Thursday, November 12, 2015

No. 126: Life Partners—Recent Adversary Proceedings in the Bankruptcy Case

Life Partners Holdings, Inc. (LPHI) and its operating subsidiaries were participants in the secondary market for life insurance for many years. Now they are involved in bankruptcy proceedings. The trustee in the bankruptcy case is H. Thomas Moran II. (See In re LPHI, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-40289.)

An "adversary proceeding" is a lawsuit filed within a bankruptcy case and assigned its own case number. In September and October 2015 Trustee Moran filed two adversary proceedings in the LPHI bankruptcy case. One is a complaint against Brian Pardo, the former chief executive officer of Life Partners. That complaint was later amended and nine plaintiffs were added. The other was a complaint against 30 licensees of Life Partners. The complaints are discussed here.

The Complaint against Pardo
On September 11, 2015, Trustee Moran filed a complaint against Pardo seeking $41 million for the benefit of the bankruptcy estate and investors allegedly victimized by actions of LPHI and its subsidiaries. The amount sought represents salaries, bonuses, dividends, and other personal remuneration received by Pardo. In No. 117 (September 21, 2015), I wrote about the complaint. (See Moran v. Pardo, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-04079.)

The Amended Complaint against Pardo and Others
On October 5, 2015, Trustee Moran filed an amended complaint. The amount sought for the benefit of the bankruptcy estate is increased to $75 million, and the allegations are expanded. Nine defendants are added: Deborah Carr, daughter of Brian Pardo and former vice president of administration of Life Partners; Kurt Carr, husband of Deborah Carr and former vice president over policy acquisition of Life Partners; R. Scott Peden, former president, general counsel, and secretary of Life Partners; Linda Robinson, also known as Linda Robinson-Pardo; Pardo Family Holdings Ltd., a Gibraltar corporation; Pardo Family Trust, a trust domiciled in Gibraltar; Pardo Family Holdings US LLC, a Delaware limited liability company; Paget Holdings Inc., a Texas corporation; and Paget Holdings Ltd., a St. Vincent partnership.

The introductory section of the amended complaint contains a paragraph describing the allegedly "fraudulently inflated arbitrage." The paragraph reads:
It was a further part of the scheme to defraud the investors that, in or about January 1999, Pardo and the Defendant Executives hired a medical doctor, Donald Cassidy ("Cassidy"), with no actuarial experience or training, and no experience in rendering life expectancies, to prepare a life expectancy ("LE"), which Pardo and his team used to market the fractional interests to investors. Life Partners typically purchased those policies on which a significant discrepancy existed between the independent LE and the Cassidy LE, so that it could create a fraudulently inflated arbitrage between the low price (based on the longer LE) it paid for the policy and the higher price (based on the shorter Cassidy LE) at which it sold investment contracts to investors.
The factual background section of the amended complaint mentions an article that appeared in The Wall Street Journal on December 21, 2010 about the activities of Life Partners. Exhibits to the amended complaint show e-mail correspondence between Pardo and Journal reporters Mark Maremont and Leslie Scism that preceded publication of the article.

The amended complaint has 12 counts. There are two counts of actual fraudulent transfer, two counts of constructive fraudulent transfer, one count of preferences, one count of fraud, one count of breach of fiduciary duty, one count of alter ego and/or sham to perpetrate a fraud, one count of unjust enrichment and constructive trust, one count of RICO [Racketeer Influenced and Corrupt Organizations Act], one count of disallowance of defendants' claims, and one count of equitable subordination.

Trustee Moran seeks return of funds from the defendants, actual damages, consequential damages, exemplary damages, pre-judgment interest, and post-judgment interest. He also seeks attorneys' fees and costs.

The Complaint against Licensees
On October 28, 2015, Trustee Moran filed a complaint against 30 licensees. He seeks recovery of what he alleges were excessive fees and commissions received from Life Partners. (See Moran v. Sundelius, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-04087.)

The introductory section of the complaint against the licensees describes the alleged scheme to defraud investors. Here is the final paragraph of that section:
Life Partners and its Licensees perpetrated the fraud on the Investors by (1) accepting fees and commissions well in excess of industry norms and often exceeding the true value of the underlying life settlement policy; (2) misrepresenting the nature and accuracy of the life expectancy of the insured, including concealing the existence of longer estimated life expectancies; and (3) misrepresenting the likely returns on investments, among other things.
The "factual background" section of the complaint describes, among other things, the procedural history of the bankruptcy case, how Life Partners acquired policies, contractual arrangements with investors, the network of licensees, and the undisclosed and allegedly exorbitant fees and commissions received by licensees. The complaint also alleges wrongful conduct by the licensees.

The licensee defendants, mostly from Texas, are the individuals and firms that received the largest amount of fees and commissions from 2008 through February 2015. The total of the fees and commissions received by the licensee defendants is $91.7 million, which is 56 percent of all the fees and commissions received during that period by the entire network of Life Partners licensees. Trustee Moran seeks to recover the $91.7 million for the benefit of the investors, as well as attorneys' fees and costs. Here is the list of licensee defendants, with amounts shown in millions of dollars:
James Sundelius (TX) 13.1
B G & S Management Consultants (TX) 10.4
Life Insurance Settlements Inc (FL) 7.8
Life Settlement Exchange LLC (TX) 7.8
American Safe Retirements LLC (TX) 6.8
Advanced Settlements LLC (FL) 6.0
Tolleson Investments LLC (TX) 4.3
Fred A. Cowley (TX) 4.2
Security Reserve Financial Inc (TX) 3.0
Gallagher Financial Group (TX) 2.3
ASR Alternative Investments LP (TX) 2.2
JL Providers Inc (NY) 2.1
New Asset Advisors LLC (TX) 1.9
Frank W. Bice (TX) 1.9
Edward G. Burford Corp (TX) 1.9
Trinity Financial Services LLC (FL) 1.7
Sun Safety Inc (TX) 1.6
Abundant Income LLC (TX) 1.6
Life Distributors of America LLC (CA) 1.5
Faye Bagby (TX) 1.5
Ella Oliver (TX) 1.4
Lakeside Equity Partners Inc (TX) 1.3
Wealthstone Financial (TX) 1.1
Falco Group LLC (TX) 1.0
Alpha & Omega Global Risk Management LP (NV) 1.0
Rangetree Strategies LLC (CA) 0.9
Mark McKay (TX) 0.8
Kainos Asset Management (TX) 0.3
Life Strategies LLC (TX) 0.2
H. Peyton Inge (TX) 0.1
The complaint has five counts. There are two counts of actual fraudulent transfer, two counts of constructive fraudulent transfer, and one count of claim for contribution from the licensee defendants for their participation in and facilitation in the scheme to defraud Investors.

General Observations
The trials in the two adversary proceedings are tentatively scheduled for March and April 2016, respectively, before the bankruptcy court judge. From what I have heard about the trials in adversary proceedings in bankruptcy cases, they are relatively brief and disposed of fairly quickly. Whether that will happen here remains to be seen.

Available Material
I am offering a complimentary 78-page PDF consisting of the 62-page text of Trustee Moran's amended complaint against Pardo and others, 14 pages of exhibits showing correspondence in 2010 between Pardo and two reporters for The Wall Street Journal, and a 2-page cover sheet. Send an e-mail to jmbelth@gmail.com and ask for the amended complaint in Moran v. Pardo.

I am also offering a complimentary 51-page PDF consisting of the 37-page text of Trustee Moran's complaint against the licensees, a 1-page exhibit showing the payments to the licensee defendants, and 13 pages of exhibits showing samples of licensee agreements. Send an e-mail to jmbelth@gmail.com and ask for the complaint in Moran v. Sundelius.

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Friday, November 6, 2015

No. 125: Backdated Capital Contributions—the NAIC Response to Questions

In No. 123 (October 27, 2015), I discussed a capital contribution shown in the statutory statement of Senior Health Insurance Company of Pennsylvania (SHIP) as of December 31, 2014. The contribution was in the form of a $50 million surplus note issued February 19, 2015. Thus the issue date of the note was 50 days after the "as of" date of the statement. SHIP filed the statement with the Pennsylvania Insurance Department in a timely manner on March 2, 2015, or 11 days after the note was issued.

I said I would send No. 123 to the National Association of Insurance Commissioners (NAIC), I showed four questions about backdated capital contributions, and said I would report the responses. The communications department of the NAIC responded one week later.

The First Question
First, I asked whether the NAIC agrees with me that a backdated capital contribution falsely portrays the financial condition of a company as of the statement date. I also asked for an explanation if the NAIC does not agree with me. The NAIC did not answer yes or no to the basic question, but provided this explanation:
The statutory financial statements are the reporting mechanism in which state insurance regulators assess the financial condition of the insurance entities subject to their regulation. Pursuant to the Preamble of the NAIC Accounting Practices and Procedures manual, the primary responsibility of each state insurance department is to regulate insurance companies in accordance with state laws with an emphasis on solvency for the protection of policyholders.
The NAIC went on to explain surplus notes, although I had not asked for an explanation of surplus notes. Next, referring to Statutory Accounting Principles (SAP) and Statements of Statutory Accounting Principles (SSAPs), the NAIC said:
Ensuring timely receipt of funds, prior to the issuance of the statutory financial statements, which are first committed to policyholders and other claimants, should likely be perceived as an appropriate regulatory action consistent with the responsibility to provide protection to policyholders.

