voluntary Surrender of Insurance Licenses" signed by Pittsenbargar. The second, dated March 9, is a letter from a TDI investigator informing Pittsenbargar he is prohibited from performing the acts of an insurance agent. The third, dated March 11, is a "Texas Appointment Action Notice" informing American National Insurance Company of six new appointments and ten terminated appointments, including the March 3 termination of Pittsenbargar's appointment. The three documents are in the complimentary package offered at the end of this post. (See State of Texas v. Pittsenbargar, 147th Judicial District Court, Travis County, Texas, No. DPS 2699012.)

The Florida Indictment of Shapiro
Shapiro, a resident of Sherman Oaks, California, was owner, president, and chief executive officer of various Woodbridge companies. On April 5, 2019, a federal grand jury in Florida indicted Shapiro and two other individuals. The indictment included ten counts: one count of conspiracy to commit mail fraud and wire fraud, five counts of mail fraud, two counts of wire fraud, one count of conspiracy to commit money laundering, and one count of evasion of payment of federal income taxes. The indictment also sought restitution relating to a massive Ponzi scheme. Here is how the indictment described such a scheme:
19. A "Ponzi" or "Ponzi scheme" is an investment fraud scheme that involves the payment of claimed returns to existing investors from funds contributed by new investors. Ponzi scheme organizers often solicit new investors by promising to invest funds in opportunities claimed to generate high returns with little or no risk. In many Ponzi schemes, the participants focus on attracting new money to make promised payments to earlier-stage investors to create the false appearance that investors are profiting from a legitimate business. Ponzi schemes require a consistent flow of money from new investors to continue and tend to collapse when it becomes difficult to recruit new investors or when a large number of investors ask for their money back.
On August 7, 2019, Shapiro pled guilty to the first and tenth counts of the indictment. On October 16, the judge sentenced Shapiro to imprisonment for 300 months, consisting of 240 months as to the first count, and 60 months as to the tenth count, to run consecutively, followed by supervised release for three years as to each of the first and tenth counts, with the terms to run concurrently. The other eight counts were dismissed. The indictment is in the complimentary package offered at the end of this post.

On August 8, the U.S. Attorney in South Florida issued a press release entitled "Mastermind of $1.3 Billion Investment Fraud (Ponzi) Scheme—One of the Largest Ever—Sentenced to Twenty-Five Years in Prison on Conspiracy and Tax Evasion Charges." The press release is in the complimentary package offered at the end of this post.

On November 4, the judge added restitution of about $479 million. With regard to the two other defendants, proceedings are ongoing. (See U.S.A. v. Shapiro, U.S. District Court, Southern District of Florida, Case No. 1:19-cr-20178.)

The SEC Complaint Against Pittsenbargar
On November 25, 2019, the SEC filed a civil complaint against Pittsenbargar and a firm he owned. Here are three paragraphs of the complaint:
4. The Woodbridge Group of Companies LLC and its affiliates ("Woodbridge") was headquartered and ran its operations in the Central District of California, specifically Sherman Oaks, California. The defendants transacted business in the Central District of California while participating in the offer and sale of Woodbridge's securities over the course of more than 4 years. Among other things, the Defendants regularly communicated via telephone, email, text message and mail with Woodbridge employees who were located in Sherman Oaks, California. Additionally, Pittsenbargar met with Woodbridge executives in the District and from September until December 2017, Pittsenbargar was an employee of Woodbridge.
10. Unbeknownst to the Defendants' clients, many of whom were elderly and had invested their retirement savings as a result of the Defendants' marketing techniques, Woodbridge was actually operating a massive Ponzi scheme, raising more than $1.2 billion before collapsing in December 2017 and filing a petition for bankruptcy. Once Woodbridge filed for bankruptcy, investors stopped receiving their monthly interest payments, and have not received a return of their investment principal.
15. Robert H. Shapiro ("Shapiro") was a resident of Sherman Oaks, California at all material times. He was Woodbridge's owner, President and CEO and, until the company's bankruptcy filing, maintained sole operational control over the company. In August 2019 Shapiro pled guilty to conspiracy to commit mail and wire fraud in connection with the Woodbridge Ponzi scheme, as well as tax evasion, and was subsequently sentenced to 25 years imprisonment. He is currently in federal custody. Shapiro is not, and has never been, registered with the Commission, FINRA, or any state securities regulator.
The complaint alleges two counts of violations of federal securities laws. The SEC requests, among other things, a finding that the defendants violated federal securities laws, a permanent injunction, disgorgement of all ill-gotten gains with prejudgment interest, and civil penalties.

The complaint is in the complimentary package offered at the end of this post. (See SEC v. Pittsenbargar, U.S. District Court, Central District of California, Case No. 2:19-cv-10059.)

General Observations
Pittsenbargar, an agent with a valid Texas license to sell life insurance, started selling securities without a securities license. He also became involved with a national firm headed by Shapiro, an individual in California, who also was not licensed to sell securities, and who in addition was operating a massive Ponzi scheme. What will happen to Pittsenbargar in the Texas criminal case remains to be seen. It is a sad story.

Available Material
I am offering a complimentary 59-page package consisting of the Texas indictment against Pittsenbargar (7 pages), the documents received from TDI relating to Pittsenbargar (3 pages), the federal indictment against Shapiro (29 pages), the press release issued by the U.S. Attorney in Florida (3 pages), and the SEC civil complaint against Pittsenbargar (17 pages). Send an email to and ask for the March 2020 package about Pittsenbargar and Shapiro.


Monday, March 2, 2020

No. 358: William Barr—Top Enabler of the Donald Trump Autocracy—Must Resign

The Statement by Former DOJ Employees
On February 16, 2020, former employees of the U.S. Department of Justice (DOJ) issued a "DOJ Alumni Statement on the Events Surrounding the Sentencing of Roger Stone." February 26 was the deadline for DOJ alumni to sign on to the statement, and 2,688 have done so. Here are the first, fifth, and seventh paragraphs of the statement:
We, the undersigned, are alumni of the United States Department of Justice (DOJ) who have collectively served both Republican and Democratic administrations. Each of us strongly condemns President Trump's and Attorney General Barr's interference in the fair administration of justice.
Such behavior is a grave threat to the fair administration of justice. In this nation, we are all equal before the law. A person should not be given special treatment in a criminal prosecution because they are a close political ally of the President. Governments that use the enormous power of law enforcement to punish their enemies and reward their allies are not constitutional republics; they are autocracies.
For these reasons, we support and commend the four career prosecutors who upheld their oaths and stood up for the Department's independence by withdrawing from the Stone case and/or resigning from the Department. Our simple message to them is that we—and millions of other Americans—stand with them. And we call on every DOJ employee to follow their heroic example and be prepared to report future abuses to the Inspector General, the Office of Professional Responsibility, and Congress; to refuse to carry out directives that are inconsistent with their oaths of office; to withdraw from cases that involve such directives or other misconduct; and, if necessary—to resign and report publicly—in a manner consistent with professional ethics—to the American people the reasons for their resignation. We likewise call on the other branches of government to protect from retaliation those employees who uphold their oaths in the face of unlawful directives. The rule of law and the survival of our Republic demand nothing less.
The June 2018 Memorandum by William Barr
In No. 326 (August 12, 2019), I wrote about Special Counsel Robert S. Mueller III, Donald J. Trump, and William P. Barr, among others. I said that on June 8, 2018, Barr—then a private citizen—sent a 19-page, single-spaced, unsolicited memorandum to Deputy Attorney General Rod Rosenstein and Assistant Attorney General Steve Engel. (Many observers at the time and later viewed the Barr memorandum as a job application.) In that post, I quoted the following three paragraphs from the beginning of the memorandum (the full memorandum is in the complimentary package offered in No. 326):
I am writing as a former official deeply concerned with the institutions of the Presidency and the Department of Justice. I realize that I am in the dark about many facts, but I hope my views may be useful.
It appears Mueller's team is investigating a possible case of "obstruction" by the President predicated substantially on his expression of hope that the [sic] Comey could eventually "let ... go" of its [the FBI's?] investigation of Flynn and his action in firing Comey. In pursuit of this obstruction theory, it appears that Mueller's team is demanding that the President submit to interrogation about these incidents, using the threat of subpoenas to coerce his submission.
Mueller should not be permitted to demand that the President submit to interrogation about alleged obstruction. Apart from whether Mueller [has?] a strong enough factual basis for doing so, Mueller's obstruction theory is fatally misconceived. As I understand it, his theory is premised on a novel and legally insupportable reading of the law. Moreover, in my view, if credited by the [Justice?] Department, it would have grave consequences far beyond the immediate confines of this case and would do lasting damage to the Presidency and to the administration of law within the Executive branch.
Six months later, on December 7, 2018, Trump nominated Barr to succeed Jefferson B. Sessions III as U.S. Attorney General. On February 14, 2019, the Senate confirmed Barr (on a largely party line vote of 54 to 45), thus placing Barr in charge of the investigation he had criticized.

