Wednesday, May 27, 2020

No. 374: Time Insurance Company—Another Long-Term Care Insurer Heads for Rehabilitation

On May 18, 2020, the Wisconsin Office of the Insurance Commissioner (OIC) issued a press release about its petition to a state court for permission to place Time Insurance Company (Time) in rehabilitation. Because Time is a long-term care (LTC) insurance company, this is a significant development in view of similar actions relating to two other LTC insurance companies: the liquidation of Penn Treaty Network America Insurance Company (Penn Treaty) and the rehabilitation of Senior Health Insurance Company of Pennsylvania (SHIP). The first sentence and the second paragraph of the OIC press release read as follows (the full press release is in the complimentary package offered at the end of this post):
Insurance Commissioner Mark Afable took measures today to help protect nearly 200,000 individuals who have long-term care insurance or other insurance policies with Time Insurance Company....
"Our filing with the court today protects nearly 200,000 consumers across the country," said Commissioner Afable. "State law requires me to act when our office believes an insurer is in financial trouble and that is what we have done today."
The Petition
The "Notice of Verified Petition and Verified Petition for Order for Rehabilitation" of Time consists of an eleven-page text and a five-page attachment. The text describes the background, lists the grounds for rehabilitation, and explains why the OIC determined that "rehabilitation is the only remaining option." The petition also states: "The Commissioner intends to file a plan of rehabilitation within 60 days of the Court's entry of the Order for Rehabilitation."

The petition provides details of a change of Time's ownership, Time's redomestication to Puerto Rico and its later redomestication back to Wisconsin, OIC's concerns about Time's risk-based capital (RBC) levels, OIC's cease and desist orders, and other significant matters. The petition is in the complimentary package offered at the end of this post.

The Statutory Statement
The petition says Time filed its statutory annual statement for the year ended December 31, 2019 on April 3, 2020. The statement shows total admitted assets of $16.2 million, total liabilities of $12.7 million, and statutory net worth of $3.5 million. On page 19.1 of the statement, there is a discussion of whether the company will be able to continue as a going concern. Selected pages of the statutory statement are in the complimentary package offered at the end of this post.

The RBC Ratios
RBC data for the past five years are shown on page 22 of Time's statutory statement for 2019. The RBC ratio at the end of each year, with company action level as the denominator of each ratio, are as follows (the RBC ratios with authorized control level as the denominator are twice the ratios shown here): 238 percent in 2015, 431 percent in 2016, 273 percent in 2017, 152 percent in 2018, and 210 percent in 2019.

An Omission
In The Insurance Forum (my monthly newsletter published from January 1974 through December 2013) and later on this blog site, I have written extensively about LTC insurance for 32 years. Recently a reader brought to my attention an important item on which I have not written.

My first article about LTC insurance was in the February 1988 issue of the Forum. It grew out of a solicitation I had received in the mail concerning a new LTC insurance product then being offered by Union Fidelity Life Insurance Company.

My second article about LTC insurance was in the August 1991 issue of the Forum. It grew out of an article in the June 1991 issue of Consumer Reports, the magazine of Consumers Union (CU). The CU article was entitled "An Empty Promise to the Elderly?" It described a CU study of 46 LTC insurance policies. None of the policies was rated "excellent" or "very good," but CU did not discuss the reason for those findings. In my August 1991 issue, I said "excellent" or "very good" LTC insurance policies would never be found because the problem of financing the LTC exposure violates insurance principles and therefore cannot be solved through private insurance.

In the July 2008 issue of the Forum, I elaborated on the discussion in my August 1991 issue. The July 2008 article is in the complimentary package offered at the end of this post.

What I have never discussed, because I have no recollection of ever having seen it, is a 16-page "Special Report" on LTC insurance published in the October 1997 issue of CU's magazine. The report included two pages of "ratings and recommendations" of 67 "comprehensive" LTC insurance policies and 47 "nursing home only" policies. The 67 "comprehensive" policies were ranked by "overall score." Six of them were rated as "very good," and none as "excellent." The top two policies on the list were "very good" Penn Treaty policies. My reader asserted that CU's October 1997 report created a huge demand for Penn Treaty's LTC insurance policies. I do not know whether his assertion is correct, but he may be right.

General Observations
I am not aware of anyone who has formally and publicly agreed with me that private LTC insurance cannot solve the problem of financing the LTC exposure. Nor am I aware of anyone who has formally and publicly disagreed with me. My views on the matter remain unchanged.

The previously mentioned July 2008 Forum article, entitled "Shortcomings of Private Insurance in Financing Long-Term Care," ends with this sentence: "I think many of those who try to address the problem [of financing long-term care] by purchasing private long-term care insurance will encounter disappointment."

Since October 2013, when I began this blog, I have received hundreds of emails from disgruntled owners of LTC insurance policies. For the most part, the complaints are about substantial premium increases or difficulties encountered in the handling of claims. Often the policyholders ask for my advice on what to do. In response, I have always said I am neither an attorney nor a consultant, and am not in a position to comment beyond what I have written. I then tell each person how to obtain, through the search box in the extreme upper left corner of the home page of my blog site, my posts relating to his or her company or about LTC insurance generally. I also sometimes suggest that the person contact the state insurance department in the person's home state. Each email from a disappointed LTC insurance policyholder has been a painful experience.

Available Material
I am offering a complimentary 30-page package consisting of the OIC press release (1 page), the OIC petition (16 pages), selected pages from Time's 2019 statutory statement (8 pages), and the July 2008 Forum article (5 pages). Email and ask for the May 2020 package about the rehabilitation of Time.


