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 jmbelth@gmail.com and ask for the February 2020 package about Lindberg.

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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 www.shipltc.com/rehabilitation, 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 jmbelth@gmail.com and ask for the February 2020 package about the SHIP rehabilitation.

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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.

FINRA
A report on Skinner (CRD# 4574898) may be viewed through Broker Check on the website of the Financial Industry Regulatory Authority (www.finra.org). 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 jmbelth@gmail.com and ask for the February 2020 package about the Massachusetts complaint against Skinner.

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