Since then I have been deeply disturbed by numerous actions taken by Barr, not the least of which were his handling of the Mueller report and his role in the Ukraine scandal that led to Trump's impeachment in the Democratic-controlled House and acquittal in the Republican-controlled Senate. What prompted this post, however, was Barr's role in the federal criminal case of Roger J. Stone Jr., a long-time Trump (and Nixon) friend, supporter, and campaign operative.

The Criminal Case Against Roger Stone
The criminal case against Roger Stone grew out of the Mueller investigation. On January 24, 2019, a federal grand jury indicted Stone on seven criminal counts: one count of obstruction of proceeding, five counts of false statements, and one count of witness tampering.

The case was assigned to U.S.District Judge Amy Berman Jackson. She is a graduate of Harvard College and the Harvard Law School. President Obama nominated her in June 2010. Her nomination lapsed at the end of 2010. Obama renominated her in January 2011, and the Senate confirmed her in March 2011.

On January 29, 2019, Stone pleaded not guilty on all counts and was released on personal recognizance. On November 6, the jury trial began before Judge Jackson. On November 14, the trial ended. On November 15, the jury found Stone guilty on all seven counts.

The DOJ Sentencing Memorandum
On February 10, 2020, the DOJ filed a 26-page sentencing memorandum, which is in the complimentary package offered at the end of this post. The memorandum was submitted by Jonathan Kravis and Michael J. Marando, Assistant U.S. Attorneys; and by Adam C. Jed and Aaron S. Zelinsky, Special Assistant U.S. Attorneys. The section entitled "Guidelines Calculation" is on pages 16-18. The first and last sentences of that section, and the three-sentence "Conclusion" on page 26, read:
The government submits that Stone's total offense level is 29 and his Criminal History Category is I, yielding a Guidelines Range of 87-108 months.
Accordingly, Stone's total offense level is 29 (14 + 8 + 3 + 2 + 2), and his Criminal History Category is I. His Guidelines Range is therefore 87-108 months.
Roger Stone obstructed Congress's investigation into Russian interference in the 2016 election, lied under oath, and tampered with a witness. And when his crimes were revealed by the indictment in this case, he displayed contempt for this Court and the rule of law. For that, he should be punished in accord with the advisory Guidelines.
The Roger Stone Sentencing Memorandum
On the same day, February 10, attorneys representing Stone filed a 35-page sentencing memorandum and a 39-page appendix consisting of letters to Judge Jackson urging leniency in the sentencing of Stone. The one-sentence conclusion of the memorandum reads:
For the foregoing reasons, it is respectfully submitted that the Court should impose a non-Guidelines sentence of probation with any conditions that the Court deems reasonable under the circumstances.
The DOJ Supplemental Sentencing Memorandum
On the next day, February 11, the DOJ filed a five-page supplemental and amended sentencing memorandum. The events surrounding this memorandum precipitated the DOJ alumni statement, because when Trump expressed his displeasure with the original DOJ sentencing memorandum, Barr instructed DOJ staff to file the supplemental and amended memorandum which overruled the original memorandum the career prosecutors had filed the day before. Barr later claimed, in a televised statement, that his decision was not influenced by Trump's displeasure, and that the supplemental memorandum was appropriate. However, many people, including 2,688 DOJ alumni, thought that Barr was aiding Trump in using the DOJ to reward Roger Stone. The supplemental and amended memorandum was submitted by John Crabb Jr., Assistant U.S. Attorney and Acting Chief of the Criminal Division. It is in the complimentary package offered at the end of this post. The concluding paragraph reads:
The defendant committed serious offenses and deserves a sentence of incarceration that is "sufficient but not greater than necessary" to satisfy the factors set forth in Section 353(a). Based on the facts known to the government, a sentence of between 87 to 108 months' imprisonment, however, could be considered excessive and unwarranted under the circumstances. Ultimately, the government defers to the Court as to what specific sentence is appropriate under the facts and circumstances of this case.
On the same day, February 11, Kravis, Marando, Jed, and Zelinsky withdrew from the case. According to a 2,328-word front-page article in The New York Times on February 12 by reporters Katie Benner, Sharon LaFraniere, and Adam Goldman, Kravis resigned from the DOJ, but Marando, Jed, and Zelinsky remained with the DOJ. (See U.S.A. v. Stone, U.S. District Court, District of Columbia, Case No. 1:19-cr-18.)

The Roger Stone Motion for a New Trial
On February 18, attorneys representing Stone filed a motion for a new trial. The motion is pending.

The Sentencing of Roger Stone
On February 20, Judge Jackson sentenced Stone to 40 months in prison. A 1,671-word front-page article in The New York Times on February 21 by reporter Sharon LaFraniere describes in detail what happened at the hearing. Judge Jackson did not order Stone to begin his prison term immediately, because she had not yet ruled on his motion for a new trial.

The Roger Stone Motion to Disqualify Judge Jackson
On February 21, attorneys representing Stone filed a motion to disqualify Judge Jackson. The motion is related to Stone's pending motion for a new trial. The motion to disqualify is based on the alleged bias of the jury forewoman and certain comments the judge made during the sentencing hearing, such as: "The jurors who served with integrity under difficult circumstances cared." Stone alleges that such comments "raise grave doubts about the judge's objectivity." The motion to disqualify is in the complimentary package offered at the end of this post.

On February 23, Judge Jackson issued an order denying the motion to disqualify. The order ends as follows (the full order is in the complimentary package offered at the end of this post):
At bottom, given the absence of any factual or legal support for the motion for disqualification, the pleading appears to be nothing more than an attempt to use the Court docket to disseminate a statement for public consumption that has the words "judge" and "biased" in it. For these reasons, defendant's motion is hereby DENIED. SO ORDERED.
The Hearing on the Roger Stone Motion for a New Trial
On the morning of February 24, Judge Jackson held a closed hearing on Stone's motion for a new trial. Reporters were not allowed to attend, but were able to listen to the proceedings through a closed-circuit audio feed to a media room. That afternoon, reporters Darren Samuelsohn and Josh Gerstein of Politico posted a lengthy article about the hearing. At the end of the hearing, the judge did not immediately rule on Stone's motion for a new trial.

The Neil Steinberg Commentary
As I was wrapping up this post, I saw something that readers might find interesting. I refer to a February 2 commentary by Neil Steinberg of the Chicago Sun-Times entitled "Crumbling US Senate echoes Roman collapse." Steinberg cites The History of the Decline and Fall of the Roman Empire, the towering six-volume master work by English historian Edward Gibbon published more than two centuries ago.

General Observations
Should Judge Jackson deny Stone's motion for a new trial, it seems likely that she will order Stone to report to prison, and that Stone's attorneys will file an appeal. The question is whether Trump will pardon Stone and/or commute the 40-month sentence.

Following Trump's Senate acquittal on impeachment charges, he has taken numerous actions—many of them with Barr's support—favoring his friends and attacking those he perceives as his enemies. Those actions have created a fire storm. They make clear that our great republic has become an autocracy. I agree with the DOJ alumni that Barr must resign.

Available Material
I offered a complimentary package in the above mentioned No. 326. That package, which contains the full June 2018 Barr memorandum, remains available.