Thursday, May 21, 2020

No. 373: Texas Securities Commissioner Iles Issues an Emergency Order Directed At an Out-of-State Promoter

On May 15, 2020, Texas Securities Commissioner Travis J. Iles issued an Emergency Cease and Desist Order (Order) directed at Nickolas Steele (aka Nick Vop Steele aka Nick Steele). The Order shows addresses for Steele in Bellwood, Illinois, in Elmhurst, Illinois, and in Franklin, Wisconsin.

The Order relates to cryptocurrency trading during the COVID-19 pandemic. I reached out to the securities departments in Illinois and Wisconsin to see if they know of Steele. I was not able to contact Illinois; the department may be closed due to the pandemic. I received this email from a spokesperson in Wisconsin:
Our research since you contacted us indicates that Nickolas Steele may have resided in an apartment in Wisconsin from approximately 2016 to early 2018. The rest of his residential history is largely in Illinois. In August 2016, he was charged in Racine County with operating a vehicle while suspended, and he provided an Illinois address at that time. The Texas order does not allege any activities occurring in Wisconsin or any investors here. We have not located any Craigslist advertisements targeting Wisconsin investors by Steele. However, we will record this inquiry in our database and be on the alert for any Wisconsin activity past or future.
I contacted the North American Securities Administrators Association to see if they know of Steele. I am awaiting a reply.

According to the Order, Steele has 31 days to request a hearing. Any knowing violation of the Order is a criminal offense punishable by a fine of not more than $10,000, or imprisonment for two to ten years, or by both such fine and imprisonment. The nine-page Order is here.


Monday, May 18, 2020

No. 372: The Age 100 Problem—Another Update on the Lebbin Lawsuit Against Transamerica

As regular readers know, I have written extensively about what I call "the age 100 problem" in general, and in particular about the Lebbin lawsuit against Transamerica Life Insurance Company. The most recent update on the case is in No. 341 (November 15, 2019). Here I provide another update. (See Lebbin v. Transamerica, U.S. District Court, Southern District of Florida, Case No. 9:18-cv-80558.)

Gary Lebbin was born in September 1917 in Germany, came to the U.S. in 1938 to escape Nazi persecution, and married in 1944. His wife died in 2015 at age 97. In 1990 he created the Lebbin-Spector Family Trust (Trust), whose trustees are his two children. At the time, the Trust bought two second-to-die universal life policies on Gary and his wife from Transamerica with a total face amount of $3.2 million. When his wife died, the policies became single-life policies on Gary.

In July 2017, when Gary was almost 100 years old, he and the Trust filed an individual lawsuit in federal court in Maryland against Transamerica. The complaint alleged the company had falsely represented the policies as "permanent insurance" for his "whole life," and had refused his request to extend the policies beyond their terminal age of 100. The complaint included a breach-of-contract count and several other counts. In October 2017, at Transamerica's request, the lawsuit was transferred to federal court in Florida, where the policies were originally sold and several potential witnesses were located.

Recent Developments
In February 2019, by which time Gary was afflicted with dementia, Transamerica settled with him for $10,000. The Trust then filed an amended complaint omitting Gary as a plaintiff, leaving the Trust as the only plaintiff. The amended complaint included several counts, including a breach-of-contract count.

In July 2019, the judge granted the Trust's claim for breach of contract. The other counts were denied by the judge or withdrawn by the Trust. The judge canceled the trial, which had been set for early August 2019. The parties said they had agreed to resolve the case, but had not agreed on the damages for the Trust's breach-of-contract claim. Those damages thus became the only remaining issue in the case. The judge set a briefing schedule on the issue of damages.

The Trust requested a return of all premiums paid to Transamerica—a total of $1,670,141 plus prejudgment interest. The prejudgment interest rates the Trust suggested were the Florida statutory rates at the time of each premium payment. The Trust said it would provide the interest figure prior to the entry of final judgment.

Transamerica strongly opposed the amount of the Trust's claim for damages. The Trust replied to Transamerica's opposition. The parties made several further filings, eventually ended their briefings, and awaited the judge's ruling on the damages.

The Judge's Ruling
On April 7, 2020, the judge issued a "Final Order on Damages." For the two policies combined, he awarded the Trust a total of $2,530,154, including interest. He described his reasoning, showed his calculations, and said "Final Judgment will be entered separately." On April 9, the judge issued a "Final Judgment." On April 10, he issued an "Order Closing Case." The three documents are in the complimentary package offered at the end of this post.

The Appeal
On May 7, Transamerica filed a notice of appeal and posted a bond in the amount of $2,783,169. I think the difference between the amount of the bond and the amount of the judgment represents interest and costs of appeal. Transamerica's appellant brief is due June 17. Two court documents relating to the appeal are in the complimentary package offered at the end of this post. (See Transamerica v. Lebbin, U.S. Court of Appeals, Eleventh Circuit, Case No. 20-11756.)

General Observations
I had hoped Transamerica would pay the amount awarded and end this three-year-old lawsuit. However, we now have to wait and see what happens in the appeal. I plan to report developments.

Available Material
I am offering a complimentary 14-page package consisting of the judge's final order on damages (7 pages), his final judgment (1 page), his order closing the case (1 page), and two court documents relating to the appeal (5 pages). Email and ask for the May 2020 package about Lebbin v. Transamerica.


Wednesday, May 13, 2020

No. 371: Long-Term Care Insurance—An Update on the Skochin Class Action Lawsuit Against Genworth

In No. 334 (September 26, 2019), I discussed a class action lawsuit against Genworth Financial, Inc. (Genworth) relating to premium increases on long-term care (LTC) insurance policies. Here I provide an update on the case. (See Skochin v. Genworth, U.S. District Court, Eastern District of Virginia, Case No. 3:19-cv-49.)