For SAP purposes, this approach is consistent with a Type 1 subsequent event under SSAP No. 9, as the conditions warranting the need for a surplus note existed as of the financial statement date. Furthermore, actions are perceived to be in place prior to the statement date to develop the note, obtain commissioner approval, and obtain funds from the actual issuance of the note timely to receive the funds prior to the issuance date of the statutory financial statement.
The Second Question
Second, I said SSAP No. 9 and SSAP No. 72 were effective January 1, 2001, and asked when the NAIC began to allow backdated capital contributions. In response, the NAIC mentioned Financial Accounting Standards (FAS), the Financial Accounting Standards Board (FASB), the FASB Emerging Issues Task Force (EITF), the American Institute of Certified Public Accountants (AICPA), and Generally Accepted Accounting Principles (GAAP). The NAIC said:
The guidance reflected in SSAP No. 9 is adopted from FASB. The Statutory Accounting Principles (E) Working Group [of the NAIC] adopted SSAP No. 9 to be effective January 1, 2001, as part of the original codification of SAP. The original guidance was adopted to be consistent with the AICPA Statement on Auditing Standards No. 1, Section 560—Subsequent Events. In 2009, FASB issued FAS 165, Subsequent Events, and revisions were reflected in SSAP No. 9 to reflect the adoption of this guidance. The adoption of FAS 165 should not have resulted in significant changes in the subsequent events that an entity reports, through either recognition or disclosure in the financial statements. The revisions adopted from FAS 165 included guidance to ensure assessment of subsequent events through the date the financial statements are issued, or when financial statements are available to be issued.

The Statutory Accounting Principles (E) Working Group [of the NAIC] adopted the guidance in SSAP No. 72 to be effective January 1, 2001, as part of the original codification of SAP. The referenced paragraph for capital contributions was included in the original adoption after considering GAAP guidance.

Although the SAP guidance in SSAP No. 72 provides an explicit direction regarding these notes or other receivables as Type 1 subsequent events, the guidance was developed after considering EITF 85-1 (currently reflected in 505-10-45 of the FASB Codification). The EITF 85-1 GAAP guidance is technically rejected in SSAP No. 72, but in Issue Paper No. 72, this rejection is noted as EITF 85-1 generally requires these contributions to be recorded as a debit to equity instead of an asset, but could allow for such notes to be recorded as assets if collected in cash before the financial statements are issued.

For SAP purposes, and the consistency concept, the statutory accounting guidance is explicit that such notes are admitted assets if they are satisfied by receipt of cash or readily marketable securities prior to the filing of the statement. If the notes or other receivables are not satisfied, they are nonadmitted. Furthermore, the domiciliary commissioner must approve the capital contribution under SSAP No. 72 and the cash or securities must be infused prior to the filing of the statutory annual financial statements.
The Third Question
Third, I asked why the NAIC allows backdated capital contributions. The NAIC said:
The NAIC does not establish statutory accounting provisions. The guidance reflects the decisions of the Statutory Accounting Principles (E) Working Group [of the NAIC]. See questions 1 and 2 regarding the ultimate objective of the regulators in providing protections to policyholders, the background for the guidance, and related FASB guidance.
The Fourth Question
Fourth, I asked whether banks and other regulated financial institutions are allowed to accept backdated capital contributions. The NAIC said it "cannot advise on specific rules regarding these institutions."

The 1988 Executive Life Incident
Chapter 7 of my new book, The Insurance Forum: A Memoir, is entitled "The Collapse of Executive Life." On page 84 in that chapter, I discussed a backdated capital contribution to Executive Life Insurance Company (ELIC) from ELIC's parent company. The transaction was in the form of a $170 million surplus note that was reflected in ELIC's statutory statement as of December 31, 1987. However, the note was not executed until March 7, 1988. In response to my inquiry to ELIC, the company's general counsel said the
subject transactions were given effect for accounting purposes at year end 1987. They were given such effect because under the circumstances present, applicable statutory accounting principles so permit.
Back in 1988 I called that explanation nonsense. I said the company officers who sign the statutory annual statement swear the statement is "a full and true statement of all the assets and liabilities and of the condition and affairs of the said insurer as of the thirty-first day of December last." The backdated capital contribution was one of the factors that caused me to view ELIC as insolvent three years before the company failed.

The 2008 IndyMac Incident
On May 21, 2009, the Office of Inspector General (OIG) of the U.S. Department of the Treasury issued an "Audit Report" entitled "Safety and Soundness: OTS [Office of Thrift Supervision] Involvement with Backdated Capital Contributions by Thrifts." The report grew out of a May 2008 capital contribution from IndyMac's parent company backdated to March 31, 2008. The effect of the transaction "was that IndyMac was able to maintain its well capitalized status, and avoid the requirement in law to obtain a waiver from FDIC [Federal Deposit Insurance Corporation] to accept brokered deposits." In the report, OIG "reviewed the backdating of capital contributions at IndyMac and five other thrifts and concluded that "the backdating of these transactions was inappropriate under GAAP for all six thrifts."

Years before the financial crash of 2008, American International Group selected OTS to be its regulator. Today, as a result of investigations conducted in the wake of the crash, OTS no longer exists.

Evolution of the Jurat
At the bottom of the first page of the statutory annual statement form promulgated each year by the NAIC is a sworn, notarized statement called a "jurat." As a result of No. 123 and the NAIC's responses to my questions, I became interested in the evolution of the jurat. First, I looked at the 1960 statutory statement. Here is the language of the jurat:
[The officers of this company, with their names and titles shown in the jurat itself], being duly sworn, each for himself deposes and says that they are the above described officers of the said insurer, and that on the thirty-first day of December last, all of the herein described assets were the absolute property of the said insurer free and clear from any liens or claims thereon, except as herein stated, and that this annual statement, together with related exhibits, schedules and explanations therein contained, annexed or referred to are a full and true statement of all the assets and liabilities and of the condition and affairs of the said insurer as of the thirty-first day of December last, and of its income and deductions therefrom for the year ended on that date, according to the best of their information, knowledge and belief, respectively.
Second, I looked at the jurat in the statutory statement for 1999. By that time, the jurat had been modified. Near the end, this language was inserted beginning with the words "on that date" and ending with the words "according to":
on that date, and have been completed in accordance with the NAIC annual statement instructions and accounting practices and procedures manuals except to the extent that: (1) state law may differ; or, (2) that state rules or regulations require differences in reporting not related to accounting practices and procedures, according to
By 2014, the jurat had been modified to incorporate the names of the NAIC Annual Statement Instructions and Accounting Practices and Procedures manual. Also, two sentences had been added at the end of the jurat relating to electronic filing of the annual statement.

General Observations
The NAIC did not use the word "backdated" in its responses. Perhaps the NAIC views the word as pejorative.

It is interesting that the "NAIC does not establish statutory accounting provisions" even though "guidance reflects the decisions of" an NAIC working group. I do not know whether the NAIC membership as a whole, or the NAIC Executive Committee, or any other NAIC body signs off on the work of the Statutory Accounting Principles (E) Working Group of the NAIC.

I reviewed several FASB documents mentioned in the NAIC's responses. I believe that backdated capital contributions were not among the items FASB had in mind when it talked about "subsequent events." There were many examples of subsequent events, but backdated capital contributions were not among them.

In No. 123, I expressed dislike for backdating because it falsely portrays a company's year-end financial condition. I still believe that backdated capital contributions are contrary to accounting principles, and that insurance companies should not be permitted to use them.

Available Material
I am offering a complimentary 34-page PDF of the 2009 Treasury OIG Audit Report on Backdated Capital Contributions. Send an e-mail to jmbelth@gmail.com and ask for the 2009 Treasury OIG Audit Report.
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Monday, November 2, 2015

No. 124: Annuity Sales Incentives—Results of the Investigation by U.S. Senator Elizabeth Warren

On April 28, 2015, U.S. Senator Elizabeth Warren (D-MA), the Ranking Member of the Subcommittee on Economic Policy of the Committee on Banking, Housing, and Urban Affairs, sent letters to 15 major issuers of annuities seeking "information on rewards and incentives offered by your company to brokers and dealers who sell annuities to families and small investors." The companies were AIG, Allianz, American Equity, Athene, AXA, Jackson National Life, Lincoln Financial, MetLife, Nationwide, New York Life, Pacific Life, Prudential, RiverSource, TIAA-CREF, and Transamerica. In No. 97, posted May 4, I wrote about Senator Warren's investigation.

Results of the Investigation
On October 27, Senator Warren released a report indicating that all 15 companies responded at least in part and describing the results of the investigation. The report is entitled "Villas, Castles, and Vacations: How Perks and Giveaways Create Conflicts of Interest in the Annuity Industry." Here are some "key findings" mentioned in the executive summary:
  • The majority of companies admitted to providing rewards and inducements, such as expensive vacations and other prizes, to annuity agents in exchange for sales.
  • Companies also create conflicts of interest by offering perks and inducements to annuity sales agents through third party marketing organizations.
  • Current disclosure rules are inadequate to ensure that customers are informed about the incentives agents receive for selling them specific financial products.
  • Existing rules and regulations to deter conflicts of interest are completely inadequate.
The report includes an introduction, findings, and policy options to address conflicts of interest in the sale of annuities. The report mentions the draft of a rule proposed by the U.S. Department of Labor (DOL). Here is the conclusion in the report:
This investigation reveals that companies representing tens of billions of dollars in annuity sales are allowed to offer and do offer a variety of kickbacks, from lavish vacations to golf outings to gift cards to iPads, either directly to sales agents or indirectly to these agents via third-party marketing organizations, in exchange for selling a specific company's products. Disclosure of these perks and payments to consumers is inadequate, and even with regulations designed to curb these kinds of payments, some companies have identified and taken advantage of numerous loopholes in those rules so they can continue to offer these kickbacks.
The perks offered by companies to agents create a conflict of interest that result in consumers—many of whom are at or near retirement age—receiving advice about investments in annuities that may not match their needs. The annuity industry is not the only industry affected by these conflicts. Across the financial industry, conflicts cost American investors an estimated $17 billion in retirement savings every year. New regulations are needed to protect consumers and end this financial conflict of interest.
My Public Records Requests
In May 2015, I learned that the New York Department of Financial Services (DFS) had asked the 15 companies for copies of their responses to Senator Warren's letters. On May 29, I filed with DFS, pursuant to the New York Freedom of Information Law, a request for copies of the responses. On June 25, DFS said it needed additional time to respond to my request because the documents "require specialized review." In response to my inquiries, DFS said all 15 companies had filed copies of their responses, and DFS intended to respond to my request by August 25. On October 28, having heard nothing further, I contacted DFS again. I have not yet received a response.

