Monday, October 26, 2020

No. 395: General Electric and Genworth—A Pair of Updates

Long-term care (LTC) insurance, General Electric Company (GE), and Genworth Financial Inc. (Genworth), which specializes in LTC insurance, have been the subjects of several of my blog posts. Recently both companies disclosed developments that prompt this update.

GE
On January 16, 2018, GE shocked the insurance world when it disclosed it will contribute about $15 billion (spread over seven years) to a reinsurance subsidiary relating to a run-off block of LTC insurance. On January 24, 2018, GE disclosed the existence of an investigation by the Securities and Exchange Commission (SEC). I wrote about these matters in No. 257 (March 12, 2018) and No. 258 (March 19, 2018).

On October 6, 2020, GE filed an 8-K (significant event) report disclosing developments relating to the SEC investigation. Here are two of the three relevant paragraphs in the 8-K (the three paragraphs are in the complimentary package offered at the end of this post):
On September 30, 2020, the SEC staff issued a "Wells notice" advising GE that it is considering recommending to the SEC that it bring a civil injunction action against GE for possible violations of the securities laws. GE has been informed that the issues the SEC staff may recommend that the SEC pursue relate to the historical premium deficiency testing for GE Capital's run-off insurance operations, as well as GE's disclosures relating to such run-off insurance operations. The staff has not made a preliminary decision whether to recommend any action with respect to the other matters under investigation.
The Wells notice is neither a formal allegation nor a finding of wrongdoing. It allows GE the opportunity to provide its perspective and to address the issues raised by the SEC staff before any decision is made by the SEC on whether to authorize the commencement of an enforcement proceeding. GE disagrees with the SEC staff with respect to this recommendation and will provide a response through the Wells notice process. If the SEC were to authorize an action against GE, it could seek an injunction against future violations of provisions of the federal securities laws, the imposition of civil monetary penalties, and other relief within the Commission's authority. The result of the Wells notice and any enforcement action are unknown at this time.
On October 7, 2020, the front page of the print edition of The Wall Street Journal carried a 931-word articled entitled "SEC Readies Civil Action in GE Accounting Inquiry." The reporters were Theo Francis and Ted Mann. Here are the first two sentences of the article:
Federal securities regulators have warned General Electric Co. of a civil-enforcement action over its accounting for a legacy insurance business, adding a fresh hurdle to efforts to turn around the once-mighty manufacturer. The industrial giant said in a securities filing Tuesday that it received the so-called Wells notice on Sept. 30 over the company's accounting for reserves related to an insurance business it has been trying to wind down for years.
Genworth
On October 21, 2016, Genworth entered into a merger agreement with China Oceanwide. Since then, the parties have entered into "waiver agreements," under which the parties extended the "end date" in the merger agreement. I wrote about these matters in No. 311 (May 2, 2019), by which time the parties had entered into nine waiver agreements.

On October 1, 2020, Genworth filed an 8-K report disclosing that the parties had entered into a sixteenth waiver agreement on September 30. The end date in the latest waiver agreement appears to be November 30, 2020. The 8-K lists the fifteen previous waiver agreements and a detailed description of the latest waiver agreement. (The 8-K is in the complimentary package offered at the end of this post.)

General Observations
I plan to report on further significant developments relating to the SEC investigation of GE. I also plan to report further on the pending Genworth merger agreement with China Oceanwide.

Available Material
I am offering a complimentary 9-page package that consists of GE's 8-K report dated October 6 (3 pages) and Genworth's 8-K report dated October 1 without exhibits (6 pages). Send an email to jmbelth@gmail.com and ask for the October 2020 package about GE and Genworth.

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Tuesday, October 20, 2020

No. 394: Equitable Financial (f/k/a AXA Equitable)—An Update on the Reinstatement of Universal Life Policies

In No. 391 (September 30, 2020), I wrote about two individual federal court lawsuits against Equitable Financial Life Insurance Company (Equitable), which was formerly known as AXA Equitable Life Insurance Company, relating to the reinstatement of universal life insurance policies. Both lawsuits were filed by the same plaintiff. One of the cases is in New York and the other is in North Carolina. There is nothing new to report on the New York case. Here I provide an update on the North Carolina case and describe an amazing email from one of my readers.

The North Carolina Case
On October 8, 2020, Equitable filed three post-trial documents in the Wiener v. Equitable case in North Carolina: (1) motions to dismiss and for post-trial relief, (2) brief in support of motions to dismiss and for post-trial relief, and (3) consent motion to extend stay of judgment enforcement. It is anticipated that Wiener will oppose the motions, Equitable will reply to the opposition, and the judge will rule on the motions. The three documents are shown in their entirety in the complimentary package offered at the end of this post.