Now I offer a complimentary 42-page package consisting of the DOJ's original sentencing memorandum (26 pages), the DOJ's supplemental and amended sentencing memorandum (5 pages), Stone's motion to disqualify the judge (5 pages), and the judge's order denying the motion to disqualify (6 pages). Email and ask for the March 2020 package about Barr.


Tuesday, February 25, 2020

No. 357: Philip Falcone Faces a Revolt from Shareholders of His Public Company

Philip A. Falcone is chairman, president, and chief executive officer of HC2 Holdings, Inc. (NYSE:HCHC). He is also the founder of Harbinger Capital Partners, a New York hedge fund. My interest in him grew out of his involvement with long-term care (LTC) insurance, a business in which I am keenly interested. Recent public filings reveal that he now faces a revolt from disgruntled HC2 shareholders.

I have written previously about Falcone's failure to disclose material information in public filings with the Securities and Exchange Commission (SEC). In No. 242 (November 20, 2017), No. 244 (December 11, 2017), and No. 280 (August 2, 2018), I wrote about Falcone, about Kanawha (an LTC insurance company), about Humana (owner of Kanawha for several years, but no longer an owner), and about HC2. Two HC2 filings with the SEC early in 2020 prompted this follow-up post.

The January 2020 Filing
On January 27, 2020, several disgruntled HC2 shareholders filed with the SEC a DFAN 14A. They attached a January 20 letter to their fellow HC2 shareholders announcing a plan to file a preliminary proxy statement in which they will solicit votes for the election of their own slate of HC2 directors. The final section of the letter reads:
Time for a Change: Management's unsuitability, consistent under performance and self-dealing patently disqualify them from continuing to manage the Company. This is why we intend to run our own slate for the Company's board at the next meeting of shareholders as a matter of first priority. Management has wasted six years destroying shareholder value. It's time for a fresh approach.
They point out early in the letter that it has been six years since the appointment of Falcone to the board of directors. The full letter is in the complimentary package offered at the end of this post.

The February 2020 Filing
On February 11, 2020, HC2 filed with the SEC an 8-K (significant event) report and a press release announcing the appointment of an additional member to the board of directors, increasing the size of the board from five to six. What grabbed my attention was that the 8-K includes a one-paragraph "Other Events" section not mentioned in the press release. Here is part of the paragraph that is missing from the press release:
The Compensation Committee of the Board ... has determined that Philip A. Falcone ... will not receive any bonus or other incentive compensation in respect of 2019, whether under the HC2 Executive Bonus Plan ... or otherwise.... Additional information regarding these matters will be provided in the 2020 Proxy Statement.
I sought to understand the significance of the announcement that was buried near the end of the 8-K and was omitted from the press release accompanying the 8-K. I reviewed the DEF 14A proxy statement filed with the SEC by HC2 on April 29, 2019 announcing that the annual meeting of shareholders was to be held on June 13, 2019.

The summary compensation table on page 30 in the 2019 proxy statement shows Falcone's total compensation in 2018 was about $11.5 million, consisting of $600,000 of salary, $7.1 million of stock awards, $1.4 million of option awards, and $2.4 million of non-equity incentive plan compensation. The $11.5 million 2018 total for Falcone dwarfed the 2018 totals for the other top executives, the highest of which was a total of about $2.1 million.

The Forthcoming 2020 Filings
Based on the dates of the HC2 filings with the SEC in 2019, I assume that the 2020 proxy statement with the summary compensation table for 2019 will be posted in late April 2020, and that the 2020 annual meeting of HC2 shareholders will be held in June 2020. I decided not to wait until late April 2020 to see the summary compensation table for 2019 showing Falcone's compensation in 2019. The full "Other Events" paragraph of the 8-K and the press release that accompanied the 8-K are in the complimentary package offered at the end of this post.

Falcone and the SEC
In the previously mentioned No. 244, I discussed Falcone's settlements with the SEC. On August 16, 2013, Falcone and Harbinger settled two SEC complaints, admitted wrongdoing, and paid civil penalties of more than $18 million. (At the time, SEC settlements including admissions of wrongdoing were rare.) Falcone also agreed to be barred from the securities industry for at least five years. However, he was not barred from serving as an officer or director of a public company.

In 2014 Falcone became chairman, president, and chief executive officer of HC2. I searched its subsequent SEC filings but found no disclosure of his settlements with the SEC.

I also searched the statutory financial statements of Continental General Insurance Company (CGIC), a subsidiary of HC2. I found no mention of Falcone. The only familiar name I saw was James Corcoran, a former New York State Superintendent of Insurance, who was shown as one of the directors of CGIC.

Kanawha Insurance Company
Kanawha Insurance Company has been in the LTC insurance business for many years, and was domiciled in South Carolina. On July 12, 2018, the South Carolina Director of Insurance issued an order approving the merger of Kanawha into Texas-domiciled CGIC, and the redomestication of Kanawha from South Carolina to Texas. The order includes a "continuing obligation of CGIC" that "Falcone shall not have any role in the day-to-day operations of Kanawha or CGIC pre- or post-merger." The order also includes a requirement that HC2 maintain a certain risk-based capital ratio for CGIC. The order is in the complimentary package offered at the end of this post.

General Observations
It will be interesting to watch developments relating to Falcone, especially the effort to remove him from the HC2 board and from his position at the helm of the company. It will also be interesting to see his 2019 compensation without the incentive payments. I plan to report developments after HC2 posts information about the June 2020 annual meeting of shareholders.

Available Material
The complimentary packages offered in the previously mentioned Nos. 242, 244, and 280 remain available. Now I am offering a new 10-page complimentary package consisting of the January 2020 letter to HC2 shareholders (4 pages), the "Other Events" paragraph in the February 2020 8-K filing (1 page), the press release that accompanied the 8-K (2 pages), and the South Carolina Director's 2018 order (3 pages). Email and ask for the February 2020 package about Falcone and HC2.


Thursday, February 20, 2020

No. 356: GEICO's "Patriot Penalty" Imposed on Automobile Insurance Premiums Paid by Soldiers Returning from Deployment

On February 11, 2020, the Consumer Federation of America (CFA) issued a press release entitled "Consumer Advocates Call for End to GEICO's 'Patriot Penalty' Revealed by Investigative Report." Here is the opening paragraph of the CFA press release:
Berkshire Hathaway subsidiary GEICO adds a surcharge to the auto insurance premiums of soldiers who dropped their coverage while they served abroad, according to a televised report by investigative reporter Lee Zurik. Consumer Federation of America (CFA), which has verified this "patriot penalty" through its own research, called on the nation's insurance commissioners to intervene, in a letter it sent today.
The letter to the state insurance commissioners is over the signatures of Douglas Heller and Robert Hunter of CFA. The letter is in the complimentary package offered at the end of this post, along with the CFA press release.

The Size and the States
According to the investigative news report, the surcharge on returning soldiers can be as large as $500 every six months, even where the service member has a clean driving record. According to the CFA press release, some states, including California and Florida, explicitly prohibit insurers from imposing such surcharges on safe drivers.

However, according to a preliminary review of GEICO's practices, such surcharges have been found in at least 21 states: Arizona, Arkansas, Delaware, Hawaii, Illinois, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Minnesota, Nebraska, Nevada, New Jersey, New York, North Carolina, Tennessee, Washington, and West Virginia. In its letter, CFA says legislation should be sought immediately if the commissioner does not have authority to prevent such surcharges.

My Efforts to Contact GEICO and a Few Commissioners
I attempted to contact GEICO by telephone for comment, but I was not able to reach a human being. I then tried to contact by email a few of the 21 states mentioned in the CFA press release. One of the states replied immediately, but the others have not yet replied.

Indiana, where I live, sent Bulletin 126 dated June 7, 2004. It is entitled "Applications for Personal Lines Coverage by Returning Members of the Armed Services." It cites Indiana Code Sections 27-1-22-26, which say a violation is "an unfair and deceptive act or practice in the business of insurance." The 15-year-old Indiana bulletin is in the complimentary package offered at the end of this post.