When this item is posted, I will send it to Senator Warren's office. At the same time, pursuant to the federal Freedom of Information Act, I will file with her office a request for copies of the 15 companies' responses.

General Observations
In No. 97, I expressed the opinion that the widespread use of annuity sales incentives is a serious problem. I also expressed disappointment at the comments made in April by the American Council of Life Insurers (ACLI) and the National Association of Insurance Commissioners (NAIC) suggesting that existing laws and regulations are adequate. According to the recent Warren report, at least two of the companies made similar comments in their responses. The report does not identify those companies.

Available Material
I am offering a complimentary 12-page PDF containing the October 2015 report on Senator Warren's investigation. Also, the complimentary 19-page PDF offered in No. 97 is still available; the package includes a sample of Senator Warren's letters to the 15 companies, examples of annuity sales incentives, a press release about the Warren investigation, the ACLI and NAIC comments about the investigation, and information about the DOL proposed rule. Send an e-mail to jmbelth@gmail.com and ask for the October 2015 Warren report, the May 2015 package about the Warren investigation, or both.

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Tuesday, October 27, 2015

No. 123: Surplus Notes—Another Dimension of a Bizarre Financial Instrument

Readers of The Insurance Forum over the years, and readers of chapter 25 of my new book entitled The Insurance Forum: A Memoir, know I take a dim view of surplus notes. Those bizarre financial instruments represent debt, but the insurance company that borrows the money is not required to establish a liability. Thus the amount borrowed is treated as an asset and increases the company's surplus.

Most of the insurance company executives who decide to issue surplus notes, and most of the state insurance regulators who approve the issuance of surplus notes, will be long gone when the debt comes due and has to be repaid. That is just one of the reasons why I call surplus notes a classic example of a WWNBA transaction: We Will Not Be Around.

Another Dimension of Surplus Notes
For several years, Senior Health Insurance Company of Pennsylvania (SHIP) has been running off the long-term care insurance business of a former subsidiary of what at the time was Conseco, Inc. In August 2015, a reader sent me—out of the blue—SHIP's statutory statement as of December 31, 2014. My reader did not say why he sent me the statement, but he may have done so because he was aware of my keen interest in surplus notes.

The statement reflects the recent issuance of a $50 million surplus note. As indicated in the "Notes to Financial Statements," the interest rate on the surplus note is 6 percent, and the maturity date is April 1, 2020. Thus the maturity date is five years away, in contrast to the 20-year or 30-year maturities of most surplus notes. SHIP issued the surplus note to (in other words, borrowed the money from) Beechwood Re Investments, LLC, a unit of Beechwood Bermuda International, Ltd. (Hamilton, Bermuda).

The big surprise was that the surplus note was issued February 19, 2015, seven weeks after the "as of" date of the 2014 statement. The statement, which had to be filed around March 1, 2015, did not show the $50 million surplus note as an asset; instead, the statement showed a $50 million surplus note receivable as an asset, which in turn increased SHIP's surplus by $50 million.

I asked Patrick Carmody, senior vice president and general counsel of SHIP, whether the Pennsylvania Insurance Department had approved the inclusion of the surplus note receivable as an asset in the 2014 statement. Carmody graciously provided a copy of a letter dated February 12, 2015, to Brian Wegner, president and chief executive officer of SHIP, from Stephen Johnson, deputy insurance commissioner in the Pennsylvania Department. Johnson granted SHIP's request to issue the surplus note no later than February 15, 2015. (SHIP missed that date by four days.) Johnson's letter also said:
Additional approval is granted for the transaction to be booked with a December 31, 2014 effective date, in accordance with SSAP 72, paragraph 8. As required by SSAP 72, paragraph 8, the company must submit to the Department evidence that the surplus note receivable was collected in cash prior to filing the company's financial statement as of December 31, 2014. The transaction must also be disclosed as a Type I subsequent event, in accordance with SSAP 9, in the company's financial statement as of December 31, 2014. To the extent any of the surplus note receivable is not collected prior to the filing of the financial statement as of December 31, 2014, it shall be non-admitted.
SSAPs (Statements of Statutory Accounting Principles) are promulgated by the National Association of Insurance Commissioners (NAIC). I wondered about the exact language of the two SSAPs referred to in the Johnson letter. Here is paragraph 8 of SSAP No. 72:
Notes or other receivables received as additional capital contributions satisfied by receipt of cash or readily marketable securities prior to the filing of the statutory financial statement shall be treated as a Type I subsequent event in accordance with SSAP No. 9 and as such shall be considered an admitted asset based on the evidence of collection and approval of the domiciliary commissioner. To the extent that the notes or other receivables are not satisfied, they shall be nonadmitted.
Paragraph 3 of SSAP No. 9 says "material subsequent events" are either Type I "recognized subsequent events" or Type II "nonrecognized subsequent events." Here are the definitions:
Type I: Events or transactions that provide additional evidence with respect to conditions that existed at the date of the balance sheet, including the estimates inherent in the process of preparing financial statements.
Type II: Events or transactions that provide evidence with respect to conditions that did not exist at the balance sheet date but arose after that date.
SHIP's Explanation of the Problem
SHIP's 2014 statement shows a net loss of $56 million in 2014, compared with a $3 million net loss in 2013. When I asked Carmody for the Department's letter, I also inquired about the primary drivers of the relatively large net loss in 2014. The response, from a senior paralegal writing on behalf of Carmody, is somewhat technical. However, I show it here for those readers who will understand it:
2014 results were impacted by reserves [sic] changes in the Company's "TLI" book of business. Actual-to-Expected ratios did not decline as much as expected and reserves were adjusted accordingly. Those ratios are showing signs of declining in 2015. Financial projections continue to show lifetime solvency, therefore the Company is continuing to refrain from seeking rate increases; its mission is to serve the interests of the policyholders, not to accumulate surplus.
SHIP's Risk-Based Capital
SHIP's risk-based capital (RBC) numbers show what may have prompted the issuance of the surplus note. Here is the relationship between each RBC "level" and company action level: company action level is 100 percent, regulatory action level is 75 percent, authorized control level is 50 percent, and mandatory control level is 35 percent.

SHIP's total adjusted capital as shown in the 2014 statement, which was filed around March 1, 2015, was $118 million. Its company action level was $109 million. Therefore SHIP's RBC ratio was 108 percent ($118 million divided by $109 million, with the quotient expressed as a percentage), and was slightly above company action level of 100 percent.

Consider the situation, however, without the $50 million capital contribution that resulted from showing the surplus note receivable as an asset. SHIP's total adjusted capital would have been $68 million ($118 million minus $50 million). Therefore SHIP's RBC ratio would have been 62 percent ($68 million divided by $109 million, with the quotient expressed as a percentage). Thus SHIP's RBC ratio would have been below regulatory action level of 75 percent but above authorized control level of 50 percent.

General Observations
It is likely that SHIP discovered—while preparing its 2014 statement early in 2015—that its RBC ratio was below regulatory action level. That normally would trigger a regulatory investigation. To avoid such an investigation, SHIP needed what was in essence a backdated contribution to its total adjusted capital to improve its RBC ratio.

It is also likely that SHIP discussed the matter with the Pennsylvania Department immediately upon discovering the problem. The Department may have suggested the idea of issuing a surplus note and showing the "surplus note receivable" as an asset. An alternative would have been for Beechwood to backdate the surplus note to December 31, 2014. However, it is possible that state insurance regulators prefer an "in essence" backdated capital contribution rather than a truly backdated capital contribution. I dislike backdating in any form, because it falsely portrays a company's year-end financial condition.

When this item is posted, I will send it to the NAIC and ask the following questions. (1) Do you agree with me that a backdated capital contribution falsely portrays the financial condition of a company as of the statement date? If you disagree with me, please explain. (2) When did you begin allowing backdated capital contributions (the two SSAPs discussed here were effective January 1, 2001)? (3) Why do you allow backdated capital contributions? (4) Are banks and other regulated financial institutions allowed to accept backdated capital contributions? Also, I will tell the NAIC that I will report its responses in a future blog post.

Available Material
For readers who want to see the relevant items in SHIP's 2014 annual statement, I am offering a complimentary 51-page PDF of the statement. E-mail jmbelth@gmail.com and ask for SHIP's 2014 statement. The relevant items are the sworn statement at the bottom of page 1, lines 25 and 2501 on page 2, line 32 on page 3, lines 35 and 48 on page 4, paragraph 13(11) on page 19.12 (page 30 of the PDF), and lines 30 and 31 on page 22 (page 45 of the PDF).