An Amazing Email
In response to No. 391, I received an amazing email from a reader. In it he reported an incident involving an Equitable universal life policy issued many years ago. My reader was not the writing agent, but became an advisor to the insured after the policy was issued. The policy was owned by a trust and had a face amount of more than $1 million. After the estate tax credit was increased, the insured decided he no longer needed the policy. In 2012, the insured transferred the policy to a child who planned to continue paying premiums.

In 2018, the insured called Equitable regarding the status of the policy. The insured was told the policy had lapsed. The insured was not told the lapse date at that time. The insured asked my reader what to do. My reader suggested that the insured (1) request in writing (by FedEx so delivery could be documented) a copy of the 60-day lapse pending letter, (2) copies of any correspondence from the USPS or any other service indicating that mail was returned as undeliverable or improperly addressed, and (3) copies of annual reports for 2017 and prior years. The insured sent the request by FedEx.

The following day, the insured received a letter from Equitable saying the policy lapsed in 2014. The letter said "in the interest of good customer service," Equitable was willing to reinstate the policy. The conditions were payment of a premium to cover two months of cost-of-insurance (COI) charges and the signing of a settlement agreement and release. The deadline for those steps was about 30 days after the communication was sent to the insured.

The communication from Equitable also included a copy of a 60-day lapse pending letter, a lapse notice, and a copy of the policy annual report for the preceding policy anniversary. The communication did not say these copies had previously been mailed to the insured.

Thus Equitable reinstated the policy without any evidence of insurability and without requiring payment of COI charges from the 2014 lapse date up to the 2018 reinstatement date. At the time of the reinstatement, the insured was more than 75 years old and the COIs were substantial.

General Observations
My reader and I surmise that Equitable drastically altered its reinstatement practices in an effort to avoid more individual lawsuits, or class action lawsuits, over its reinstatement practices. If our supposition is correct, universal life policyholders of Equitable, and perhaps universal life policyholders of other companies, owe a debt of gratitude to Wiener for his two lawsuits against Equitable, irrespective of the final results of those cases. My reader and I also realize there may be other explanations for Equitable's generosity in the case described in my reader's email.

Available Material
I am offering a complimentary 27-page package consisting of Equitable's three post-trial documents in the North Carolina case. Email jmbelth@gmail.com and ask for the October 2020 package about Wiener v. Equitable.

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Friday, October 16, 2020

No. 393: Greg Lindberg—Another Update on the Federal Criminal Case against Him and His Associates

No. 388 (August 24, 2020) was the latest of several updates on the federal criminal lawsuit against Greg E. Lindberg and three associates. Here I provide another update to reflect important recent developments in the case. (See U.S.A. v. Lindberg, U.S. District Court, Western District of North Carolina, Case No. 5:19-cr-22.)

District Court Judgments
On August 28, U.S. District Judge Max O. Cogburn Jr. issued a judgment against Robert Cannon Hayes, who was the chairman of the state Republican party in North Carolina. He had pleaded guilty to five counts. Counts 1 through 4 were dismissed on the government's motion. On the fifth count, Judge Cogburn sentenced him to one year of probation, a $100 assessment, and a fine of $9,500.

On September 4, Judge Cogburn issued a judgment against Lindberg sentencing him to 87 months in prison on each of two counts to be served concurrently, followed by three years of supervised release on each count to be served concurrently, an assessment of $200, and a fine of $35,000.

Also on September 4, Judge Cogburn issued a judgment against John D. Gray, a Lindberg consultant who had been found guilty by the jury on two counts, sentencing him to 30 months in prison on each count to be served concurrently, followed by two years of supervised release on each count to be served concurrently, and an assessment of $200. The judgments against Hayes, Lindberg, and Gray are in the complimentary package offered at the end of this post.

Notices of Appeal
On August 19, as indicated in No. 388, when Lindberg was sentenced to 87 months in prison, his attorney told Judge Cogburn that Lindberg planned to appeal, and asked the judge to allow Lindberg to remain free pending the appeal. Judge Cogburn denied the request and ordered Lindberg to report to prison when directed by prison officials.

On September 2, Lindberg filed a notice of appeal to the U.S. Court of Appeals for the Fourth Circuit of Judge Cogburn's August 19 denial. On September 9, John D. Gray, a Lindberg consultant who was found guilty by the jury, filed a notice of appeal to the Fourth Circuit.