General Observations
I was surprised by the CFA press release about the GEICO surcharge imposed on military personnel returning from deployment outside the country. Such surcharges are outrageous. It is unconscionable to impose surcharges on members of the military, who risk their lives to protect our nation. I agree with CFA that insurance regulators should take action to prohibit such surcharges, and should seek state legislation if the regulators do not already have such authority.

The Indiana bulletin and statute raise at least two questions. First, how many states (in addition to California and Florida, which are mentioned in the CFA material), have such rules and regulations? Second, how many states with such rules and regulations enforce them vigorously?

I hope and fully expect that Warren Buffett, the famous chairman of Berkshire Hathaway, will agree with the sentiments expressed by the CFA and in this post. I am attempting to get this post into his hands.

Available Material
I am offering a complimentary 5-page PDF consisting of the CFA press release (2 pages), the CFA letter to the commissioners (2 pages), and the Indiana bulletin (1 page). Email and ask for the February 2020 package about GEICO's patriot penalty.


Thursday, February 13, 2020

No. 355: Greg Lindberg—Another Update on the Federal Criminal Lawsuit in North Carolina

In No. 309 (April 17, 2019), I discussed the indictment of Greg E. Lindberg and three other individuals by a federal grand jury in North Carolina. In No. 320 (July 1, 2019), I reported on the placement of four Lindberg insurance companies into court-ordered rehabilitation at the request of the North Carolina insurance commissioner. In No. 338 (October 24, 2019), I discussed Lindberg's motion to dismiss the criminal lawsuit, and a recent article in The Wall Street Journal. Here I provide another update on the criminal lawsuit. (See U.S.A. v. Lindberg, U.S. District Court, Western District of North Carolina, Case No. 5-19-cr-22.)

Previous Developments
Lindberg is the founder and chairman of Eli Global, LLC, an investment company. He is also the owner of Global Bankers Insurance Group, a managing company for many insurers and reinsurers. The other defendants are John D. Gray, a Lindberg consultant; John W. Palermo, Jr., a vice president of Eli Global; and Robert C. Hayes, chairman of the state Republican party in North Carolina. All four defendants are North Carolina residents.

On March 18, 2019, the grand jury charged the defendants with one count of conspiracy to commit honest services wire fraud; and one count of bribery concerning programs receiving federal funding, and aiding and abetting. Hayes was also charged with three counts of false statements. The defendants pleaded not guilty on all counts, but Hayes later pleaded guilty to one count of false statements.

On September 18, Lindberg filed a motion to dismiss the indictment for failure to state an offense. On September 25, the U.S. Attorney filed an opposition to the motion to dismiss. On October 2, Lindberg filed a reply to the government's opposition to the motion to dismiss. On October 4, The Wall Street Journal carried a lengthy front-page article entitled "Indicted Executive Used Operatives To Spy on Women."

Recent Developments
On October 25, the judge issued an amended scheduling order. It is in the complimentary package offered at the end of this post.

On November 18, Gray filed a motion to dismiss the indictment for failure to state an offense. On December 2, Palermo filed a motion to dismiss the indictment for lack of specificity and for prosecutorial misconduct.

On January 31, 2020, the judge issued an order denying the Lindberg, Gray, and Palermo motions to dismiss the indictment. The order discusses "failure to state an offense," "lack of specificity," and "prosecutorial misconduct." The conclusion of the order reads:
For the foregoing reasons, the Court finds that there is a legally sufficient basis to support defendants' indictment for honest services fraud and federal funds bribery. Moreover, the indictment is sufficiently specific to give the defendants fair notice of the charged offenses. Finally, the defendants have failed to demonstrate prosecutorial misconduct warranting dismissal. Accordingly, the defendants' Motions to Dismiss the Indictment are denied.
The full order is in the complimentary package offered at the end of this post. On February 3, The Wall Street Journal carried another article about the Lindberg case. The article is entitled "Lindberg Trial Set to Proceed." The trial is set to begin on February 18.

General Observations
Lobbying of state insurance regulators by representatives of the insurance business is common. However, detailed allegations of attempted bribery are rare. For that reason, I think this case is important for persons interested in insurance regulation. I plan to report significant developments.

Available Material
The complimentary packages offered in Nos. 309, 320, and 338 are still available. Now I am offering another complimentary 22-page PDF consisting of the judge's amended scheduling order (6 pages) and the judge's order denying the defendants' motions to dismiss the indictment (16 pages). Email and ask for the February 2020 package about Lindberg.


Monday, February 10, 2020

No. 354: Senior Health Insurance Company of Pennsylvania Enters Rehabilitation by Order of a State Court

In No. 352 (January 29, 2020), I reported that Jessica K. Altman, the Pennsylvania Insurance Commissioner and primary regulator of Senior Health Insurance Company of Pennsylvania (SHIP), filed in the Commonwealth Court of Pennsylvania on January 23 an application for an order placing SHIP in rehabilitation. On January 29, President Judge Mary Hannah Leavitt issued the order because "rehabilitation has been requested by and consented to by SHIP's board of directors and the trustees of the Senior Health Care Oversight Trust." (See IN RE: Senior Health Insurance Company of Pennsylvania In Rehabilitation, Commonwealth Court of Pennsylvania, No. 1 SHIP 2020.)

The Leavitt Order
Judge Leavitt appointed Commissioner Altman as rehabilitator of SHIP, and said the rehabilitator may appoint a special deputy rehabilitator. The judge ordered the rehabilitator to file a preliminary plan of rehabilitation on or before April 22, 2020, including a timeline for the preparation of a final plan of rehabilitation.

The 13-page order proposed by Commissioner Altman is in the complimentary package offered at the end of No. 352. The five-page order issued by Judge Leavitt is in the complimentary package offered at the end of this post.

The Department's Press Release
On February 3, 2020, the Pennsylvania Insurance Department (Department) issued a press release announcing the rehabilitation. It said the special deputy rehabilitator is Patrick H. Cantillo. It also said more information is available on the Department's website and on SHIP's website. The press release quoted Commissioner Altman as saying (the full press release is in the complimentary package offered at the end of this post):
At this time there will be no immediate changes to the company's insurance policies. But such changes may be part of any rehabilitation plan. Pending the rehabilitation plan, claims and benefits will continue to be paid as they were before the order. It is important that policyholders continue to pay their premiums to avoid cancellation of their policies and loss of valuable insurance coverage.
The SHIP Posting
SHIP, at, posted information: a short statement from SHIP, general questions, policyholder questions, agent and broker questions, other creditor questions, and a modified version of the Department's press release. The modified version includes this paragraph (all the information SHIP posted is in the complimentary package offered at the end of this post):
As is typical with financially troubled insurers, there are many contributing causes to SHIP's difficulties, including poor performance of investments and other such matters the details of which are not yet fully known to the Rehabilitator. However, one key contributing factor that is common to many long-term care insurers is that the expected cost of benefits that will be due under the insurance policies in effect greatly exceeds the assets and expected revenues from which such benefits will have to be paid. Many issues contributed to this shortfall and it is too early for the Rehabilitator to be able to identify them with specificity. One that stands out, however, is that the premiums charged historically for many, if not most, of SHIP's long-term care insurance policies were inadequate for the benefits expected to be due under such policies. In this respect, SHIP is no different than much of the LTC industry.
The Judge
Judge Leavitt has extensive experience with rehabilitations and liquidations of long-term care (LTC) insurance companies. Currently she is President Judge of the Commonwealth Court of Pennsylvania, a position to which she was elected in 2016. My experience with her work dates back to May 2012, when she handed the then Pennsylvania commissioner and his predecessor a major defeat in the case of Penn Treaty Network America Insurance Company. Briefly, here is what happened.

Joel S. Ario was the Pennsylvania commissioner from 2007 to 2010, and Michael F. Consedine succeeded him. Penn Treaty and an affiliate, LTC insurance companies, were insolvent in January 2009. Ario petitioned the court to place them in rehabilitation. The court did so, and appointed Ario the rehabilitator. In April 2009, Ario submitted to the court a preliminary rehabilitation plan, and said he planned to submit a formal plan in October 2009. Instead he petitioned to convert the plan to a liquidation. Penn Treaty and its board chairman petitioned to allow them to intervene in opposition to the liquidation petition. The court granted the petition.