Developments Reported in No. 334
On January 18, 2019, three individuals filed a class action lawsuit against Genworth and Genworth Life Insurance Company (GLIC). The plaintiffs are Pennsylvania residents Jerome and Susan Skochin, and Maryland resident Larry Huber. They purchased their policies in 2003 and 2004 from General Electric Capital Assurance Company, a predecessor of Genworth and GLIC. The original complaint included four claims for relief: Count 1 for breach of the implied covenant of good faith and fair dealing, Count 2 for fraudulent inducement, Count 3 for fraudulent omission, and Count 4 for violation of the Pennsylvania Unfair Trade Practices and Consumer Protection Law (CPL).

The lawsuit is one of many involving premium increases on LTC insurance policies. Unlike other cases, however, the plaintiffs do not challenge the increases. Rather, they allege the defendants failed to disclose material information to assist policyholders in making decisions about their policies. Thus Skochin may be thought of as a disclosure (or nondisclosure) case.

On March 12, 2019, the defendants filed a motion to dismiss the complaint. The judge denied the motion. On April 29, the plaintiffs filed an amended complaint that included four claims for relief: Count 1 for breach of contract, Count 2 for fraudulent inducement, Count 3 for fraudulent omission, and Count 4 for violation of the CPL.

On May 13, the defendants filed a motion to dismiss the amended complaint. On June 28, the judge ordered the defendants to complete production of documents by July 19. On July 3, the plaintiffs filed a stipulation of dismissal of Genworth, leaving GLIC as the only defendant.

On August 7, the judge set November 14 for a class certification hearing, and March 3, 2020 for the jury trial to begin. On August 29, the judge granted GLIC's motion to dismiss Count 1 (breach of contract) in the amended complaint, and denied GLIC's motion to dismiss the other three counts. He ordered the plaintiffs to file a second amended complaint by September 20, and GLIC to file its answer by October 4. On September 20, the plaintiffs filed a second amended complaint that included two claims for relief: Count 1 for fraudulent inducement by omission, and Count 2 for violation of the CPL.

Developments Subsequent to No. 334
On October 30, the plaintiffs filed a notice of settlement. On November 1, the judge ordered the plaintiffs to file a third amended complaint, and stayed the defendant's answer pending approval of the settlement. He also ordered the plaintiffs to file a motion to notify the class and a proposed settlement agreement. On November 22, the plaintiffs filed a third amended complaint. On December 20, the plaintiffs filed a motion to notify the class and a proposed settlement agreement.

On January 15, 2020, the judge held a hearing, granted preliminary approval of the proposed settlement, directed that the class notice be mailed to class members, and set the final approval hearing for July 10. On March 31, in response to requests by Genworth, the judge granted an amendment to the preliminary approval, and directed that the notice be mailed to class members. The class notice is in the complimentary package offered at the end of this post.

The Proposed Settlement
According to the proposed settlement and the class notice, policyholders will be offered certain options. Some policyholders will be offered options that include cash benefits. However, I found no estimate of the aggregate cash benefits to policyholders, other than a wide range of figures in the ambiguous paragraph (b) of the following description of the compensation of the plaintiffs' attorneys:
As part of the request for Final Approval of the Settlement Agreement, Class Counsel will file a request seeking to be paid the following:
(a) $2,000,000 relating to the injunctive relief that is in the form of the Disclosures.
(b) An additional contingent payment of 15% of certain amounts related to Special Election Options selected by the Settlement Class, which shall be no less than $10,000,000 and no greater than $24,500,000. None of the attorneys' fees will be deducted from payments made by Genworth to Settlement Class members
The plaintiffs' attorneys will also request an award of litigation expenses of not more than $75,000. With regard to the three named class representatives, the plaintiffs' attorneys will request approval of service payments of up to $25,000 for each of them for the time, work, and risk they undertook. None of the service payments will be deducted from payments made by Genworth to class members.

The Indiana Motion to Intervene
On April 10, after the settlement administrator mailed the class notices, the Indiana Department of Insurance (IDOI) moved to intervene to seek a temporary stay. Here is the first sentence of the motion:
Pursuant to Federal Rule of Civil Procedure 24, the Indiana Department of Insurance moves to intervene for the purpose of seeking a temporary stay of the proceedings in this case due to the on-going national emergency resulting from the COVID-19 virus.
On the same day, IDOI moved for a temporary stay and filed briefs in support of both motions. On April 17, the plaintiffs opposed the IDOI motions. On April 23, IDOI responded to the opposition. The judge has not yet ruled on the matter. Court documents relating to the IDOI effort are in the complimentary package offered at the end of this post.

Seven Policyholder Objections
Seven policyholders filed objections with the court. On April 20, a Florida policyholder objected. On April 22, a Colorado policyholder objected. On April 28, a Michigan couple objected. On May 1, a New York policyholder objected. On May 1, an Idaho policyholder objected. On May 5, a California policyholder objected. On May 5, a North Carolina couple objected. Court documents relating to the seven objections are in the complimentary package offered at the end of this post.

Excerpt from Genworth 10-Q
On May 6, Genworth filed its 10-Q report for the quarter ended March 31, 2020. On page 63, the report describes the Skochin case. Here are the last two sentences of the description (the full description is in the complimentary package offered at the end of this post):
Based on the Court's preliminary approval of the settlement, we do not anticipate the outcome of this matter to have a material adverse impact on our results of operations or financial position. If the court does not approve the final settlement, we intend to continue to vigorously defend this action.
General Observations
In other posts of mine about settlements of lawsuits involving premium increases on LTC insurance policies, there have sometimes been references to the size of a "settlement fund." Such a figure helps to evaluate the reasonableness of the proposed compensation of the plaintiffs' attorneys. Without a "settlement fund" figure, an evaluation is difficult.