On October 7, after Lindberg was instructed to report to prison on October 20, Lindberg filed a motion to extend the self-surrender date for two reasons associated with the COVID-19 pandemic. One reason related to Mr. Lindberg's health, and the other related to interference with the preparation of his appellate brief. On October 13, Judge Cogburn denied the motion. Lindberg's motion to extend and Judge Cogburn's denial of the motion are in the complimentary package offered at the end of this post.

The Appellate Court
On September 10, in the Fourth Circuit, Lindberg filed a motion for release pending appeal. On September 15, the government opposed the motion. On September 18, Lindberg replied to the government's opposition. On September 23, in a one-sentence order, Circuit Judge Diana Gibbon Motz, with the concurrence of Circuit Judges Barbara Milano Keenan and Stephanie D. Thacker, denied Lindberg's motion for release pending appeal. (See U.S.A. v. Lindberg, U.S. Court of Appeals, Fourth Circuit, Case No. 20-4470.)

General Observations
At this writing (October 14), Lindberg's date of October 20 for reporting to prison apparently still stands. I plan to report further developments in this case.

Available Material
I am offering a complimentary 38-page package consisting of the judgment against Hayes (5 pages), the judgment against Lindberg (7 pages), the judgment against Gray (6 pages), Lindberg's motion to extend the self-surrender date (17 pages), and Judge Cogburn's denial of the motion to extend (3pages). Email jmbelth@gmail.com and ask for the October 2020 package about Lindberg.

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Friday, October 2, 2020

No. 392: The Commodity Futures Trading Commission and Thirty State Securities Regulators File a Lawsuit Against Eight Defendants

On September 22, 2020, the Commodity Futures Trading Commission (CFTC) and the securities regulators of thirty states filed, temporarily under seal, a complaint in federal court against TMTE Inc. (also known as Metals.com) and seven other defendants. The regulators are those in Alabama, Alaska, Arizona, California, Colorado, Delaware, Florida, Georgia, Hawaii, Idaho, Indiana, Iowa, Kansas, Kentucky, Maine, Maryland, Michigan, Mississippi, Nebraska, Nevada, New Mexico, New York, Oklahoma, South Carolina, South Dakota, Tennessee, Texas, Washington, West Virginia, and Wisconsin. 

On the same day, the plaintiffs filed an emergency motion for a statutory restraining order, a memorandum in support of the motion, an appendix in support of the motion, a bench memorandum, and a recommendation for appointment of a temporary receiver. Two days later, CFTC lifted the seal on the complaint. (See CFTC v. TMTE, U.S. District Court, Northern District of Texas, Case No. 3:20-cv-2910.)

The Complaint
The plaintiffs allege that, from at least September 1, 2017 through the present, the defendants "have engaged and continue to engage in a fraudulent scheme to defraud at least 1,600 persons throughout the United States into purchasing gold and silver bullion." Here are four items from the "Summary" section of the complaint:
4. Defendants' scam is particularly egregious because they preyed on persons between 60 and 90 years of age and swindled them out of their retirement funds by charging them fraudulent prices to purchase Precious Metals Bullion.
6. Defendants directed SDIRA [self-directed individual retirement accounts] and Cash Account investors to purchase specific Precious Metals Bullion at grossly inflated prices that bore no relationship to the Prevailing Market Price. Defendants did not disclose the actual value of the Precious Metals Bullion and instead provided investors with invoices showing exorbitant and unreasonable prices.
9. Contrary to Defendants' material misrepresentations and omissions, Defendants knew or had a reckless disregard for the truth that virtually every one of their SDIRA and Cash Account investors during the Relevant Period lost the majority of the funds invested in fraudulently overpriced Precious Metals Bullion.
15. Unless restrained and enjoined by the Court, Defendants are likely to continue engaging in the acts and practices alleged in this complaint or in similar acts and practices, and funds they have obtained fraudulently may be misappropriated or otherwise dissipated.
The complaint includes thirty counts of alleged wrongdoing, one count for each of the thirty states. The complaint is in the complimentary package offered at the end of this post.

The Order
The case has been assigned to U.S. District Judge Sam A Lindsay. On September 22, U.S. District Judge David C. Godbey issued an order granting the plaintiffs' emergency motion for a statutory restraining order. He also approved the plaintiffs' recommendation for the appointment of a temporary receiver, and appointed Kelly Crawford to that position. The order is in the complimentary package offered at the end of this post.