The parties tried unsuccessfully to reach a settlement. A bench trial before Judge Leavitt began in January 2011. The trial was suspended while the parties tried to reach a settlement. Again the effort failed and the trial resumed in October 2011. The trial lasted 30 days and ended in February 2012. Under Pennsylvania law, the rehabilitator (then Consedine) had to prove the rehabilitation would substantially increase the risk of loss to creditors, policyholders, or the public, or would be futile. In May 2012, Judge Leavitt issued a 162-page opinion and a brief order. She ruled Consedine had not met his burden of proof, and she denied the liquidation petition. She ordered Consedine to develop a rehabilitation plan in consultation with the intervenors, and ruled the intervenors were entitled to attorney fees and costs. Here are some extraordinary comments in Judge Leavitt's ruling:
The Insurance Commissioner, wearing his hat as a regulator of the Pennsylvania insurance industry, refused to approve the Companies' actuarially justified rate increase filings in the amount requested, both before and after rehabilitation. The Commissioner has even discouraged other state regulators from approving rate increases. Now the Commissioner seeks to liquidate the Companies because their premium rates are inadequate....
The Rehabilitator's evidence showed that rate regulation is governed by politics, not actuarial evidence or legal principles. The Rehabilitator has even included Pennsylvania in the list of problem states that have refused to approve [Penn Treaty's] actuarially justified rate increase filings for [certain] policies. This case presents a serious indictment of the existing system of rate regulation of long-term care insurance.
At the trial, the rehabilitator's actuarial expert was an actuary at Milliman, Inc., an actuarial consulting firm. There were major differences of opinion in 60-year projections by Milliman and the intervenors' actuary. Judge Leavitt found the testimony by the intervenors' actuary more compelling than Milliman's testimony.

I wrote about the Penn Treaty incident in the August 2012 issue of The Insurance Forum, the monthly newsletter I published from January 1974 until December 2013. The article is in the complimentary package offered at the end of this post. Judge Leavitt placed Penn Treaty in liquidation on March 1, 2017, as reported in No. 208 (March 13, 2017).

General Observations
I fear the proposed rehabilitation plan to be submitted to the court by April 22 will involve a devastating combination of premium increases and benefit reductions, including benefit reductions for policyholders currently receiving benefits. Furthermore, I consider it possible that Judge Leavitt will reject the plan, and that she will order liquidation of the company. That would lead to SHIP being placed in the hands of the National Organization of Life and Health Guaranty Associations, which would coordinate the response of the state guaranty associations.

Available Material
I am offering a complimentary 23-page PDF consisting of Judge Leavitt's order (5 pages), the Department's press release (1 page), the information posted on SHIP's website (15 pages), and the August 2012 Forum article (2 pages). Email and ask for the February 2020 package about the SHIP rehabilitation.


Wednesday, February 5, 2020

No. 353: The Massachusetts Securities Division Files a Complaint Against the Promoter of Free Lunch Workshops

On December 17, 2019, the Enforcement Section of the Securities Division in the Office of the Massachusetts Secretary of the Commonwealth filed an administrative complaint against an insurance agent and two companies. The individual respondent is Ryan Patrick Skinner. The other respondents are Summit Financial Partners and Summit Financial Ptrs Inc. (collectively, "Summit"). (See In the Matter of Ryan Patrick Skinner, Massachusetts Securities Division, Docket No. E-2019-0055.)

The Complaint
The complaint alleges that Skinner "acted as an unregistered investment adviser and unregistered investor adviser representative," and that Summit "acted as an unregistered investment adviser that employed an unregistered investment adviser representative." Here is one paragraph in the "Summary" section of the complaint (the full compliant is in the complimentary package offered at the end of this post):
Respondents' modus operandi is to entice residents of the Commonwealth, especially seniors, to attend "free lunch" workshops where Skinner convinces the attendees that he can provide advice to help them maximize their Social Security and retirement income. He then holds individual meetings with the attendees, often at their homes, and uses these meetings as an opportunity to make his pitch. Skinner repeatedly recommends that prospective clients liquidate securities from their retirement investment accounts to purchase fixed indexed annuities. In many instances, Skinner recommends that prospective clients surrender existing annuities thereby incurring significant penalties. In some cases Skinner recommends that an investor's entire life savings consist of annuities sold through him.
The Answer
On January 7, 2020, the respondents' attorney filed an answer to the complaint. The answer includes the usual "admit," "deny," and "insufficient knowledge" responses. It also lists eight affirmative defenses, one of which reads as follows (the full answer is in the complimentary package offered at the end of this post):
The claims are barred because the Respondents lie within the exclusive jurisdiction of the Division of Insurance in accordance with Mass. Gen. Laws ch. 155 section 9 and Mass. Gen. Laws ch. 175 section 162G et. seq.
Further Filings
On January 16, the respondents' attorney filed a letter with the Securities Division. The letter consists of one paragraph:
As you know, Ryan Skinner ("Skinner") and Summit Financial Partners Inc. ("Summit") hold licenses in good standing with the Massachusetts Division of Insurance ("DOI"), and both remain subject to supervision and enforcement by DOI. It has come to my clients' attention that the Enforcement Section has contacted Athene Life and Annuity Co. and other carriers with whom Skinner and Summit hold appointments. If true, please identify the authority upon which the Enforcement Section relies in doing so. Please be advised that Skinner and Summit do hereby reserve all rights, including the right to seek injunctive relief in Superior Court, to protect its appointments and licenses, and to enjoin any unlawful interference with its contractual relations.
On the same day, the respondents' attorney filed a "Stipulation Relative to Scheduling" that suggested eleven deadlines ending with a hearing on October 16, 2020. He also filed a "Respondents' First Request for Production of Documents."

On January 23, the Enforcement Section filed a motion for a scheduling conference. The next day, the Presiding Officer, on behalf of William F. Galvin, Secretary of the Commonwealth, issued an order setting a pre-hearing conference for February 13, 2020.

A report on Skinner (CRD# 4574898) may be viewed through Broker Check on the website of the Financial Industry Regulatory Authority ( He is currently not registered, but was registered with four firms from 2002 through 2008. The report reveals three "disclosure events," the details of which are shown in the report.

One of the disclosure events was initiated by the Massachusetts Division of Insurance (DOI) on February 5, 2016. The matter was resolved on March 17, 2016, when Skinner paid a civil and administrative penalty of $2,500. 

Division of Insurance
I have been in contact with the Massachusetts Division of Insurance (DOI). It is aware of the recent allegations by the Securities Division against Skinner, and has opened an investigation of its own. The spokesperson declined further comment on the matter.

On January 31, I requested from the DOI records access officer, pursuant to the Massachusetts statute governing access to public records, copies of the dockets relating to the 2016 investigation of Skinner and the current investigation of Skinner, as well as all documents listed on those dockets. I await a reply.

Insurance and Securities Regulation
I have long been interested in the relationship and overlap between insurance regulation and securities regulation. The reference in this post to Secretary of the Commonwealth Galvin, who has been in that position for many years, reminded me of an incident more than 20 years ago, when Boston-based John Hancock Mutual Life Insurance Company adopted a demutualization plan. Boston newspapers reported that a huge number of notification letters to Hancock policyholders were returned by the postal service as undeliverable. Galvin intervened because the Massachusetts unclaimed property agency was part of the office of the Secretary of the Commonwealth, and the amount of unclaimed funds was likely to be huge. Insurance regulators and other states' unclaimed property agencies tackled the issue of unpaid benefits later, but it was Galvin who led the way.

General Observations
Free-lunch seminars have been a serious problem for many years. I remember attending a couple of such seminars, and coming away from them appalled by the extent of the deceptive information presented to the attendees, most of whom were gullible seniors. I plan to report further on the Skinner case and other possible future developments.

Available Material
I am offering a complimentary 24-page PDF consisting of the complaint filed by the Securities Division (18 pages) and the answer filed by the respondents' attorney (6 pages). Send an email to and ask for the February 2020 package about the Massachusetts complaint against Skinner.