It seems strange that the plaintiffs' attorneys oppose the eminently reasonable IDOI request for a temporary stay due to the pandemic. I hope the judge will grant the IDOI motions and will order a temporary stay.

I am an Indiana resident. I am impressed by and grateful for my home state department's effort. At the same time, I an disappointed that no other state insurance regulators have sought a temporary stay—not even Genworth's home state of Virginia, where the case is being tried. Also, the Virginia commissioner chairs an LTC Insurance Task Force that was created by the National Association of Insurance Commissioners and that hopes to get its arms around the problems of the LTC insurance business.

Available Material
I am offering a complimentary 81-page PDF consisting of the class notice (9 pages), court documents relating to IDOI's effort to obtain a temporary stay (54 pages), court documents relating to seven policyholder objections (17 pages), and the 10-Q description of the Skochin case (1 page). Email and ask for the May 2020 package about the Skochin lawsuit against Genworth.


Friday, May 8, 2020

No. 370: UNUM's Long-Term Care Insurance Statutory Reserves Take a Hit

As readers of this blog site are aware, I have written often about long-term care (LTC) insurance policies. I have also written about premium increases and reserve deficiencies relating to those policies.

The Unum Disclosure
On May 4, 2020, Unum Group (NYSE: UNM) filed with the Securities and Exchange Commission (SEC) an 8-K (significant event) report. Unum disclosed an important aspect of an ongoing financial examination of Maine-domiciled Unum Life Insurance Company of America by the Maine Bureau of Insurance (MBOI). Here are the key disclosures:
MBOI has concluded that Unum America's long-term care statutory reserves are deficient by $2.1 billion as of December 31, 2018. As permitted by MBOI, Unum America will phase in the additional statutory reserves over seven years beginning with year-end 2020 and ending with year-end 2026. The 2020 phase-in amount is estimated to be between $200 million and $250 million. This strengthening will be accomplished by the Company's actuaries incorporating explicitly agreed upon margins into its existing assumptions for annual statutory reserve adequacy testing. These actions will add margins to Unum America's best estimate assumptions. The Company plans to fund the additional statutory reserves with expected cash flows. The Company's long-term care reserves and financial results reported under generally accepted accounting principles are not affected by the MBOI's examination conclusion.
The Company has suspended its current share purchase authorization and will not repurchase shares in 2020. Additionally, the Company intends to continue to pay its common stock dividend at the current rate.
General Observations
Language similar to that quoted above is in Unum's 10-Q report for the quarter ended March 31, 2020, as filed with the SEC on May 5, 2020. The MBOI examination of Unum is scheduled to close at the end of the second quarter of 2020. Therefore, the examination report is not yet publicly available. In the meantime, I felt that readers would be interested in this development relating to Unum's LTC insurance reserves.

Available Material
I am offering a complimentary three-page PDF containing Unum's 8-K report. Email and ask for the May 2020 package about the Unum 8-K report.


Wednesday, May 6, 2020

No. 369: Scott Witt's Views on Indexed Universal Life—A Follow-Up

Scott Witt, FSA, MAAA, is a fee-only insurance advisor and a Financial Services Affiliate member of the National Association of Personal Financial Advisors. In No. 363 (April 8, 2020), I discussed briefly his views on indexed universal life policies and offered a complimentary copy of his seven-page article. Witt received many comments on his article, and decided to write a five-page follow-up. His original article and his follow-up are available here.


Friday, May 1, 2020

No. 368: Senior Health Insurance Company of Pennsylvania—The Proposed Plan of 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. At that time, CSHI transferred the assets and liabilities of its LTC insurance business to create SHIP. CSHI had been running off its LTC insurance business (not selling any new LTC insurance policies) for five years prior to the transfer.

For many years after 2008, SHIP's financial condition worsened, often showing risk-based capital (RBC) levels calling for formal actions by the Pennsylvania Insurance Department (Department), SHIP's primary regulator. The Department took no formal regulatory actions.

In its statutory financial statement for the year ended December 31, 2018, SHIP reported a deficit (negative surplus). Its liabilities exceeded its assets by $447 million. Still the Department took no formal regulatory action. The deficit 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. Still the Department took no formal regulatory action.

I believe that SHIP did not file a statutory financial statement for the year ended December 31, 2019. However, according to the preliminary plan of rehabilitation (Plan) discussed in this post, SHIP's deficit at the end of 2019 was $916 million.

The Application
On January 23, 2020, Jessica E. Altman, the Pennsylvania Insurance Commissioner (Commissioner), applied to the Commonwealth Court of Pennsylvania for an order placing SHIP in 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 [which oversees SHIP] and SHIP's directors have consented in a signed writing to the company being placed in rehabilitation and have waived a hearing.
The Order
On January 29, President Judge Mary Hannah Leavitt of the Commonwealth Court of Pennsylvania issued an order approving the application 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." The judge appointed the Commissioner as rehabilitator, said the Commissioner may appoint a special deputy rehabilitator, and ordered the filing of a Plan on or before April 22, 2020. The Commissioner appointed Patrick H. Cantillo as special deputy rehabilitator, and engaged a group of consultants to develop the Plan. I wrote about these developments in No. 352 (January 29, 2020) and No. 354 (February 10, 2020). (IN RE: Senior Health Insurance Company of Pennsylvania In Rehabilitation, Commonwealth Court of Pennsylvania, No. 1 SHIP 2020.)