General Observations
I learned of this case through a press release issued by the Texas State Securities Board, which is headed by Texas Securities Commissioner Travis J. Iles. The fact that the CFTC and the securities regulators of thirty states are the plaintiffs prompt me to believe that this is an important case.

Available Material
I am offering a complimentary 129-page package consisting of the complaint (106 pages) and the order (23 pages). Email jmbelth@gmail.com and ask for the October 2020 package about CFTC v. TMTE.

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Wednesday, September 30, 2020

No. 391: AXA Equitable Life—Two Individual Lawsuits about the Reinstatement of Universal Life Policies

Malcolm H. Wiener (Wiener), a resident of Connecticut, filed two individual lawsuits against AXA Equitable Life Insurance Company (AXA) about his efforts to reinstate three universal life insurance policies that had lapsed. One of the cases, referred to in this post as "the New York case," began in 2015 and remains ongoing. The other case, referred to in this post as "the North Carolina case," began in 2018, went to trial in 2020, and post-trial motions are pending. (See Wiener v. AXA, U.S. District Court, Southern District of New York, Case No. 1:16-cv-4019; and Wiener v. AXA, U.S. District Court, Western District of North Carolina, Case No. 3:18-cv-106.)

The New York Case
Wiener filed the New York case in a state court in Connecticut. AXA removed the case to a federal court in New York, where AXA is based. The case has dragged on ever since. The most recent docket item, a declaration in support of a motion for summary judgment, was filed on August 25, 2020.

Wiener filed a third amended complaint in 2016. The defendants are three AXA companies and David Hungerford, Wiener's AXA agent. Wiener was born in 1935. In 1986 and 1987, at the age of 51, he bought three AXA universal life insurance policies. The polices were for $9 million, $9 million, and $2 million. Shortly thereafter he reduced them to $7.2 million, $7.2 million, and $1.6 million.

In 2013, when Wiener was aged 78, he received by regular mail a policy termination notice and an application for reinstatement. He promptly submitted the application for reinstatement, together with the necessary medical evidence of insurability. Three months later, AXA denied the application for reinstatement.

The third amended complaint describes the matter in detail and includes eight counts of alleged wrongdoing. The complaint and AXA's answer to the complaint are in the complimentary package offered at the end of this post.

The North Carolina Case
Wiener filed the North Carolina case in a state court in North Carolina, where AXA has a major service office. AXA removed the case to federal court in North Carolina. The case recently went to trial, and the jury rendered its verdict on September 10, 2020. The verdict form contained three questions:
  1. Was Plaintiff Malcolm Wiener injured by the negligence of Defendant AXA Equitable Life Insurance Company?
  2. What amount is Plaintiff Malcolm Wiener entitled to recover from Defendant AXA Equitable Life Insurance Company?
  3. By what amount, if any, should Plaintiff Malcolm Wiener's actual damages be reduced because of his unreasonable failure to avoid or minimize his injuries?
The jury's answers to the questions were: (1) Yes, (2) $16,000,000, and (3) $8,000,000. On the same day, the clerk of the court entered judgment in accordance with the verdict. Also on the same day, the judge issued an order providing the parties with ten days to file post-trial motions. Wiener's complaint, AXA's answer to the complaint, and the jury verdict form are in the complimentary package offered at the end of this post.

General Observations
I believe, but am not certain, that the answer to the second question on the jury verdict form (the $16 million of damages) is the sum of $7.2 million, $7.2 million, and $1.6 million, which are the reduced death benefits of the three policies. I do not know how the jury arrived at the answer to the third question on the verdict form (the $8 million reduction in the damages). I tried, without success, to contact an attorney for Wiener in the North Carolina case to see whether he can confirm my belief about how the jury arrived at the $16 million in damages, and to help me understand how the jury arrived at the $8 million reduction in damages. I plan to post a follow-up when and if I learn anything further.

Available Material
I am offering a complimentary 76-page package consisting of Wiener's third amended complaint (without exhibits) in the New York case  (31 pages), AXA's answer to the third amended complaint (19 pages), Wiener's complaint (without exhibits) in the North Carolina case (12 pages), AXA's answer to the complaint (12 pages), and the jury verdict form (2 pages). Email jmbelth@gmail.com and ask for the September 2020 package about Wiener v. AXA.