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Thursday, October 22, 2015

No. 122: Risk-Based Capital—A Classic Example of the Perennial Confusion over the Denominator of the Ratio

On October 13, 2015, MetLife, Inc. (NYSE:MET) filed an 8-K (material event) report with the Securities and Exchange Commission. The report provides a classic example of the perennial confusion over the denominator used in calculating risk-based capital (RBC) ratios.

The Nature of the Confusion
An RBC ratio is a comparison of two numbers. The numerator of the ratio is "total adjusted capital" (TAC), which is the company's net worth with a few adjustments. The denominator of the ratio, in theory, could be any of the several RBC "levels." However, companies invariably use either "company action level" (CAL) or "authorized control level" (ACL). CAL is exactly twice ACL.

The responsibility for the confusion rests with the National Association of Insurance Commissioners, which made a politically motivated change when the RBC system was adopted in the early 1990s. I discussed the problem on pages 308-310 in my recently published book, The Insurance Forum: A Memoir. I concluded the discussion there by saying that one thing is certain: whenever an RBC ratio is mentioned, it is essential to indicate what RBC level was used as the denominator.

The Language in the 8-K Report
In the recent 8-K report, MetLife said its "Combined RBC Ratio" at the end of 2014 was 398 percent "instead of in excess of 400% as previously reported in the 2014 10-K and 410% as previously communicated on the Company's first quarter 2015 earnings call." I do not know what was said on the earnings call, but the recent 8-K report did not say what denominator was used in calculating the combined RBC ratio.

To find out, I reviewed MetLife's 10-K report for the year ended December 31, 2014. I found the answer buried on page 299 of the 361-page 10-K report. The denominator was CAL.

The Language in the 10-K Report
One paragraph in the 10-K report explains the RBC system. It is necessary to read the entire paragraph carefully to learn that CAL was the denominator used in the combined RBC ratios mentioned in the recent 8-K report. Here is the full paragraph:
The states of domicile of MetLife, Inc.'s U.S. insurance subsidiaries imposes [sic] risk-based capital ("RBC") requirements that were developed by the National Association of Insurance Commissioners ("NAIC"). American Life does not write business in Delaware or any other domestic state and, as such, is exempt from RBC requirements by Delaware law. Regulatory compliance is determined by a ratio of a company's total adjusted capital, calculated in the manner prescribed by the NAIC ("TAC") to its authorized control level RBC, calculated in the manner prescribed by the NAIC ("ACL RBC"). Companies below specific trigger levels or ratios are classified by their respective levels, each of which requires specified corrective action. The minimum level of TAC before corrective action commences is twice ACL RBC ("Company Action RBC"). While not required by or filed with insurance regulators, the Company also calculates an internally defined combined RBC ratio ("Combined RBC Ratio"), which is determined by dividing the sum of TAC for MetLife, Inc.'s principal U.S. insurance subsidiaries excluding American Life, by the sum of Company Action RBC for such subsidiaries. The Company's Combined RBC Ratio was in excess of 400% for all periods presented. In addition, all non-exempted U.S. insurance subsidiaries individually exceeded Company Action RBC for all periods presented.
An Omission from the 10-K
MetLife did not disclose in the 2014 10-K report the CAL RBC ratios for its principal U.S. insurance subsidiaries. To calculate the figures, it is necessary to obtain—from the statutory annual statement for each subsidiary—TAC and ACL, multiply ACL by two to determine CAL, divide TAC by CAL, and express the quotient as a percentage.

Although the combined CAL RBC ratio was 398 percent, according to the recent 8-K report, there may be a wide range of CAL RBC ratios among MetLife's principal U.S. subsidiaries. To get an inkling of the range, I reviewed the year-end 2014 statutory annual statements of three subsidiaries. Here are the TAC, CAL, and CAL RBC ratios:
Company
TAC
CAL
Ratio
             
(in millions)
(in millions)
(%)
---------------
---------------
-------
MetLife Ins Co USA
$6,710
$1,527
439
Metropolitan Life Ins Co
17,367
4,576
380
Metropolitan Tower Life Ins Co
836
230
363
     
----------
---------
-------
Three Companies Combined
$24,913
$6,333
393
The CAL RBC ratios for the three subsidiaries are all comfortably in the adequate zone; that is, they are all well above the CAL RBC ratio of 125 percent, which is the "red flag level." Thus no type of corrective action is necessary.

Also, as indicated in the table above, I calculated the combined CAL RBC ratio for the three subsidiaries, using the methodology described in the quoted paragraph from the 2014 10-K report. The combined CAL RBC ratio for the three subsidiaries is 393 percent, which is close to the 398 percent combined CAL RBC ratio cited in the recent 8-K report for all the principal U.S. subsidiaries of MetLife other than American Life.

Availability of My New Book
Ordering information for The Insurance Forum: A Memoir is available at www.theinsuranceforum.com. The book is also available from Amazon.

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Monday, October 19, 2015

No. 121: Cost-of-Insurance Increases in the News

In 2003 I wrote extensively in The Insurance Forum about cost-of-insurance (COI) increases imposed by an operating subsidiary of Conseco, Inc. on owners of certain policies Conseco had acquired from other companies. Later I wrote extensively in the Forum and on my blog about COI increases imposed by operating subsidiaries of The Phoenix Companies, Inc. on owners of certain policies involved in stranger-originated life insurance (STOLI) transactions. Recently COI increases appear to be spreading among other companies.

Conseco's COI Increases
The Conseco story began in 1992, when Massachusetts General Life Insurance Company and Philadelphia Life Insurance Company imposed COI increases on certain universal life policies. A policyholder sued the companies alleging they had breached their contracts. A federal judge ruled the companies had breached their contracts, the case was converted to a class action, the class was certified, the case was settled, and the companies rolled back the COI increases. Conseco acquired Massachusetts General and Philadelphia Life in the late 1990s. The unanswered question is whether Conseco officials were aware that the policies they acquired had been significantly underpriced for sales purposes and were a disaster waiting to happen.

In 2003 Conseco launched an assault on its policyholders by imposing sharp COI increases. One example: the COI on a $1,000,000 policy issued in 1988 to a man aged 52 increased from $373.78 per month to $1,484.05 per month. Another example: the COI on a $250,000 policy issued in 1987 to a man aged 56 increased from $26.65 per month to $349.81 per month. Litigation ensued. Eventually the cases were settled, and the policyholders were awarded substantial benefits.

My most extensive material on Conseco's COI increases appeared in the 16-page December 2003 issue of the Forum. The issue was devoted in its entirety to the Conseco story.

Phoenix's COI Increases
In 2010 Phoenix imposed substantial COI increases on the owners of policies of the type used in STOLI transactions. The New York Department of Insurance received complaints and, after an investigation, ordered Phoenix to rescind the COI increases—but only for New York policyholders. Phoenix complied.

In 2011 Phoenix imposed new increases on New York policyholders, and the Department did not object. Meanwhile, insurance regulators in California and Wisconsin ordered Phoenix to rescind the 2010 increases, but Phoenix refused to comply. California dropped the matter, but Wisconsin began legal proceedings that are yet to be finally resolved.

Phoenix was also the target of several lawsuits relating to the COI increases. In May 2015 Phoenix moved to settle two long-standing class action lawsuits just before the trial. The settlement was later approved by the court, and has been completed. Also, Phoenix is in the process of settling some of the other cases.

My major articles in the Forum about Phoenix's COI increases are in the October 2012, December 2012, and November 2013 issues. My three blog posts about Phoenix's COI increases are No. 9 (November 21, 2013), No. 26 (January 29, 2014), and No. 103 (June 15, 2015).

COI Increases at Other Companies
Recently I have learned of announcements by several other companies who are imposing COI increases. The announcements are vague about the magnitude of the increases, and about the reasons for the increases. However, it appears at least some increases will be substantial, and at least some increases are caused by increased prices of reinsurance or low market interest rates. Furthermore, it appears at least some increases apply to policies of $1 million or more issued at ages 70 and above. Among the companies imposing COI increases are AXA Equitable Life, Banner Life, Security Life of Denver, Transamerica Life, and William Penn Life.

Nassau's Acquisition of Phoenix
On September 29, 2015, Phoenix announced it was being acquired by Nassau Reinsurance Group Holdings L.P. for $37.50 per share, or an aggregate of $217.2 million. The purchase price represents a 188 percent premium over Phoenix's closing stock price of $13.03 on September 28. Nassau is backed by Golden Gate Capital, a private investment firm. After completion of the acquisition—expected by early 2016—Nassau will contribute $100 million of new capital into Phoenix, which will be a privately held, wholly owned subsidiary of Nassau.

General Observations
I mention Nassau's acquisition of Phoenix here because I think there is a connection between that development and the settlements of the lawsuits against Phoenix relating to the COI increases. The most important settlement, which I discussed in No. 103, occurred almost literally on the courthouse steps just before the trial was to begin. Phoenix had been fighting those lawsuits for years, and also had been fighting to keep confidential many of the documents filed in court in those cases. A few of those documents, however, have been unsealed, as discussed in No. 26. I think Nassau probably had no interest in acquiring a company bogged down in litigation over COI increases.

Available Material
I am offering a complimentary five-page PDF containing the Phoenix press release. E-mail jmbelth@gmail.com and ask for the Phoenix press release dated September 29, 2015. Ordering information for back issues of the Forum is available at www.theinsuranceforum.com.