The Plan
On April 22, Cantillo filed in court a single-spaced 108-page Plan. Here are the components of the Plan, with the number of pages shown in parentheses (the full Plan is in the complimentary May 2020 package offered at the end of this post):
Table of Contents (5)
How to Provide Comments and Objections (1)
Important Notice (3)
Basic Information about the Plan (6 pages)
General Plan Details (18)
Details of Phase One of the Plan (16)
Details of Phase Two of the Plan (22)
Phase Three (1)
Other Matters (22)
Glossary (14)
The "Basic Information about the Plan" includes a "Summary Description of the Plan." Here is the first paragraph of the description:
The following description of the Plan is intended to provide policyholders the basic information required for them to make the required election(s) if the Plan is implemented as proposed. To that extent, it should also enable policyholders to decide what if any comments or formal objections they may offer in response to the request for approval of the Plan. Much more detail about the Plan and related matters is provided in the sections that follow.
The Plan has three phases. In Phase One, policies not in nonforfeiture status will be evaluated and policyholders will be offered options. In Phase Two, policyholders may be offered additional options. In Phase Three, SHIP will complete the run-off of policies. Policyholders are divided into various active and disabled categories, and are offered various options. The Plan provides some illustrations, but each of them carries this warning language:
This illustration is provided solely for the purpose of demonstrating how premiums and benefits under each option in the proposed rehabilitation plan compare to each other. Every policy is different and produces different results.
General Observations
The Plan is incredibly complex. Cantillo and those working with him obviously poured an enormous amount of effort into its preparation.

The Plan involves options under which policyholders may choose to pay increased premiums and/or receive reduced benefits, and those already on claim may choose to receive reduced benefits. Some of those premium increases and benefit reductions are likely to be large.

I do not know how Judge Leavitt will handle the Plan. However, I think the Plan will fail. Premium-paying policyholders may drop out in droves when they see the magnitude of the premium increases and benefit reductions. I hope the judge will reject the Plan and order SHIP into liquidation. That action would bring the state guaranty associations into the picture, along with assessments paid by other insurance companies. In short, I think liquidation would make it possible to lower the size of the premium increases and lower the size of the benefit reductions.

The Pandemic
While the Plan was being prepared, the COVID-19 pandemic was and still is wreaking havoc on the United States and the rest of the world. Moreover, the pandemic is having its greatest impact on the elderly. Many of them are in nursing homes, assisted living facilities, homes for the aged, retirement communities, facilities for elderly veterans, and other facilities offering long-term care services.

A paragraph entitled "Timeline" appears on page 15 of the 108-page PDF of the Plan. The paragraph talks about affording policyholders and other interested parties an opportunity to comment on the Plan. In that paragraph is the following sentence, which alludes to the pandemic:
Because of the extraordinary circumstances facing our nation, the Rehabilitator will ask the Court to provide policyholders and others a prolonged period of time to review the Plan before such comments are due.
To my knowledge, that is the only comment in the Plan about the pandemic. However, it is possible that I missed other comments.

It is morbid to contemplate how the impact of surging numbers of deaths among the elderly may affect the LTC insurance business. Such a surge would eliminate many claim payments, and therefore might improve the financial condition of SHIP and other LTC insurance companies.

Available Material
In No. 352 I offered a 27-page complimentary January 2020 package about SHIP. In No. 354 I offered a 23-page complimentary February 2020 package about SHIP. Those packages remain available.

Now I am offering a 108-page complimentary May 2020 package containing the full Plan. Email and ask for the May 2020 package about the SHIP Rehabilitation Plan.


Monday, April 27, 2020

No. 367: The New York Department Comes Down on Athene, Lincoln, MassMutual, and Pacific Life

In April 2020, the New York State Department of Financial Services (Department) entered into four separate consent orders with Athene Annuity and Life Company and Athene Holding, Ltd. (together, Athene); Lincoln Life & Annuity Company of New York (Lincoln); Massachusetts Mutual Life Insurance Company (MassMutual); and Pacific Life & Annuity Company (Pacific Life). Here I briefly discuss the cases.

The Athene case involves the question of whether the company, in its pension risk transfer (PRT) business, was doing business in New York State without a license. In recent years many major employers have been seeking to shed some or all of their obligations to active and/or retired employees. To do so, they have entered into PRT arrangements. Much of the PRT activity involves major insurance companies such as The Prudential Insurance Company of America and Metropolitan Life Insurance Company. Problems at such companies sometimes arise in their PRT business. For two examples, see No. 293 and No. 301.

In January 2019, the Department began an investigation of Athene covering the period from 2017 to January 2019. The Department concluded that the company had been doing business in New York State without a license. The consent order with Athene explains the Department's findings, describes the injunctive relief, and mentions the imposition of a civil monetary penalty of $45 million. The consent order is in the complimentary package offered at the end of this post.

Lincoln, MassMutual, and Pacific Life
The other three cases involve the question of whether the companies violated New York regulations in the process of replacing deferred annuity contracts with immediate income annuity contracts. The Department conducted investigations of Lincoln, MassMutual, and Pacific Life. In separate consent orders, the Department found violations of the disclosure and suitability requirements in Regulations 60 and 187. The consent orders are in the complimentary package offered at the end of this post.

In the Lincoln case, the investigation covered the period from January 1, 2011 to March 31, 2019. The Department imposed a civil monetary penalty of $510,000 and obtained injunctive relief in the form of remediation and restitution.