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Wednesday, September 9, 2020

No. 390: Philip Falcone and a Series of Amazing Developments

In No. 389 (August 26, 2020), I wrote about the termination of Philip A. Falcone, who had been chairman, president, and chief executive officer of HC2 Holdings, Inc. (NYSE:HCHC) from 2014 to 2020. I said my interest in Falcone arose from his involvement with a block of long-term care (LTC) insurance policies originally issued by Kanawha Insurance Company. I also said that, because Falcone was no longer connected with that block, I did not plan to write further about him. However, shortly after No. 389 was posted, I learned of a series of amazing developments that prompted me to prepare this further update.

James Corcoran
James P. Corcoran served as Superintendent of Insurance in what was then New York State's Department of Insurance from March 9, 1983 to January 26, 1990. I have known Corcoran since that time, although not well, and have always considered him above reproach.

Falcone hired Corcoran in 2015 to serve as executive chairman of Continental Insurance Group Limited (CIGL) to provide state insurance regulators, who were concerned about Falcone's admission of wrongdoing in a 2013 settlement with the Securities and Exchange Commission, with assurance that Falcone and HC2 would have no involvement in the day-to-day operations of any insurance companies HC2 might own or acquire. On April 2, 2020, HC2 terminated Corcoran without cause.

CIGL's Complaint
On May 22, 2020, CIGL and two affiliates, one of which is Continental General Insurance Company (CGIC), filed a lawsuit against Corcoran in a Texas state court. Here is the first paragraph in the "Nature of the Action" section of the complaint:
Continental brings this action against its former Executive Chairman, James P. Corcoran, for breaches of his fiduciary and contractual duties arising out of a secretive scheme to wrest control over Continental from its current sole shareholder, HC2 Holdings Inc. ("HC2"), through a campaign of subterfuge and lies. Mr. Corcoran, a longtime insurance executive, was hired by HC2 in 2015 to run its newly acquired Continental family of insurance companies. By 2019, however, Mr. Corcoran had abandoned his allegiances to both HC2 and the Continental companies he had been hired to lead and instead embarked on a campaign to line his own pockets at their expense.
The complaint includes four counts: breach of duty of loyalty, breach of fiduciary duty, breach of contract seeking damages, and breach of contract seeking injunctive relief. The full complaint is in the complimentary package offered at the end of this post. (See CIGL v. Corcoran, 395th Judicial District, Williamson County, Texas, Cause No. 20-0754-C395.)

Corcoran's Answer
On June 22, Corcoran filed an answer to the CIGL complaint. Here is part of the first paragraph in "The Facts" section of the answer (the full answer is in the complimentary package offered at the end of this post):
This lawsuit is nothing more than an ill-advised, transparent strike suit by Plaintiffs in an effort to diffuse the fact that they unlawfully terminated a whistleblower for reporting improper conduct. Corcoran was hired by CIGL in 2015 for the express purpose of providing assurance to insurance regulators that CIGL's parent company, HC2 Holdings, and its chairman, Phil Falcone, would have no involvement in the day-to-day operations of any of the insurance companies HC2 was looking to acquire... [O]ne of Corcoran's primary roles ... was to ensure that CGIC did not run afoul of any regulatory requirements by permitting Falcone improperly to become involved with and influence CGIC's operations, which conduct would subject CGIC to significant penalties, including the revocation of its certificate of authority to operate. But when Corcoran on multiple occasions raised legitimate concerns with Falcone and HC2's general counsel ... regarding Falcone's attempts to improperly influence CGIC and its officers, which concerns Falcone ignored and instead continued his improper influence, Corcoran was compelled to report such conduct to CGIC's regulator, the Texas Department of Insurance. And when Corcoran reported these facts to HC2's board of directors ... [they] forced CIGL to terminate Corcoran in retaliation. In their blatantly disingenuous effort to recharacterize their retaliatory discharge as somehow a justified business decision, Plaintiffs literally make up facts about an alleged "shadow" scheme in order to defame Corcoran and justify his termination, notwithstanding the fact that their falsehoods have gotten the better of them, since their current claims contradict CIGL's prior admission that its termination of Corcoran was "without cause."
Corcoran's Motion to Compel Arbitration
As mentioned earlier, HC2 terminated Corcoran on April 2, 2020. However, his employment agreement provides that disputes
shall be resolved exclusively and finally by arbitration in New York County, New York, in accordance with the Employment Arbitration Rules and Mediation Procedure of the American Arbitration Association.
On July 6, Corcoran filed in the Texas state court a motion to compel arbitration and for a stay of discovery and further proceedings. The briefing on the motion to compel has not yet been completed.