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Wednesday, October 14, 2015

No. 120: The Federal Insurance Office Expresses Concern about Principles-Based Reserving and Captive Reinsurance Transactions

In September 2015, the Federal Insurance Office (FIO) of the U.S. Department of the Treasury issued its Annual Report on the Insurance Industry. The FIO expresses concern about principles-based reserving (PBR) and the related subject of captive reinsurance (sometimes called "shadow insurance"). Here are three excerpts from the Report:
  • Wholesale adoption of PBR continues to raise concerns, including potential overreliance on an insurer's internal modeling and a shortage of resources and expertise on state insurance regulatory staffs.
  • State insurance regulators are developing a framework for consistent standards for reinsurance captives that would allow lower-quality assets to support the so-called "redundant reserves" relating to term life and universal life with secondary guarantee products. The Report outlines FIO's concerns about the scope and yet-to-be-determined specific details of the framework, including that reinsurance captives will continue to be established in states competing to serve in that capacity.
  • While disclosure requirements of life insurers pertaining to cessions of reinsurance captives of reserves related to term and universal life with secondary guarantee products has improved, state insurance regulators do not require public disclosure of the financial statements of reinsurance captives.
The Report is in the form of a 105-page PDF. The first two excerpts above are on page 15 of the PDF, and the third is on page 67. The full discussions of PBR and captive reinsurance are on pages 65-68.

Presumably the discussions of PBR and captive reinsurance are of great interest to members of the American Council of Life Insurers and members of the National Association of Insurance Commissioners. However, I am not aware of any comments on those topics, or about the Report generally, from either of those organizations.

General Observations
I agree with the first excerpt above. I believe that adequate staffing in state insurance departments to handle PBR is not possible.

I also agree with the second excerpt above. The way it is worded in the Report is a polite way of describing what has become a race to the bottom in terms of the rigor of state regulation of insurance companies.

I agree with the third excerpt as far as it goes. However, it is not merely the lack of a requirement for public disclosure of the financial statements of reinsurance captives that concerns me. Rather, I am concerned about the lack of a requirement for public disclosure of the details of the phony assets carried by reinsurance captives. Among those assets are parental guarantees, contingent notes, credit linked notes, variable funding notes, note guarantees, and letters of credit.

If there were rigorous disclosure of the details of those assets, I think regulators would be so embarrassed that they would not approve such assets. Indeed, I think promoters would not even try to get such assets approved. As I have said previously, captive reinsurance is a shell game, and no shell game can survive disclosure.

Available Material
I am offering a complimentary 105-page PDF containing the 2015 Report of the FIO. E-mail jmbelth@gmail.com and ask for the FIO Report issued in September 2015.

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Wednesday, October 7, 2015

No. 119: Robert D. May, CLU—A Memorial Tribute

Robert D. May, CLU, 1994
Robert D. May, CLU, of Bloomington, Indiana, died June 30, 2015, at age 88. Bob was in the life insurance business for more than 50 years and retired several years ago. When I met him in the 1960s, he was an agent for Acacia Mutual Life Insurance Company. His favorite life motto was a quote that has been attributed to Theodore Roosevelt: "People don't care how much you know until they know how much you care."

I became acquainted with Bob shortly after I arrived in Bloomington. The School of Business at Indiana University did not offer preparatory courses for examinations leading to the Chartered Life Underwriter (CLU) designation. However, when the Bloomington chapter of what was then the National Association of Life Underwriters asked me to conduct an off-campus class for aspiring CLUs, I agreed to do so. Bob was in my first group of about ten agents who enrolled in the class, and he was the first of the group to receive the CLU designation. He and I became good friends.

One of Bob's favorite stories involved Elvis J. Stahr, Jr., who served as president of Indiana University from 1962 to 1968. (I always felt an affinity for Stahr because he and I joined Indiana University effective the same day—July 1, 1962.) Bob said he received a telephone call from Stahr out of the blue. Stahr had been invited to join Acacia's board of directors. According to the company's rules, however, a board member had to be an Acacia policyholder. So Stahr had to buy an Acacia policy right away. Knowing Bob, I am sure he did not allow Stahr to buy the smallest possible policy.

When I launched The Insurance Forum at the end of 1973, Bob subscribed immediately, and he remained a subscriber continuously until I closed down the Forum at the end of 2013. A close friend of mine in Bloomington was the first subscriber, and Bob was the second. When my first subscriber died several years later, Bob became my oldest living subscriber in terms of the length of his subscription. Bob often told me he was proud of that distinction.

The last time I saw Bob was on June 9, 2014, when he attended a celebration in Bloomington organized by three academic friends of mine to commemorate the 40 years of The Insurance Forum. It is regrettable that Bob did not live to see The Insurance Forum: A Memoir. I mentioned publication of the book in No. 118, which was posted on September 28, 2015. Bob was a wonderful human being and a dear friend.

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Monday, September 28, 2015

No. 118: My Memoir about The Insurance Forum Is Now Available

When I ended publication of The Insurance Forum at the end of 2013, I said one reason was my desire to write a memoir about my 40-year experiment in insurance journalism. The 379-page cloth bound book, entitled The Insurance Forum: A Memoir, is now available.

The book has five appendixes, a glossary, and an index. The book also has a foreword by Professors Travis Pritchett of the University of South Carolina, Joan Schmit of the University of Wisconsin—Madison, and Harold Skipper of Georgia State University. They call the book "an immensely enjoyable memoir" and "a compelling 'must read' for industry insiders, insurance regulators, reporters, lawmakers, and any others considering insurance issues."

My thanks to those who supported the Forum over the years. I am also grateful to those who submitted ideas and articles.

Information about how to obtain the book may be found at our website (www.theinsuranceforum.com). Here are the chapter titles:
  1. Introduction
  2. The Pre-Indiana Years: 1929-1962
  3. The Indiana Years: 1962-2015
  4. The Policy Replacement Problem
  5. The A. L. Williams Replacement Empire
  6. Life Insurance Prices and Rates of Return
  7. The Collapse of Executive Life
  8. Fractional (Modal) Premium Charges
  9. The Secondary Market for Life Insurance
  10. Universal Life Insurance
  11. The Military-Insurance Interlock
  12. Distortion of Important Policy Provisions
  13. Deceptive Sales Practices
  14. Professional Codes of Ethics
  15. Credit Life Insurance
  16. Disability Insurance
  17. Medical Insurance
  18. Long-Term Care Insurance
  19. The Annuity Business
  20. The Secondary Markets for Annuities
  21. Charitable Gift Annuities
  22. Financial Strength Ratings
  23. Transfers of Policies between Companies
  24. Compensation of Insurance Executives
  25. Surplus Notes
  26. The Demutualization Wave
  27. Life Insurance Policy Dividends
  28. Agents' Contracts with Insurance Companies
  29. The Insurance Regulators
  30. The Insurance Regulatory Information System
  31. Risk-Based Capital
  32. Conclusion
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Monday, September 21, 2015

No. 117: Life Partners—A New Dimension of the Bankruptcy Case

Life Partners Holdings, Inc. (LPHI), together with its operating subsidiaries, was an intermediary in the secondary market for life insurance. On January 20, 2015, LPHI (Waco, TX) filed for bankruptcy protection under Chapter 11 of the federal bankruptcy law. The case was assigned to U.S. Bankruptcy Court Judge Russell F. Nelms. On March 13, 2015, the U.S. Trustee appointed H. Thomas Moran II the Chapter 11 Trustee in the LPHI case, and Judge Nelms affirmed the appointment six days later. (See In re LPHI, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-40289.)

I wrote extensively about LPHI in The Insurance Forum, and later I posted numerous blog items before and after the bankruptcy filing. Here I discuss a new dimension of the LPHI bankruptcy case. On September 11, 2015, Trustee Moran filed a 52-page complaint against Brian D. Pardo, the former chief executive officer of LPHI. (See Moran v. Pardo, U.S. Bankruptcy Court, Northern District of Texas, Case No. 15-04079.)

The Adversary Proceeding
Trustee Moran's complaint is called an "adversary proceeding," which is a lawsuit filed within a bankruptcy case and assigned its own case number in the bankruptcy court. In this instance, a major purpose of the adversary proceeding is to recover, for the benefit of the bankruptcy estate, property that Trustee Moran alleges was fraudulently transferred to Pardo prior to the bankruptcy filing.

The cover sheet of the complaint mentions a "demand" of $41 million. That figure appears at two places in the complaint, but other figures also appear. Therefore, I asked Trustee Moran to clarify what the figure represents. In response he said:
The $41 million is the total of salaries, bonuses, and other compensation ($5.8 million), dividends ($34 million or more), and other personal remuneration.
Trustee Moran is represented by three attorneys in the Dallas firm of Thompson & Knight LLP. Pardo is representing himself.

Trustee Moran's Complaint
The introductory section of Trustee Moran's complaint briefly describes the "scheme to defraud" and the "marketing of fraudulent life expectancy estimates." The factual background section contains three subsections, one of which is a subsection about such matters as purposeful reduction of life expectancies to lure investors and inflate profits, transfers to an insider company, failure to disclose policy lapses, exorbitant and undisclosed commissions and fees, and monies paid to Pardo.

The complaint contains 12 counts: two counts of actual fraudulent transfer, two counts of constructive fraudulent transfer, and one count each of preferences, fraud, breach of fiduciary duty, sham to perpetrate a fraud, unjust enrichment, disallowance of Pardo's claims, violation of the federal Racketeer Influenced and Corrupt Organizations Act of 1970, and equitable subordination. Trustee Moran also seeks attorneys' fees.

General Observations
Trustee Moran's complaint contains an elaborate discussion of the arbitrage involving two life expectancy estimates. One estimate, on which Life Partners relied in deciding what it would pay to acquire a policy, was based on a realistic estimate provided by one of the prominent firms that provide life expectancy estimates. The second estimate, invariably much shorter, was used in pricing fractional interests sold to investors. The shorter estimates were provided to Life Partners by Donald T. Cassidy, MD (Reno, NV), an internal medicine practitioner with no experience or training in the preparation of life expectancy estimates.