Wednesday, January 29, 2020

No. 352: Pennsylvania Moves To Place Senior Health Insurance Company of Pennsylvania in Rehabilitation

Senior Health Insurance Company of Pennsylvania (SHIP) has been running off the long-term care (LTC) insurance business of Conseco Senior Health Insurance Company (CSHI) since 2008. CSHI had been running off the business since 2003.

For many years, SHIP's financial condition has been worsening. In March 2019, SHIP filed with the Pennsylvania Insurance Department (Department), SHIP's primary regulator, the company's statutory financial statement for the year ended December 31, 2018. (The statement was signed on February 26, postmarked on March 1, and received by the Department on March 5.) The statement showed that SHIP's liabilities of $2.653 billion exceeded its assets of $2.206 billion by $447 million. The Department at that time took no action to place the company in rehabilitation. I wrote about the insolvency in No. 308 (April 11, 2019).

The insolvency grew to $462 million at the end of the first quarter of 2019, to $477 million at the end of the second quarter, and to $524 million at the end of the third quarter. I wrote about the expanding insolvency in No. 342 (November 25, 2019).

In the quarterly statements, SHIP said it is "actively working with the Pennsylvania Insurance Department to develop a corrective plan." During 2019, because of SHIP's failure to maintain sufficient capital, at least three states suspended the company's certificate of authority: Idaho on May 15, Iowa on July 8, and Alaska on November 6.

The Application
On January 23, 2020, Jessica E. Altman, the Pennsylvania Insurance Commissioner (Commissioner), filed with the Commonwealth Court of Pennsylvania an "Application for Order Placing Senior Health Insurance Company of Pennsylvania in Rehabilitation." The application contains numerous exhibits, one of which is a "Proposed Order of Rehabilitation." Here, without citations, is part of the introduction to the application:
SHIP has committed one or more acts which constitute grounds for rehabilitation. Specifically, SHIP's most recent annual statement demonstrates that the company is statutorily insolvent. Additionally, SHIP's most recent risk-based capital ("RBC") report indicates that the company's total adjusted capital is substantially below its mandatory control level RBC, therefore triggering a "mandatory control level event." Finally, the Trustees of the Senior Health Care Oversight Trust and SHIP's directors have consented in a signed writing to the company being placed in rehabilitation and have waived a hearing.
A section of the application discusses rehabilitation. That section includes comments such as these:
SHIP's financial condition is dire. The Commissioner's staff and consultants have spent some time working with the Trustees and SHIP management to obtain as accurate as possible a financial picture of SHIP's affairs. They have advised the Commissioner that it may be possible to devise and implement a plan for the rehabilitation of SHIP that would produce for policyholders a result no less beneficial than would be produced by a liquidation, and perhaps materially better than that.
Because of the gravity of SHIP's financial difficulties, there can be no assurance that the rehabilitation efforts will be successful....
It is probable that the plan, when implemented, will require modification of existing contracts, premium rate increases, and other measures that in combination will reduce or eliminate SHIP's deficit.
Attached to the application as an exhibit is SHIP's statutory financial statement for 2018. The application and the proposed rehabilitation order, but without the other exhibits, are in the complimentary package offered at the end of this post. (See Altman v. SHIP, Commonwealth Court of Pennsylvania, Docket No. 1 SHIP 2020.)

The Milliman Role
Milliman Inc., an actuarial consulting firm, played a pivotal role in the 2008 transfer from CSHI to the Senior Health Care Oversight Trust in Pennsylvania. In public documents filed at the time, Conseco said Milliman had concluded in a financial report that SHIP would have enough assets to run off the LTC insurance business. I did not believe it. I asked Conseco and the Department for the report, so that I could see what assumptions Milliman had made. Both denied my request. I hope the report becomes public some day so we can find out whether Milliman used assumptions that were inappropriate or Conseco characterized the report inaccurately.

General Observations
For all practical purposes, SHIP has been in rehabilitation under the supervision of the Department since the filing in early 2019 of its statutory financial statement for 2018, and probably for several years before that filing. The problem is that the rehabilitation, as far as SHIP's premium-paying policyholders and claimants are concerned, was in essence a secret. Thus they did not have the opportunity to take actions that might have provided them with some protection against the consequences of SHIP's "dire" financial condition. What form of disclosure will now be made to them, and when the disclosure will be made, remain to be seen.

I am indebted to Elizabeth "Liz" Festa. She is a long-time business and financial services reporter with a specialty in insurance regulatory and legislative coverage at the federal and state level. She is based in Washington, D.C. Her January 24 article in the Washington Insurance Rider was my first knowledge of the Commissioner's court application regarding SHIP.

Available Material
I am offering a complimentary 27-page PDF consisting of the Commissioner's application (without exhibits) for the rehabilitation of SHIP (14 pages) and the proposed rehabilitation order (13 pages). Email and ask for the January 2020 package about the application for the rehabilitation of SHIP.


Monday, January 27, 2020

No. 351: Prudential is a Defendant in a Securities Class Action Lawsuit Related to Reserves for Individual Life Insurance

On November 27, 2019, the City of Warren (Michigan) Police and Fire Retirement System filed a class action lawsuit in federal court against Prudential Financial, Inc. (Prudential) and two of its top officers. The plaintiff alleges that the defendants understated the reserves for the company's individual life insurance segment, and thereby caused losses to shareholders. (See City of Warren v. Prudential, U.S.District Court, District of New Jersey, Case No. 2:19-cv-20839.)

The Judges
The case has been assigned to Senior U.S. District Judge Stanley R. Chesler. President George W. Bush nominated him in January 2002. The Senate confirmed him in November 2002. He assumed senior status in June 2015. U.S. Magistrate Judge Cathy L. Waldor has also been assigned to the case.

Nature of the Lawsuit
The opening paragraph of the complaint and the one-paragraph "Summary of the Action" section of the complaint describe the nature of the lawsuit. Here are those two paragraphs (the full complaint is in the complimentary package offered at the end of this post):
Plaintiff City of Warren Police and Fire Retirement System ("plaintiff"), maintaining its principal place of business at Warren, Michigan, individually and on behalf of all others similarly situated, by plaintiff's undersigned attorneys, for plaintiff's complaint against defendants, alleges the following based upon personal knowledge as to plaintiff and plaintiffs' own acts and upon information and belief as to all other matters based on the investigation conducted by and through plaintiff's attorneys, which included, among other things, a review of U.S. Securities and Exchange Commission ("SEC") filings by Prudential Financial, Inc. ("Prudential" or the "Company"), as well as media and analyst reports about the Company and Company press releases, and conference call transcripts. Plaintiff believes that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery.
This is a securities class action on behalf of all persons or entities who purchased the common stock of Prudential between February 15, 2019 and August 2, 2019, inclusive (the "Class Period"). The defendants are Prudential, the Company's President and Chief Executive Officer ("CEO"), Charles F. Lowrey, and its Chief Financial Officer ("CFO"), Kenneth Y. Tanji. Plaintiff seeks remedies for violations of §§10(b) and 20(a) of the Securities Exchange Act of 1934 (the "Exchange Act").
Structure of the Complaint
The nine-page "Introduction and Background" section of the complaint cites numerous comments that appeared in Prudential's SEC filings, press releases, guidance calls for analysts, investor conferences, and analyst reports. The end of that section (on page 11 of the complaint) shows an interesting chart illustrating the performance of Prudential's common stock as compared to the S&P 500 index during the class period from February 15, 2019 to August 2, 2019.

Other major sections of the complaint are "Defendants' False and Misleading Statements Issued During the Class Period" (6 pages) and "The True Facts Begin To Be Revealed" (9 pages). There are two class action allegations: (1) violation of §10(b) of the Exchange Act and Rule 10b-5 against all defendants, and (2) violation of §20(a) of the Exchange Act against all defendants. The plaintiff seeks class certification, damages and interest, and attorneys' fees and costs.

General Observations
This case is in its early stages. I think it is an important case, and plan to report on significant developments.

Available Material
I am offering a complimentary 39-page PDF consisting of the complaint in the City of Warren case. Email and ask for the January 2020 package about City of Warren v. Prudential.