In the MassMutual case, the investigation covered the period from January 1, 2012 to May 31, 2018. The Department imposed a civil monetary penalty of $692,000 and obtained injunctive relief in the form of remediation and restitution.

In the Pacific Life case, the investigation covered the period from January 1, 2012 to April 30, 2018. The Department imposed a civil monetary penalty of $172,000 and obtained injunctive relief in the form of remediation and restitution.

General Observations
The PRT business involves the exchange of large amounts of long-term liabilities and large amounts of long-term assets. It is worrisome that Athene, part of a private equity organization interested in short-term rather than long-term profits, is involved in the PRT business. As for the other three companies discussed in this post, the consent orders involve violations of Department replacement regulations.

New York State Superintendent of Financial Services Linda A. Lacewell and her Department obviously have remained hard at work in spite of the COVID-19 pandemic. I for one am grateful to her and her staff for their efforts under very difficult circumstances.

Available Material
I am offering a complimentary 63-page PDF consisting of the consent order with Athene (15 pages), the consent order with Lincoln (16 pages), the consent order with MassMutual (16 pages), and the consent order with Pacific Life (16 pages). Email and ask for the April 2020 package relating to the New York consent orders.


Wednesday, April 22, 2020

No. 366: Voter Suppression by Wisconsin Republicans and the Conservative Majority of the U.S. Supreme Court

On April 7, 2020, Wisconsin held its primary election as scheduled in the midst of the COVID-19 pandemic. What happened was a dangerous, irresponsible case of voter suppression. Here I describe the incident.

The Wisconsin Primary
On the ballots were presidential preferences (Sanders withdrew after the primary), a Wisconsin Supreme Court seat held by a Republican whose reelection was supported by President Trump (the incumbent lost in the primary), an amendment to the Wisconsin Constitution, many local referenda, more than 100 other judgeships, and thousands of county, city, village, town, school district, and other positions.

On April 2, a Wisconsin federal district court judge extended by six days the deadline for receipt of absentee ballots and relaxed certain other requirements relating to absentee ballots. Republicans immediately appealed to the U.S. Seventh Circuit Court of Appeals, which allowed the federal district court judge's ruling to stand.

On April 3, Democratic Governor Tony Evers called a special session of the legislature to act on legislation to allow Wisconsin voters to vote safely by mail. On April 4, the legislature, without acting on the legislation, and with no discussion or debate, adjourned within seconds after convening.

The Governor's Executive Order
On April 6, Governor Evers, because of the COVID-19 pandemic, issued Executive Order #74 suspending in-person voting until June 9. The order is in the complimentary package offered at the end of this post.

The U.S. Supreme Court
After the Seventh Circuit allowed the federal district court judge's ruling to stand, the Republican National Committee asked the U.S. Supreme Court for a stay of the ruling. The Democratic National Committee opposed the stay. On April 6, the U.S. Supreme Court, in a 5-4 ruling, granted the stay. The application for a stay went initially to Justice Kavanaugh because he is the justice designated to receive applications after rulings emanating from the Seventh Circuit.

The Majority Opinion
It is not known who wrote the majority opinion, because it was issued Per Curiam, or "for the Court." Here, without citations, are the first paragraph, the first three sentences of the second paragraph, and the next-to-last paragraph of the majority opinion (the full majority opinion is in the complimentary package offered at the end of this post):
The application for stay presented to Justice Kavanaugh and by him referred to the Court is granted. The District Court's order granting a preliminary injunction is stayed to the extent it requires the State to count absentee ballots postmarked after April 7, 2020.
Wisconsin has decided to proceed with the elections scheduled for April 7, 2020. The wisdom of that decision is not the question before the Court. The question before the Court is a narrow, technical question about the absentee ballot process....
The Court's decision on the narrow question before the Court should not be viewed as expressing an opinion on the broader question of whether to hold the election, or whether other reforms or modifications in election procedures in light of COVID-19 are appropriate. That point cannot be stressed enough.
The Dissenting Opinion
The dissenting opinion, also on April 6, was written by Justice Ginsburg. Justices Breyer, Sotomayor, and Kagan joined in the dissent. Here, without citations, are the first and last paragraphs of the dissenting opinion (the full dissenting opinion is in the complimentary package offered at the end of this post):
The District Court, acting in view of the dramatically evolving COVID-19 pandemic, entered a preliminary injunction to safeguard the ability of absentee voting in Wisconsin's spring election. The Court now intervenes at the eleventh hour to prevent voters who have timely requested absentee ballots from casting their votes. I would not disturb the District Court's disposition, which the Seventh Circuit allowed to stand....
The majority of this Court declares that this case presents a "narrow, technical question." That is wrong. The question here is whether tens of thousands of Wisconsin citizens can vote safely in the midst of a pandemic. Under the District Court's order, they would be able to do so. Even if they receive their absentee ballot in the days immediately following election day, they could return it. With the majority's stay in place, that will not be possible. Either they will have to brave the polls, endangering their own and others' safety. Or they will lose their right to vote, through no fault of their own. That is a matter of utmost importance—to the constitutional rights of Wisconsin's citizens, the integrity of the State's election process, and in this most extraordinary time, the health of the Nation.
A Bill Introduced in the U.S. Senate
On March 18, 2020, U.S. Senator Klobuchar (D-MN) issued a press release announcing she and U.S. Senator Wyden (D-OR) had that day introduced the "Natural Disaster and Emergency Ballot Act" (NDEBA). The bill had 29 cosponsors—28 Democrats and one Independent (Sanders). The NDEBA was introduced amid confusion over whether the Ohio primary would be postponed, and over whether there would be delayed primaries in two other states. The introduction of the bill preceded the Wisconsin primary. The NDEBA would provide, among other things, expansion of early in-person voting and use of printable ballots currently available only to military and overseas voters. The press release is in the complimentary package offered at the end of this post.