Trustee Moran's complaint relies heavily on a declaration he filed in the bankruptcy case on May 20. I described the declaration in No. 102 posted May 26, and offered the declaration to readers at the time. However, the recent complaint goes beyond the declaration in some respects, and I think it is stronger than the declaration.

In an adversary proceeding, trial is set routinely at the time of filing. On September 14, the bankruptcy court clerk set the trial for March 2016 before Judge Nelms. Under federal bankruptcy rules, the parties are to confer within 30 days, consider the claims and defenses, consider the possibilities for a prompt settlement, and submit a proposed schedule. In the absence of a settlement, a brief bench trial to resolve the complaint seems likely.

Available Material
I am offering a complimentary 52-page PDF containing Trustee Moran's complaint. E-mail jmbelth@gmail.com and ask for Trustee Moran's September 11 complaint against Pardo.

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Thursday, September 17, 2015

No. 116: Voting Rights—An Important New Book about the Ongoing Battle for the Franchise in the United States

Ari Berman is a political correspondent for The Nation. He is the author of an important 2015 book about the long and arduous political and legal battle for the franchise in our country. The book is entitled Give Us the Ballot: The Modern Struggle for Voting Rights in America.

Selma and the 1965 Voting Rights Act (VRA)
The book begins with "Bloody Sunday" in Selma, Alabama, and President Lyndon Johnson's introduction of a voting rights bill eight days later. Johnson already had achieved passage of the Civil Rights Act of 1964, and had defeated Barry Goldwater decisively in November 1964. When Johnson signed the Voting Rights Act (VRA) in August 1965, it became one of the crown jewels of his "Great Society," along with the Civil Rights Act and Medicare. The purpose of the VRA was to prevent racial discrimination in the voting process and thereby enforce the 14th and 15th Amendments to the U.S. Constitution.

Many were surprised by Johnson's actions because they differed so sharply from many of his previous actions in Congress. For example, Berman notes that Johnson's first vote as a freshman member of the U.S. House of Representatives in 1937 was against an anti-lynching bill.

Berman describes Johnson's famous speech—later known as the "We Shall Overcome Speech"—announcing introduction of the voting rights bill. Johnson delivered the speech to a joint session of Congress in March 1965; it was the first joint session in 19 years.

Early Efforts to Undermine the VRA
Berman describes early efforts to undermine the VRA. They were unsuccessful in part because of the U.S. Supreme Court headed by Chief Justice Earl Warren (an Eisenhower appointee). In 1966, for example, in an 8 to 1 decision, the Warren court upheld the constitutionality of the VRA in the case of South Carolina v. Katzenbach. (In 1954, in a 9 to 0 decision, the Warren Court had ordered desegregation of public schools in the landmark case of Brown v. Board of Education.)

Developments in 1968
Berman describes some major events in 1968. Among them were Johnson's decision not to seek re-election, the assassinations of Martin Luther King, Jr. and Robert Kennedy, Richard Nixon's "Southern Strategy," Nixon's election, and the appointment of Attorney General John Mitchell to head the U.S. Department of Justice, whose Civil Rights Division was charged with enforcing the VRA.

Developments in 1976
Berman describes some major events in 1976. Barbara Jordan of Texas in 1972 had become the first black woman elected to Congress from the South. In July 1976 she became the first black politician to keynote the Democratic National Convention. That event occurred 28 years before an Illinois state senator named Barack Obama keynoted the convention.

Jimmy Carter was elected in 1976, and he owed the election to black voters. Ironically, the state that put him over the top in that tight election was Mississippi, where blacks delivered a third of Carter's total and gave Carter the state by 11,537 votes. Nationally, Carter narrowly lost the white vote, but won 92 percent of about 6.6 million black votes.

Obama's Election in 2008
The election of Barack Obama in 2008 was a wake-up call for VRA opponents. Berman describes the voter identification laws and other laws enacted in various states to restrict voting rights. Also, by then the U.S. Supreme Court had moved sharply to the right with the appointments of Justice Antonin Scalia (a Reagan appointee), Justice Clarence Thomas (a George H. W. Bush appointee), Chief Justice John Roberts (a George W. Bush appointee), and Justice Samuel Alito (a George W. Bush appointee).

The Veasey Lawsuit
Berman describes a major lawsuit that grew out of the enactment of Texas Senate Bill 14 (SB 14) in 2011. It placed important restrictions on the ability of many Texans to vote, especially Hispanics, African-Americans, and the poor. In June 2013 several individuals and organizations filed a lawsuit seeking to prevent implementation of SB 14.

The lead plaintiff was Marc Veasey, then a member of the Texas House of Representatives and now a member of the U.S. House of Representatives. Among the organizations was the Civil Rights Division of the U.S. Department of Justice. The lead defendant was Rick Perry in his official capacity as Texas governor; Greg Abbott became the Texas governor in 2015 and succeeded Perry. (See Veasey v. Perry, U.S. District Court, Southern District of Texas, Case No. 2:13-cv-193.)

The case was assigned to District Judge Nelva Gonzales Ramos (an Obama appointee). She conducted a nine-day bench trial. On October 9, 2014, she issued a 147-page opinion. She entered a permanent and final injunction against enforcement of the voter identification provisions of SB 14. The seven major sections of the opinion are Texas's history with respect to racial disparity in voting rights, the status quo before SB 14 was enacted, the Texas photo identification law, the method and result of passing SB 14, challenges to photo ID laws, discussion, and the remedy. Berman referred to the Ramos opinion as "searing." Here are its three opening paragraphs:
The right to vote: It defines our nation as a democracy. It is the key to what Abraham Lincoln so famously extolled as a "government of the people, by the people, [and] for the people." The Supreme Court of the United States, placing the power of the right to vote in context, explained [in 1964]: "Especially since the right to exercise the franchise in a free and unimpaired manner is preservative of other basic civil and political rights, any alleged infringement of the right of citizens to vote must be carefully and meticulously scrutinized."
In this lawsuit, the Court consolidated four actions challenging Texas Senate Bill 14 (SB 14), which was signed into law on May 27, 2011. The Plaintiffs and Intervenors (collectively "Plaintiffs") claim that SB 14, which requires voters to display one of a very limited number of qualified photo identifications (IDs) to vote, creates a substantial burden on the fundamental right to vote, has a discriminatory effect and purpose, and constitutes a poll tax. Defendants contend that SB 14 is an appropriate measure to combat voter fraud, and that it does not burden the right to vote, but rather improves public confidence in elections and, consequently, increases participation.
The case proceeded to a bench trial, which concluded on September 22, 2014. Pursuant to [Section 52(a) of the Federal Rules of Civil Procedure], after hearing and carefully considering all the evidence, the Court issues this Opinion as its findings of fact and conclusions of law. The Court holds that SB 14 creates an unconstitutional burden on the right to vote, has an impermissible discriminatory effect against Hispanics and African-Americans, and was imposed with an unconstitutional discriminatory purpose. The Court further holds that SB 14 constitutes an unconstitutional poll tax.
The Appeals
The defendants appealed to the Fifth Circuit to stay the injunction. On October 14, 2014, a Fifth Circuit panel granted the stay primarily because the injunction was imposed less than a month before the 2014 election. The 12-page judgment was written by Judge Edith Brown Clement (a George W. Bush appointee), and a one-page concurrence was written by Judge Gregg Costa (an Obama appointee). Judge Catharina Haynes (a George W. Bush appointee) also concurred. (See Veasey v. Perry, U.S. Court of Appeals, Fifth Circuit, No. 14-41127.)

The plaintiffs appealed to the U.S. Supreme Court to vacate the stay. On October 18, 2014, without explanation, the Supreme Court denied the appeal. Justice Ruth Bader Ginsburg (a Clinton appointee) wrote a seven-page dissent. Justice Elena Kagan (an Obama appointee) and Justice Sonia Sotomayor (an Obama appointee) concurred in the dissent. (See Veasey v. Perry, U.S. Supreme Court, No. 14A393.)

In August 2015 a partly different Fifth Circuit panel issued a 53-page judgment written by Judge Haynes of the previous panel. She vacated and remanded the plaintiffs' discriminatory purpose claim for further consideration; she affirmed the district court's finding that SB 14 has a discriminatory effect in violation of the VRA, and remanded for consideration of the proper remedy; she vacated the district court's holding that SB 14 is a poll tax; she vacated the district court's finding that SB 14 unconstitutionally burdens the right to vote; and therefore she dismissed the plaintiffs' constitutional claims. Chief Judge Carl E. Stewart (a Clinton appointee) concurred. District Judge Nannette Jolivette Brown of the Eastern District of Louisiana (an Obama appointee), sitting by designation, also concurred. (See Veasey v. Abbott, U.S. Court of Appeals, Fifth Circuit, No. 14-41127.)

General Observations
Immigrants, African-Americans, Hispanics, young people, and low-income people tend to vote Democratic, and large voter turnouts favor Democratic candidates. The objective of efforts to undermine the VRA is to shrink the size of the electorate so as to favor Republican candidates. Opponents of the VRA have not produced evidence to support any of their arguments, such as the need to protect against voter fraud. The Berman book is required reading for those interested in the subject of voting rights. The Ramos opinion is also required reading.