Monday, January 20, 2020

No. 350: Bob Woodward's Aptly Named Book About Decision Making in the Trump White House

In 1972, Bob Woodward and Carl Bernstein, then young reporters at The Washington Post, began investigating a minor burglary at an office in the Watergate complex. Their investigation grew into a major story that led to the resignation of President Richard Nixon in 1974. In the process, "Woodstein" became arguably two of the most famous reporters in the history of journalism.

Woodward is now a top editor at the Post. Over the years he has written 19 books—all best sellers—and he has received a long list of awards, including Pulitzers. He has written several books about Nixon, and books about other presidents, including Reagan, Clinton, both Bushes, and Obama. He has also written about the Supreme Court, the Central Intelligence Agency, and the Federal Reserve Board.

Woodward's most recent book, published in September 2018, is entitled Fear: Trump in the White House. I read it when it was published. I concluded it was aptly titled, because I came away from it fearful about the future of our country. Because of everything that happened during the impeachment inquiry (following publication of Fear), I decided to reread the book.

I came away from the second reading even more fearful for our country. Just as I was finishing my second reading, Trump decided to assassinate Iran's top general. Iran retaliated with a missile attack against two military bases in Iraq. Also, apparently by mistake, Iran shot down a passenger jetliner that was taking off from the Tehran airport bound for the capital of Ukraine, tragically killing all those aboard.

Pages 300-302 of the book describe the relationship between Trump and Kim Jong Un, the dictator of North Korea, in early 2018. That was prior to their meetings, which occurred after the book was published. Here are three paragraphs of the description (italics are in the original):
Lingering after receiving his President's Daily Brief on January 2 [2018], President Trump said, "In this job I'm playing five hands of poker simultaneously, and right now we're winning most of the hands. Iran is busting up and the regime is under intense pressure. Pakistan is terrified of losing all of our security aid and reimbursements. And South Korea is going to capitulate to us on trade and talks with North Korea." He seemed on top of the world but he didn't mention the fifth poker hand.
Real power is fear.
The answer on North Korea was to scare Kim Jung Un. "He's a bully," Trump told [then staff secretary Rob] Porter. "He's a tough guy. The way to deal with those people is by being tough. And I'm going to intimidate him and I'm going to outfox him."
Page 302 of the book also describes some dangerous advice Trump received from U.S. Senator Lindsay Graham of South Carolina. Graham had suggested publicly that it was time to start withdrawing U.S. military dependents from South Korea, an action that "could provoke Kim." Fortunately, a month later "Graham seemed to have a change of heart."

At this writing (January 17), the Senators have been sworn in, and the impeachment trial is set to begin on January 21. I recommend that anyone who has not read Woodward's book do so.


Tuesday, January 14, 2020

No. 349: Executive Life of New York and Its Structured Settlement Annuities Are Back in the News

A three-judge panel of a federal appellate court recently issued an important and unanimous ruling about two structured settlement annuities that Executive Life Insurance Company of New York (ELNY) had issued in 1984. The plaintiff is Trevor Langkamp, the recipient of the benefits provided in the structured settlement annuities.

The Lawsuit
In 1980, when Trevor was 17 months old, he suffered severe burns at a U.S. Army facility. In 1982, his parents filed a lawsuit under the Federal Tort Claims Act against the U.S. alleging that Trevor's injuries were caused by negligent management of the facility. In 1984, the Langkamps and the U.S. settled the case for a cash payment of about $240,000 and a structured settlement.

The settlement required the U.S. to pay, for Trevor's benefit, a structured settlement of $350 per month from January 1985 through October 1996, and then, to Trevor, $3,100 per month (at 3 percent interest compounded annually) for life, beginning in November 1996. The settlement also required several lump sum payments to Trevor: $15,000 in December 1996, $50,000 in December 2000, $100,000 in December 2008, $250,000 in December 2018, and $1,000,000 in December 2028.

In November 1984, the U.S. purchased two structured settlement annuities from ELNY to fund the monthly and lump sum payments. ELNY made the payments from January 1985 through July 2013. After ELNY's court-approved liquidation in April 2012, Trevor was informed that the structured settlement annuity payments were being reduced by more than 40 percent, beginning in August 2013.

The issue was whether the U.S. remained responsible after the failure of ELNY to meet its obligations under the structured settlement annuities. The case was assigned to Judge Lydia Kay Griggsby. The complaint is in the complimentary package offered at the end of this post. (See Langkamp v. U.S.A., U.S. Court of Federal Claims, Case No. 1:15-cv-764.)

The Dismissal Order
On December 4, 2017, Judge Griggsby issued an order dismissing the lawsuit. The order reads in part:
On March 20, 2017, the Court issued a Memorandum Opinion and Order denying plaintiff's motion for partial summary judgment on liability and granting the government's cross-motion for summary judgment on liability in the above-captioned matter, upon the grounds that the plain language of the Settlement Agreement at issue in this case demonstrates that the government has not unequivocally agreed to guarantee the monthly and periodic lump-sum payments required under the agreement. Pursuant to the March 20, 2017 Memorandum Opinion and Order, the Court ordered the parties to file a joint status report stating each party's respective view on whether this matter should be dismissed in light of the Court's ruling.
On November 29, 2017, the parties filed a joint status report, in which plaintiff requested that the Court not enter final judgment in this matter, because plaintiff intends to file a motion for reconsideration pursuant to Rule 59 of the Rules of the United States Court of Federal Claims ("RCFC") on or before December 18, 2017. The government requested that the Court enter final judgment in its favor pursuant to RCFC 58.
In light of the foregoing, the Court dismisses the complaint and DIRECTS the Clerk's Office to ENTER final judgment in the government's favor and to DISMISS the complaint.
The Appeal and Reversal
Trevor appealed the dismissal order to the U.S. Court of Appeals for the Federal Circuit. There the case was assigned to a panel consisting of Circuit Judges Haldane Robert Mayer (who wrote the opinion), Alan D. Lourie, and Richard G. Taranto. (See Langkamp v. U.S.A., U.S. Court of Appeals for the Federal Circuit, Case No. 2018-2052.)

On November 27, 2019, the panel issued a unanimous opinion reversing the dismissal order, remanding the case to the lower court for further proceedings consistent with the reversal, and granting Trevor his costs. The full opinion, which includes much of the text of the settlement, is in the complimentary package offered at the end of this post. Here are the first paragraph of the reversal and the first paragraph of the background:
Trevor Langkamp appeals the judgment of the United States Court of Federal Claims granting the government's motion for summary judgment and rejecting his claim seeking damages for breach of a tort settlement agreement. Because we conclude that the court erred in holding that the United States had no continuing liability for the future monthly and periodic lump-sum payments specified in the agreement, we reverse and remand.
In 1980, Langkamp, who was then a toddler, suffered severe burns at a property owned and operated by the United States Army. Langkamp's parents, Joseph and Christina Langkamp, subsequently brought an action against the United States under the Federal Tort Claims Act, in the U.S. District Court for the Western District of Michigan. On November 15, 1984, the parties entered into a settlement agreement.
General Observations
I agree with the appellate court that the language of the settlement does not relieve the U.S. from its obligations under the settlement. Stated another way, I think the settlement does not impose on Trevor the risk of the failure of ELNY to meet its obligations under the structured settlement annuities the U.S. purchased from ELNY.

Available Material
I am offering a complimentary 21-page PDF consisting of the complaint (5 pages), the dismissal order (2 pages), and the appellate reversal (14 pages). Email and ask for the January 2020 package about Langkamp v. U.S.A.


Thursday, January 9, 2020

No. 348: Long-Term Care Insurance—Updates on the Lawsuit Against the California Public Employees' Retirement System

In No. 227 (July 27, 2017) and No. 325 (August 5, 2019), I discussed a class action lawsuit filed more than six years ago against the California Public Employees' Retirement System (CalPERS), a unit of the California state government. The case relates to large premium increases CalPERS imposed on owners of long-term care (LTC) insurance policies. Here I show two updates on the case. (See Wedding v. CalPERS, Superior Court of California, County of Los Angeles, Case No. BC51744.)