General Observations
Rocket science is not needed to estimate the probability that the NDEBA will pass in the Republican-controlled Senate. The probability is zero. President Trump has said mass voting by mail would mean no Republican would ever be elected. Therefore, a veto-proof majority in the Senate would be needed.

Our nation has always engaged in voter suppression. One need look no further than Thomas Jefferson's lofty words about all men being created equal and consider what it took for women, former slaves, and others to win the right to vote.

For many years it was southern Democrats and the Ku Klux Klan who fought to suppress voting by African Americans. It is not hard to imagine the shock when a southern Democratic President named Lyndon Johnson rammed through Congress the Voting Rights Act of 1965. Since then, conservatives have succeeded in many efforts to weaken the law.

In recent years it has been the Republicans who have embraced voter suppression on the theory that they are more likely to win elections when voter turnout is small. The Wisconsin fiasco, where voters had to stand in long waiting lines six feet apart for hours in on-and-off rain and sleet will not be forgotten any time soon.

The Wisconsin primary is a precursor of what may happen in the November 2020 presidential election. Wisconsin Republicans have demonstrated they are willing to force voters to risk exposure to serious illness and even death to exercise their right to vote. What we may witness in November will be a brazen and irresponsible example of voter suppression.

A Recent News Story
In the morning on April 21, NBC News reporter Alex Seitz-Wald ran a story about the Wisconsin primary. Here is the opening sentence:
Officials have identified seven people [six voters and one poll worker] who appear to have contracted the coronavirus through activities related to the April 7 election in Wisconsin, Milwaukee's health commissioner said, and advocates worry it could be just the "tip of the iceberg."
Available Material
I am offering a complimentary 18-page PDF consisting of the Wisconsin governor's executive order (4 pages), the majority opinion in the U.S. Supreme Court (4 pages), the dissenting opinion in the U.S. Supreme Court (6 pages), and the press release about the NDEBA (4 pages). Email and ask for the April 2020 package about the Wisconsin primary.


Wednesday, April 15, 2020

No. 365: David Rubenstein's Fascinating Book

David M. Rubenstein is co-founder and co-executive chairman of the Carlyle Group and a prominent philanthropist. In October 2019, Simon & Shuster published his book entitled The American Story: Conversations with Master Historians. The book consists of 15 conversations with prominent historians about important figures in American history, and a conversation with Chief Justice John G. Roberts Jr. about the U.S. Supreme Court. Here is the list:
Jack D. Warren Jr. on George Washington
David McCullough on John Adams
Jon Meacham on Thomas Jefferson
Ron Chernow on Alexander Hamilton
Walter Isaacson on Benjamin Franklin
Cokie Roberts on Founding Mothers
Doris Kearns Goodwin on Abraham Lincoln
A. Scott Berg on Charles Lindbergh
Jay Winik on Franklin Delano Roosevelt
Jean Edward Smith on Dwight D. Eisenhower
Richard Reaves on John F. Kennedy
Taylor Branch on Martin Luther King Jr. and the Civil Rights Movement
Robert A. Caro on Lyndon B. Johnson
Bob Woodward on Richard M. Nixon and Executive Power
H. W. Brands on Ronald Reagan
Chief Justice John G. Roberts Jr. on the U.S. Supreme Court
David McCullough
When I acquired Rubenstein's book, I could not resist the temptation to start with his conversations with two of my favorite writers: David McCullough and Robert Caro. McCullough received Pulitzer Prizes for his magnificent biographies of Harry Truman and John Adams. Here is a small part of Rubenstein's conversation with McCullough about Adams:
In addition to being the most ardent advocate for independence, Adams made two decisions. He recommended somebody to be the general of the army for the American colonies and somebody to write the Declaration of Independence. Why did he pick George Washington and why did he pick Thomas Jefferson?
He picked Thomas Jefferson because he felt he was the best writer. And he liked him very much and admired him very much.
Washington was a clear choice. There wasn't really much mystery about that. There were so very few to choose from, and they were all young in their thirties or early forties, with no experience. They'd never done this before; none of them had. And it's just miraculous out of this tiny population—2,500,000 people and 500,000 of them were slaves held in bondage. Couldn't vote, had no say.
One of the most important virtues or admirable qualities that we all should know and understand about John Adams is he's the only Founding Father to become president who never owned a slave. As a matter of principle. And [his wife] Abigail was staunchly of that same point of view. The slaves weren't all in the South. They were sort of a status symbol in Boston, and you had servants who were slaves. That was the thing to have.
[Adams] was not an abolitionist, though?
No, he wasn't. Nobody was making an issue of that at the time because they had determined that "we can't solve this one now—we've got to sidestep that." They were really putting in the closet an issue they knew eventually had to be solved.
Robert Caro
Caro has received two Pulitzer Prizes. The first was for his towering biography of Robert Moses, the little known but hugely powerful shaper of New York City. The second was for the third of the first four volumes in his as yet unfinished monumental biography of Lyndon Johnson. Here is a small part of Rubenstein's conversation with Caro about Johnson:
We've largely covered the four volumes of The Years of Lyndon Johnson that you've written. With the beginning of the Johnson administration, you end the fourth volume. When is volume 5 coming out? Is it going to be one volume or two volumes?
Well, you're ruining this terrific interview. I'm about halfway through.
You do all your research and then you write—or type—on your Smith-Corona?
That's in theory true, but when you get into each chapter, you suddenly realize that some file that you had thought wasn't important at the Johnson Presidential Library is key. So you have to go back and look into it.
I want the last book to be in one volume. I'll tell you why: because the arc of Lyndon Johnson's presidency is one arc. He starts with the greatest victory in the history of American politics—to this day, still. Sixty-one-point-one percent over Barry Goldwater, his Republican opponent in the 1964 presidential election.
So he starts with the greatest triumph you can imagine. By the end of it, Vietnam has consumed his presidency, and he has to leave office and go back to his ranch. I want that all to be in one book because I see it as one story....
Lyndon Johnson died of a heart attack at the age of sixty-four, relatively young. Would he have been able to survive with modern medical technology?
I asked his cardiologist that very question. He said, "We could have fixed him in a half-hour angioplasty."
I then read the other 14 sections of the Rubenstein book with great interest. I found the book fascinating, and strongly recommend it.