Available Material
I am offering a complimentary 220-page PDF consisting of the 147-page October 2014 Ramos opinion, the 13-page October 2014 Fifth Circuit ruling, the 7-page Ginsburg dissent to the October 2014 U.S. Supreme Court ruling, and the 53-page August 2015 Fifth Circuit ruling. E-mail jmbelth@gmail.com and ask for the package relating to the Veasey case.

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Friday, September 11, 2015

No. 115: Annuity Factoring Companies in the Crosshairs

The August 2011 and October 2011 issues of The Insurance Forum contain major articles critical of factoring companies that pay cash to annuitants and in exchange receive the annuitants' annuity payments. The articles generated almost no feedback. I thought perhaps I was whistling in the wind, but a recent lawsuit causes me to think otherwise.

The CFPB/DFS Complaint
On August 20, 2015, the federal Consumer Financial Protection Bureau (CFPB) and the acting superintendent of the New York State Department of Financial Services (DFS) filed a lawsuit against two annuity factoring companies and three individuals. The plaintiffs are represented by several CFPB attorneys and an assistant attorney general of New York. The case was assigned to U.S. District Judge Josephine L. Staton and Magistrate Judge Jay C. Gandhi. (See CFPB v. Pension Funding, U.S. District Court, Central District of California, Case No. 8:15-cv-1329.)

Defendants Pension Funding LLC and Pension Income LLC are related companies that extend consumer credit, service consumer loans, and transmit money in connection with their loan business. They are at the same address in Huntington Beach, California. Steven Covey, Edwin Lichtig, and Rex Hofelter are associated with the defendants, which together are a successor to Structured Investments Co. LLC. The latter company was mentioned in my October 2011 article. Here is a lightly edited version of some of the allegations in the complaint:

  • Defendants said they transacted pension buyouts and advanced the cash when needed. They said a pension buyout was not a pension loan but rather was a pension lump sum.
  • Defendants denied their product was a loan, and they did not disclose fees or interest rates.
  • Defendants claimed the cost to consumers could be as little as 13 percent and contrasted their product with credit cards charging 18 to 24 percent or more per year in compound interest.
  • Defendants said their product was not a loan and there was no interest rate.
  • Defendants said that there was no interest because their program was not a loan, and that their "range" was a cost of money rate or a discount rate.
  • Defendants compared the discount rate to a typical mortgage and claimed participants paid approximately the same or less than credit card rates and not the highest rates.
  • The complaint says that the transactions on average had an effective annual interest rate of 28.56 percent, and that the transactions with New York consumers consistently had nominal annual interest rates in excess of both the New York civil usury cap of 16 percent and the New York criminal usury cap of 25 percent.

The seven counts in the complaint are unfair acts or practices in violation of the federal Consumer Financial Protection Act of 2010 (CFPA), deceptive acts or practices in violation of CFPA, abusive acts or practices in violation of CFPA, usury, false and misleading advertising of loans, intentional misrepresentation of a material fact regarding a financial product, and unlicensed money transmitting. The plaintiffs seek injunctive relief, damages, redress to harmed consumers, disgorgement, civil monetary penalties, and costs.

General Observations
In my 2011 articles, I deplored the lack of disclosure of vital information to the annuitant, especially what I called the "crucial disclosure" of the annual interest rate or annual percentage rate associated with the transaction. I also mentioned the absurd argument that paying cash to an annuitant in exchange for receiving the annuitant's annuity payments does not constitute a loan to the annuitant. As shown above, the defendants said such a transaction was not a loan and there was no interest, but also mentioned interest and understated the interest rate.

Available Material
I am offering a complimentary 29-page PDF consisting of the 24-page CFPB/DFS complaint, my three-page August 2011 article, and my two-page October 2011 article. Send an e-mail to jmbelth@gmail.com and ask for the package relating to the CFPB/DFS lawsuit against two annuity factoring companies.

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Monday, August 31, 2015

No. 114: AIG's War Against Coventry and the Buergers Goes to Trial

In No. 67 (posted September 16, 2014) entitled "AIG Declares War against Coventry and the Buergers," I discussed a lawsuit by Lavastone Capital, a unit of American International Group (AIG), against Coventry First (Fort Washington, PA), an intermediary in the secondary market for life insurance. In that posting, I offered the 151-page text of the Lavastone complaint. Here I summarize the complaint briefly and mention some subsequent developments. (See Lavastone v. Coventry, U.S. District Court, Southern District of New York, Case No. 1:14-cv-7139.)

The Complaint
Lavastone filed its complaint on September 5, 2014. The defendants were Coventry; four firms affiliated with Coventry (including the "LST Entities"); Alan Buerger, chief executive officer of Coventry; Constance Buerger, wife of Alan Buerger; Reid Buerger, son of Alan Buerger; and Krista Buerger, wife of Reid Buerger. The case was assigned to U.S. District Judge Jed S. Rakoff.

Over a period of more than ten years, Coventry became a major player in the secondary market by acquiring thousands of policies and passing them along to Lavastone pursuant to the parties' agreements. In its complaint Lavastone made 13 claims and sought, among other items, compensatory damages, punitive damages, treble damages, injunctive relief, declaratory judgments, disgorgement, attorney fees, and prejudgment interest.

On November 4, 2014, Coventry filed a motion to dismiss the complaint. On February 3, 2015, Judge Rakoff denied the motion. He also dismissed three of Lavastone's claims. The remaining ten claims were violation of the Racketeer Influenced and Corrupt Organizations (RICO) Act, conspiracy to violate RICO, fraud, fraudulent inducement, breach of contract, breach of implied covenant of good faith and fair dealing, negligent misrepresentation, breach of fiduciary duty, aiding and abetting breach of fiduciary duty, and unjust enrichment.

Recently Filed Documents
On May 18, 2015, Lavastone and Coventry filed cross motions for summary judgment. On the same day, Constance Buerger filed a separate motion for summary judgment.

On July 10, Judge Rakoff issued an Order, and on July 30 he issued a Memorandum explaining the reasoning behind the Order. He granted Lavastone's motion for summary judgment relating to breach of contract, but left for trial the matter of damages. He also said there were several other matters that needed to be resolved at trial. He denied Coventry's motion for summary judgment, granted Constance Buerger's motion for summary judgment, and dismissed her from the case.

On August 13, Coventry filed a motion for clarification, or, in the alternative, reconsideration, of Judge Rakoff's July 10 Order and July 30 Memorandum. Judge Rakoff denied the motion.

On August 20, Lavastone and Coventry jointly filed a Pretrial Consent Order. The document includes, among other things, a joint overview of the case, statements of the parties' claims and defenses, facts on which the parties agree, the plaintiff's statement of the relief sought, and the names of witnesses the parties intend to call at the trial. Attached to the document are lists of exhibits the parties intend to introduce at the trial. Two amendments to the document were filed later.

The Parties' Statements
The first paragraph below shows, from the Pretrial Consent Order, the plaintiff's statement prepared without input from the defendants. The second paragraph below shows the defendants' statement prepared without input from the plaintiff.
Plaintiff alleges that, over the course of the parties' relationship, Defendants exploited Lavastone's trust and confidence, violated the parties' agreements, and executed a scheme to defraud Lavastone, by, inter alia, systematically misusing Lavastone's proprietary and confidential information, including its maximum purchase price; misrepresenting the underlying purchase price and broker's fees incurred in the acquisition of Life Policies; artificially inflating the price of Life Policies; charging Lavastone for broker's fees that were not actually paid by Defendants to Life Policy brokers; laundering the Life Policies through affiliates to conceal the underlying purchase price; diverting irrevocable beneficiary interests that benefitted the Defendants and diminished the value of the Life Policies; and reselling Life Policies to Lavastone with hidden mark-ups. Defendants induced Lavastone to pay over $150 million in markups and broker's fee overcharges, in addition to the $1 billion in origination, incentive, and other fees Lavastone paid to Coventry First for its expertise and assistance in identifying, negotiating, and acquiring Life Policies in the secondary market. Defendants' conduct violated federal and state law.
Defendants contend that Lavastone's claims and factual allegations are without merit. In particular, Defendants believed that the Origination Agreements permitted Coventry First and the LST Entities to sell Life Policies that were not subject to the exclusivity provisions of the contracts ("nonexclusive Life Policies") to Lavastone at a price greater than acquisition cost, without restriction, and the parties' repeated course of conduct confirmed that belief. Defendants made numerous disclosures to Lavastone of the existence and amount of gains on nonexclusive Life Policy sales, and Lavastone never claimed that such claims breached the contracts or suggested that they were fraudulent. Moreover, Lavastone indicated to Defendants, both by its actions and words, that it and its senior executives believed the contracts permitted these gains on sale. Lavastone—through Defendants' disclosures, its ordinary business activities, and its own formal audits of Coventry First and Lavastone's fiscal agents—knew and approved of Coventry First or its affiliates selling Lavastone nonexclusive Life Policies at prices higher than acquisition cost. Lavastone concedes that Coventry First or its affiliates properly sold Lavastone hundreds of Life Policies at greater than acquisition cost. Similarly, Lavastone approved of Coventry First in certain instances reimbursing broker compensation on an aggregate basis across Life Policy sales, as well as Coventry First's decision to place irrevocable beneficiary interests on certain Life Policies. Lavastone has incurred no damages as a result of any conduct by Defendants.
The Trial
The trial began on August 27. Judge Rakoff is presiding, and there is no jury. The parties estimate that the trial will take 10 to 15 full court days, which probably will translate into a calendar month or more. It is my understanding that the first day consisted of opening statements and some testimony from David Fields, who is the first witness called by Lavastone, that the second day consisted of further testimony by Fields, and that the trial will resume after Labor Day.

