Wednesday, April 15, 2020

No. 365: David Rubenstein's Fascinating Book

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

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Friday, April 10, 2020

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

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

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Wednesday, April 8, 2020

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

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

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

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

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

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

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

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

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

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

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Tuesday, March 31, 2020

No. 362: Whitmer and Trump

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

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Wednesday, March 25, 2020

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

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

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

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

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

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

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

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

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

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

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

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Wednesday, March 18, 2020

No. 360: Dan Rather on the Current Crisis

It seems appropriate to step back this week from our usual insurance posts and consider the current crisis facing our country and the world. Dan Rather, now aged 88, served a long career with CBS News. He covered such events as the assassination of President John F. Kennedy, the Vietnam War, Watergate, the resignation of President Richard M. Nixon, and the Challenger disaster. Over the years he became a prominent journalist. In his retirement, he continues to express his views. On March 14, 2020, he posted these thoughts about the current crisis.
We will not be the same country when this is over. We can't be. We shouldn't be. Right now, the focus is, as it must be, on the immediate crisis at hand. It looms over us with a darkness that stretches forth without a horizon in sight.
These will be sad and scary times. People will suffer, and many will die. It will reach into everyone's life. For some, the loss will be marked in the passing of friends and loved ones, close and personal. Others might escape such an immediate toll, but the economic pain will be widespread. Here too, it will be uneven, inflicting the greatest cost on the poorest, most vulnerable, and most desperate. It will also strike some industries much deeper than others.
I can't help but reflect on other moments of hardship, anxiety and suffering. I was born into the Great Depression, and the images of abject poverty among my neighbors, the hopelessness of job searches, the ache of empty bellies, are etched in my consciousness. So too are memories of the war that soon followed. The very real sense that the world might end with a triumph of evil. The fathers who went off to battle and never returned. The dawning of the atomic era that ended the conflict. In the course of my work I have seen many other moments like these, where fear and tragedy raged, although most were more localized.
What I have also seen is that from crisis can emerge opportunity. We humans tend not to be good at anticipating problems. We seem to think good times will continue, even as we make decisions that leave ourselves vulnerable. But we are good at fixing things. We are capable of great energy, ingenuity, and that most important quality, empathy.
This nation, and the larger world, long have been broken in ways that have too often gone unaddressed. This is a wake-up call to our economic and healthcare insecurity. It is a reminder of why we must work with other nations to fix global problems. It is evidence that competency and truth-telling in government are paramount for the security of the United States. It is a rallying cry to strengthen the common bonds of our humanity.
We are being tested. In part, it is because we have let ourselves get to this point. That is where we are. We cannot change the past. But we can work our might on the present, and then resolve to fix our weaknesses going forward.
It is easy to blame leadership. They deserve the blame they are getting. But the rot that led to this moment is more systemic. When we emerge from this crisis, and we surely will, we must follow a path of renewal and improvement of how we structure our society, its economy, its health, its social obligations, and its politics. We are seeing the cost of failure. We have no choice but to forge ahead. And forging into a better, more just future, has been the American way. I, for one, continue to believe with all my heart, it will be that way yet again.
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Friday, March 13, 2020

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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