Friday, April 10, 2020

No. 364: The Texas Securities Commissioner Issues an Emergency Cease and Desist Order Against a Florida Promoter

On April 3, 2020, Texas Securities Commissioner Travis J. Iles issued an Emergency Cease and Desist Order against James Frederick Walsh (Boca Raton, FL). Given the COVID-19 pandemic, the allegations in the Order are astounding. According to the final section of the Order, Walsh has 31 days to request a hearing. Any knowing violation of the Order is a criminal offense punishable by a fine of not more than $10,000, or imprisonment for two to ten years, or by both such fine and imprisonment. The seven-page Order is here.


Wednesday, April 8, 2020

No. 363: Scott Witt's Views on Indexed Universal Life

In No. 314 (May 29, 2019), I presented the views of two prominent professionals on indexed universal life (IUL) policies: Lawrence J. Rybka, JD, CFP; and Richard Weber, MBA, CLU, AEP. In that post I said I have never written about IUL and explained why. I do not understand IUL policies well enough to feel comfortable writing about them, and I have always avoided writing about topics I do not understand.

Scott Witt
Scott Witt, FSA, MAAA, is a fee-only insurance advisor and a Financial Services Affiliate member of the National Association of Personal Financial Advisors. He was born and raised in Montana and graduated from Montana Tech in 1993 with a dual major in Mathematics and Computer Science. He received a Master's degree in Statistics from Oregon State University in 1994. He started his career at Northwestern Mutual, where he worked in various actuarial roles for more than ten years. Areas of expertise and responsibility included life insurance pricing, risk management, valuation, mortality studies, and marketing. Before he founded his firm, he worked for Katt & Company, one of the nation's first fee-only insurance advisors. Additional biographical information is on his firm's website at

I have known Witt for many years, and hold him in very high regard. Some time back we discussed the idea of his expressing his views on IUL. He agreed, and the result is "A Critical Review of Indexed Universal Life." It is in the complimentary package offered at the end of this post.

Witt's Views on IUL
Witt's seven-page, single-spaced review of IUL begins with an introductory paragraph. It reads:
Indexed Universal Life (IUL) has long been touted as a product that provides upside potential with downside protection. With the precipitous market decline in the first quarter of 2020 caused by COVID-19, this is no doubt a great opportunity for those who sold or purchased IUL products to take a victory lap. But should they be celebrating? And more broadly, are IUL products everything they are cracked up to be?
The next section of Witt's review consists of four paragraphs entitled "Understanding IUL Policy Mechanics." The section also includes four "critical observations to understand about the IUL policy mechanics."

The third section, a long one, is entitled "Do IUL Policies Provide an Upgrade Over a Good Whole Life Policy?" The first paragraph reads:
In my opinion, no. They certainly look good on paper, and you can contrive situations where an IUL policy can perform well for short (or even relatively long) periods of time, but over the long haul I do not believe a compelling case can be made for an IUL policy outperforming a whole life policy from a good carrier (say a highly rated mutual insurance company)—particularly if the whole life policy were optimized to reduce agent compensation and maximize policy efficiency.
The third section includes ten numbered and detailed discussions of "issues with many IUL illustrations." The fourth section is entitled "Do IUL Policies Have an Investment Advantage Over Whole Life Policies?" The fifth section is entitled "Premium Financing—Even More Leveraging."

The "Conclusion" has three paragraphs. The first paragraph reads:
When you put it all together, many IUL illustrations resemble a house of cards. When you inject heavy internal borrowing into the illustration (using a favorable and potentially unsustainable arbitrage assumption), you now have another house of cards put on top of the first house of cards. (And for those that are so inclined, you can add another house of cards by introducing premium financing into the mix.)
General Observations
I am impressed by Witt's views on IUL. One point I found especially interesting, discussed in the third paragraph of the fourth section of his review, is how the current illustration rules favor IUL policies over whole life policies.

In my opinion, IUL is a product that is sold by agents who do not fully understand it to clients who do not fully understand it. It will be interesting to see what IUL promoters—insurance companies, marketing organizations, and agents—have to say about Witt's views. I would welcome thoughtful comments from them and others.

Available Material
In No. 314 I offered a complimentary 37-page package containing the views of Rybka and Weber on IUL. That May 2019 package remains available.

Now I offer a complimentary seven-page PDF containing Witt's views on IUL. Send an email to and ask for the April 2020 package showing Witt's views on IUL.


Tuesday, March 31, 2020

No. 362: Whitmer and Trump

A reader shared with me an item by Mitch Albom of the Detroit Free Press. I am interrupting the suspension of my blog to share the item with you here.


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.