General Observations
The Lavastone/Coventry case may be one of the most important in the history of the secondary market for life insurance, and should be followed by persons interested in that market. An eventual result adverse to Coventry could have devastating consequences for the firm, which has long been a major player in the market. I plan to report the results of the trial when Judge Rakoff hands down his decision.

David Fields headed the team that initiated AIG's entry into the secondary market in 2001, despite reservations expressed by Maurice "Hank" Greenberg, then chief executive officer of AIG. That incident is discussed in the August 2005 issue of The Insurance Forum, in an appendix to my article about the lawsuit filed against AIG, Greenberg, and Howard Smith by then New York Attorney General Eliot Spitzer and then New York Superintendent of Insurance Howard Mills.

Another possible witness during the trial is Reid Buerger, who repeatedly invoked the Fifth Amendment during an investigation of Coventry by Spitzer. I discussed that incident in the January/February 2007 issue of The Insurance Forum, where I discussed Spitzer's investigation.

Available Material
I am offering a complimentary 55-page PDF consisting of Judge Rakoff's 3-page July 10 Order, his 22-page July 30 Memorandum, and the 30-page Lavastone/Coventry August 20 joint Pretrial Consent Order (not including attachments and amendments). E-mail jmbelth@gmail.com and ask for the July/August 2015 Lavastone/Coventry package.

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Thursday, August 20, 2015

No. 113: Consulting Physicians—Their Role in Denying Disability Insurance Claims

In the June 2010 issue of The Insurance Forum, in an article entitled "How a Medical Reviewer Helped Reliance Standard Deny Disability Claims," I described the work of a physician who served as a consultant to an insurance company and helped the company deny many disability insurance claims. A recent Sixth Circuit decision in a disability case prompts me to revisit the subject of consulting physicians who are retained by parties seeking to deny claims, have a conflict of interest because of the compensation they receive from those parties, do not see the claimants, and render their opinions based solely on reviews of medical records.

The Shaw Case
Raymond Shaw, a 39-year-old customer service representative for Michigan Bell, stopped working in August 2009 because of chronic neck pain. He was covered under a disability program (Plan) administered by Sedgwick Claims Management Services, Inc. He received short-term disability benefits for one year, but his application for long-term disability (LTD) benefits was denied. His appeal to the Plan was also denied.

In March 2013 Shaw filed a lawsuit against the Plan alleging that he was wrongly denied LTD benefits. In July 2013 Shaw filed an amended complaint. In September 2013 the Plan answered the amended complaint. In February 2014 both parties filed motions for judgment on the record. In September 2014, the district court granted the Plan's motion and denied Shaw's motion. Two weeks later Shaw filed a notice of appeal. (See Shaw v. AT&T Umbrella Benefit Plan No. 1, U.S. District Court, Eastern District of Michigan, Case No. 5:13-cv-11461.)

On July 29, 2015, a three-judge appellate panel reversed the district court's ruling. The reversal was in an 18-page opinion by Chief Judge Ransey Guy Cole, Jr. and joined by Senior Judge Ronald Lee Gilman. They ruled that "the Plan acted arbitrarily and capriciously in denying Shaw LTD benefits." They not only remanded the case but also ordered the district court to enter an order awarding LTD benefits to Shaw.

A perfunctory two-paragraph dissent was filed by Judge Raymond M. Kethledge. He said the Plan's denial was not arbitrary and capricious because Shaw failed to provide "objective medical documentation," and because the Plan relied on the opinions of specialists who reviewed Shaw's medical records. (See Shaw v. AT&T Umbrella Benefit Plan No. 1, U.S. Court of Appeals, Sixth Circuit, Case No. 14-2224).

The Consulting Physicians
In dealing with Shaw's initial appeal of the Plan's denial of LTD benefits, Sedgwick sent Shaw's medical records to Dr. Imad M. Shahhal, a neurosurgeon, and to Dr. Jamie Lee Lewis, a specialist in physical medicine and rehabilitation and pain medicine. Each called Shaw's treating physicians and asked them to call back within 24 hours or the reports would be "based on available medical information." The treating physicians did not meet the deadline and the consulting physicians promptly concluded that Shaw was "not disabled from any occupation."

The two appellate judges who reversed the district court ruling apparently were outraged by the imposition of a 24-hour deadline on busy physicians. Also, the two judges said that "Dr. Lewis's conclusions have been questioned in numerous federal cases, in all of which he was hired by Sedgwick." They cited details from four such cases. In one of them, Dr. Lewis was described as having submitted a review that "ignored or misstated evidence by treating physicians."

My June 2010 Article
As indicated at the outset, an article about insurance company use of consulting physicians was in the June 2010 issue of The Insurance Forum. It focused on Dr. William S. Hauptman, a specialist in gastroenterology and internal medicine, who had a contract with Reliance Standard Life Insurance Company. Over three years he conducted 446 reviews for the company and received compensation of about $400,000.

Dr. Hauptman's work has been mentioned in numerous lawsuits. My June 2010 article described two cases in some detail. In one of them, the court illustrated the bias in his reports by citing his use of boldface type and underlining to emphasize his points supporting denial of the claim.

In the article I said the use of a consulting physician creates a serious conflict of interest for the physician because he or she knows that the insurance company wants support for an adverse claim decision, that he or she will be paid generously for providing that support, and that failing to provide that support will discourage the company from using the physician. I suggested that it might be helpful to disclose publicly the number and percentage of cases handled by a consulting physician where he or she recommended denial of a claim.

Available Material
I am offering a complimentary 22-page PDF consisting of the appellate ruling, the brief dissent, and my June 2010 article. E-mail jmbelth@gmail.com and ask for the package relating to the Shaw case.

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Monday, August 10, 2015

No. 112: Shadow Insurance—Confidential Documents Dated 2003 Are Now in the Public Domain

Readers of this blog know I have been trying without success to obtain documents associated with shadow insurance transactions between insurance companies and their wholly owned reinsurance subsidiaries. In the Ross case discussed in No. 111 (posted August 3, 2015), certain 2003 documents are now available in court filings. Despite their age, the documents shed light on the subject. (See Ross v. AXA Equitable Life, U.S. District Court, Southern District of New York, Case No. 1:14-cv-2904.)

The Exhibits
The exhibits mentioned here were filed in the Ross case on April 27, 2015. Exhibit 8 is an automatic level term reinsurance agreement between The Equitable Life Assurance Society of the United States (Equitable), which later became AXA Equitable Life, and AXA Financial (Bermuda) Ltd., a wholly owned reinsurance subsidiary of Equitable. The agreement was signed by the parties on December 22 and 29, 2003.

Exhibit 9 is an automatic lapse protection rider reinsurance agreement between the same parties. The agreement was signed by the parties on December 22 and 29, 2003.

Exhibit 10 consists of two standby letters of credit. The first, for $60 million, was issued by National Australia Bank (New York, NY) to AXA Financial (Bermuda) Ltd., was dated December 22, 2003, and expired December 21, 2004. Equitable was the beneficiary. The second, for $40 million, was issued by ABN Amro Bank N.V. (Chicago, IL) to AXA Financial (Bermuda) Ltd., was dated December 30, 2003, and expired December 21, 2004. Equitable was the beneficiary.

Exhibit 11 consists of a letter dated November 7, 2003 to the New York Department of Insurance (Department) from Equitable, and two proposed inter-company service agreements between Equitable and Athena Reinsurance, Ltd. (Bermuda). At the time Athena was being formed as a wholly owned reinsurance subsidiary of AXA Financial, Inc.

Exhibit 14 is a letter dated December 19, 2003 to Equitable from the Department. The Department expressed "no objection" to the agreements submitted with Equitable's November 7, 2003 letter.

The Freedom of Information Law
I have experience with New York State's Freedom of Information Law (FOIL). Equitable's November 7, 2003 letter to the Department referred to the FOIL exemption for trade secrets. The company requested confidential treatment for the letter and the agreements, and said the information was "provided with the express understanding that the confidentiality of such information will be safeguarded pursuant to all applicable provisions of the law . . . ."

Here is my understanding of what the above request means. If the Department had received a FOIL request for the material, the Department would have notified the company and asked the company to justify confidential treatment, with the burden of proof on the company.

If the company had submitted justification, and if the Department had agreed with the company, the Department would have denied the FOIL request. The requester could then have submitted to the Department an administrative appeal of the denial. If the Department had denied the appeal, the requester could have sought court review of the denial. If the Department had granted the appeal, the company could have sought a court order preventing the Department from releasing the material.

On the other hand, if the Department had disagreed with the company's justification, the company could have submitted to the Department an administrative appeal of the determination. If the Department had denied the appeal, the company could have sought court review of the determination. If the Department had granted the appeal, the requester could have sought court review of the determination.

The above is an oversimplified and incomplete description of the procedures associated with a FOIL request. Suffice it to say that going through the exercise can consume months or years. I was involved in such an exercise a few years ago when I sought documents filed with the Department by Phoenix Companies, Inc. relating to its cost-of-insurance increases on universal life policies used in stranger-originated life insurance transactions. The struggle went on for more than a year and was never fully resolved. However, I was able to announce in No. 26 (posted January 29, 2014) a judge's unsealing of several documents that had been filed initially under seal in lawsuits against Phoenix.

Available Material
I am offering a complimentary 88-page PDF consisting of the 19-page Exhibit 8, the 20-page Exhibit 9, the seven-page Exhibit 10, the 40-page Exhibit 11, and the two-page Exhibit 14. E-mail jmbelth@gmail.com and ask for the five exhibits in the case of Ross v. AXA Equitable Life.

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