In August 2013, several plaintiffs filed their original complaint after CalPERS notified them of an 85 percent increase in the premiums for their LTC insurance policies. In March 2017, CalPERS filed a motion for summary judgment or, in the alternative, summary adjudication. In June 2017, the judge then handling the case denied the motion for summary judgment but granted the motion for summary adjudication. She allowed the case to proceed with three of the original causes of action. The trial was set to begin early in 2018, but it did not. The next judge in the case set the trial to begin in October 2019, but it did not. The trial is now set to begin in April 2020.

The October 2019 Update
The website provides interested parties with information about the case. The two-paragraph October 2019 update reads:
Plaintiffs and Plaintiffs' counsel attended the first scheduled mediation session on September 4, 2019 with Judge Layn Phillips, retired U.S. Attorney and a former federal judge from Oklahoma. He is one of the most sought after mediators in the nation and is known for his success in resolving highly complex cases. The mediation was attended by Plaintiffs' counsel Gretchen Nelson, Stu Talley, Greg Bentley and Steve Schuetze and the Plaintiffs, Holly Wedding, Eileen and Richard Lodyga. CalPERS was represented by its General Counsel, Matt Jacobs along with outside counsel, Daralyn Durie, Ragesh Tangri, Michael Proctor and Allyson Bennett of the Durie/Tangri law firm. In addition, Plaintiffs and CalPERS each had their respective actuary experts either present in person or telephonically to assist in answering questions that arose during the mediation. The negotiations were complicated since a potential resolution will likely require assessments as to the potential effect on the Long Term Care Fund, if, for example, there is a roll back of premiums or restoration of benefits to policyholders.
On October 7, 2019, we attended a second mediation session with Judge Phillips where further discussions were held as to various methods for achieving a resolution and ultimately it was agreed to have another mediation session in November, either on November 12 or November 14. The trial has been continued to April 13, 2020 to provide the parties with sufficient time to continue their discussions.
The December 2019 Update
The case website also provides a three-paragraph December 2019 update. It reads:
In the CalPERS Long Term Care Class Action matter, the parties have now attended three mediation sessions before the Hon. Layn Phillips (Ret.) and his associate Michelle Yoshida, Esq. The third mediation session occurred on Thursday, November 14, 2019, and attorneys Michael J. Bidart, Greg Bentley, and Stuart Talley appeared for the class, and Daralyn Durie, Ragesh Tangri, Michael Proctor, and Allyson Bennett appeared for CalPERS along with CalPERS's actuaries. Both sides have been working diligently on attempting to reach a resolution, and the parties' actuaries have been conferring to reach a consensus as to the potential cost to the Fund of various measures in connection with the parties' settlement efforts.
The class is comprised of persons who either paid the 85% premium increase, or reduced their benefits and dropped inflation protection and/or lifetime coverage in lieu of paying the 85% increase. A third group is comprised of policyholders who dropped their long-term coverage altogether. On behalf of the portion of the class who paid the 85% increase we are seeking to reach a settlement where those persons would have a portion of that increase rolled back both in the past and the future. For those who reduced their coverage in lieu of paying 85% we are seeking to obtain a partial restoration of benefits at no additional premium increase. Those who dropped coverage have different considerations and any settlement would likely involve some monetary compensation. The additional cost to the LTC Fund is significant, and any settlement requires additional funding from the State.
The parties have agreed that Judge Phillips can be appointed as Special Master who, in coordination with the Court, can directly contact the necessary State officials in an attempt to work toward a resolution.
General Observations
In No. 346 (December 20, 2019), I wrote about an LTC insurance premium increase class action lawsuit in which the settlement involved attorneys' fees and expenses that dwarfed the benefits provided for the victimized policyholders. I fear that the CalPERS case may be headed for a similar result. I plan to write further about developments in this case.


Monday, January 6, 2020

No. 347: 403(b) Retirement Plans for Teachers: An Investigation by the New York Department of Financial Services

The Journal Articles
On October 2, 2019, The Wall Street Journal (Journal) carried online an 816-word article entitled "New York State Officials Open Probe on 403(b) Sales to Teachers; Officials concerned about annuity fees and disclosures to teachers." The reporters were Leslie Scism and Anne Tergesen. Here are the first two sentences:
New York Department of Financial Services Superintendent Linda Lacewell wants to ensure teachers are properly informed about the costs of so-called 403(b) retirement-savings programs. New York's top financial-services watchdog on Tuesday dispatched letters to a dozen major insurers seeking details on how they market retirement-income products to teachers, opening a probe of industry practices, according to people familiar with the matter.
On November 16, the Journal carried a 454-word article entitled "SEC Chairman Warns on Teacher Retirement Plans." The reporter was Dave Michaels. Here are the first two sentences:
A sweeping federal enforcement initiative aimed at sales practices related to retirement savings for teachers began after town halls across the country where the nation's top securities regulator heard things that worried him. Securities and Exchange Commission (SEC) Chairman Jay Clayton said Thursday that interactions with everyday investors convinced him teachers and other government workers were especially vulnerable to biased financial advice.
On December 11, the Journal carried a 1,318-word article entitled "Costly Plans Dent Teachers' Nest Eggs." The reporters were Gretchen Morgenson and Tergensen. Here are the first two sentences:
Hidden financial ties exist between some administrators hired by school districts for their teacher retirement plans and the companies whose investment products those administrators promote, The Wall Street Journal found. The ties can encourage administrators to promote higher-fee investments that leave teachers with smaller nest eggs than they might otherwise have had.
On December 19, the Journal carried a 1,912-word front-page article entitled "Unions' Tactics Hurt Teachers' Nest Eggs—They get paid to endorse providers of investments, including ones with high fees." The reporters were Tergensen and Morgenson. Here are the first three sentences:
The pitch from the president of the Indian River County teachers union couldn't have been clearer. Liz Cannon, who heads the Indian River chapter of the Florida Education Association, urged union members to buy retirement investments from Valic Financial Advisors Inc. through a firm owned by the union. That way "we also make money," she said in a November 2017 newsletter, through regular dividends. What Ms. Cannon didn't mention was that investments from Valic, a unit of giant insurance company American International Group Inc., can carry high costs that may translate to a smaller nest egg when teachers retire.
My FOIL Request
On November 5, I submitted to the New York State Department of Financial Services (NYDFS) a request pursuant to the New York State Freedom of Information Law (FOIL). I asked for a sample copy of the request letter that NYDFS had sent to the insurance companies.  On December 12, the agency said that it
requires additional time to respond to your request because the potentially responsive records contain highly sensitive information and require specialized review. DFS will endeavor to make its determination of your FOIL request by February 7, 2020. We appreciate your continued patience. Thank you.
The NYDFS Requests
Instead of waiting until February, I made other efforts to learn about the NYDFS requests. I learned the letters went to several major insurers by email in early October on the subject of "Request for a Special Report Pursuant to New York Insurance Law §308." NYDFS asked the companies for the production of information and supporting documentation in connection with its inquiry into annuity contracts offered through 403(b) retirement plans in New York State or to New York residents. NYDFS directed the companies to provide the information and the documents within three weeks.

The NYDFS request letters consisted of 15 numbered points. They are in the complimentary package offered at the end of this post.

My Second FOIL Request
On December 20, because the companies' responses apparently had already been received, I submitted to NYDFS a second FOIL request asking for the responses. On December 23, NYDFS denied my second FOIL request. The denial letter is in the complimentary package offered at the end of this post. I do not plan to appeal the denial of my second FOIL request. I still await a response to my first FOIL request.

General Observations
The NYDFS requests for information from the companies were so extensive that I think the companies must have been under severe pressure to respond in only three weeks. Also, it is my understanding that buyers and owners of 403(b) retirement plans do not enjoy the protections afforded by the Employee Retirement Income Security Act of 1974. If that is the case, the NYDFS and SEC investigations would assume special importance. I hope those agencies will make the results of their investigations available to the public as soon as possible.

Available Material
I am offering a complimentary 5-page PDF consisting of the 15 numbered points in the NYDFS requests to the companies (4 pages) and the NYDFS letter denying my second FOIL request (1 page). Email and ask for the January 2020 package about the NYDFS investigation of 403(b) retirement plans for teachers.