Corcoran's Whistleblower Complaint
The Sarbanes-Oxley Act of 2002 (SOX), which was enacted in the wake of accounting scandals such as those at Enron and WorldCom, provides for the filing of whistleblower complaints with the U.S. Department of Labor. On August 27, Corcoran filed such a complaint against HC2. Here is the first paragraph of the complaint (the full complaint is in the complimentary package offered at the end of this post):
As counsel of record, we submit this SOX whistleblower complaint on behalf of James Corcoran, who was terminated after complaining to senior management and ultimately the board of directors about material misstatements made by a publicly traded company which failed to correct those statements but instead fired him, as explained below.
CGIC's Statutory Financial Statements
During the preparation of this post, I reviewed the three most recent statutory financial statements that CGIC submitted to state insurance regulators: (1) the annual statement for the year ended December 31, 2019, and dated February 28, 2020; (2) the quarterly statement for the quarter ended March 31, 2020, and dated May 15, 2020; and (3) the quarterly statement for the quarter ended June 30, 2020, and dated August 14, 2020.

The first statement above showed Corcoran as one of the directors, but did not otherwise mention him. However, in the "Notes to Financial Statements," on page 19.18, under "Note 22 - Events Subsequent," the following statement appears:
On January 2, 2020, the Company received notification from the Texas Department of Insurance that a limited scope exam would be conducted as of December 19, 2019. The scope of the examination would focus on company operations including but not limited to corporate governance, related party activities, affiliated agreements and investment activities. The Company has complied with all request [sic] at this time.
The second and third financial statements above make no reference to Corcoran. Also, they do not appear to contain anything relevant to the subject matter of this post.

MG Capital's Report on HC2
MG Capital (MGC) describes itself as "a privately-held investment firm based in New York City that focuses on investing in complex, event-driven opportunities." MGC is a major shareholder in HC2. On April 13, 2020, MGC issued a 97-page, single-spaced report entitled "Time for a Better Board and Vision." The report is harshly critical of the HC2 board, including Falcone, and offers a replacement slate of directors. The MGC report may be found here.

General Observations
I think the CIGL Texas state court lawsuit against Corcoran is outrageous. At this time, however, I have no further comments because there are several related and important matters that are currently pending. Among them are the motion to compel arbitration, the SOX whistleblower complaint, and the ongoing investigation by the Texas Department of Insurance. I plan to follow and report on future developments.

Available Material
I am offering a complimentary 80-page package consisting of the CIGL complaint against Corcoran (25 pages), Corcoran's answer to the complaint including exhibits (49 pages), and Corcoran's SOX whistleblower complaint (6 pages). Email jmbelth@gmail.com and ask for the September 2020 package about Falcone.

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Wednesday, August 26, 2020

No. 389: Philip Falcone's Departure from His Public Company

Falcone and Kanawha
My first post mentioning Philip A. Falcone (CRD#1442413) was No. 242 (November 20, 2017). There I said a block of long-term care (LTC) insurance policies, originally issued by South Carolina-domiciled Kanawha Insurance Company, was being acquired by Continental General Insurance Company (CGIC), a subsidiary of HC2 Holdings Inc. (NYSE:HCHC). The Kanawha LTC block had been acquired earlier by Humana, but Falcone announced in late 2017 that CGIC was acquiring Kanawha's LTC block.

On July 12, 2018, the South Carolina director of insurance issued an order approving the merger of Kanawha into Texas-domiciled CGIC, and the redomestication of Kanawha from South Carolina to Texas. The order included a "continuing obligation of CGIC" that "Falcone shall not have any role in the day-to-day operations of Kanawha or CGIC pre- or post-merger." The order also included a requirement that HC2 maintain a certain risk-based capital ratio for CGIC.

Falcone and the SEC
In No. 244 (December 11, 2017), I discussed Falcone's settlements with the Securities and Exchange Commission (SEC). On August 16, 2013, Falcone and Harbinger Capital Holdings LLC, his New York hedge fund, settled two SEC complaints, admitted wrongdoing, and paid civil penalties of more than $18 million. Falcone agreed to be barred from the securities industry for at least five years, but he was not barred from serving as an officer or director of a public company. In 2014, Falcone became chairman, president, and chief executive officer of HC2. In HC2's filings with the SEC, there was no disclosure of Falcone's settlements with the SEC. Also, in CGIC's statutory filings with state insurance regulators, there was no disclosure of Falcone's settlements with the SEC; indeed, there was no mention of Falcone's name.

The Revolt
In No. 357 (February 25, 2020) I said Falcone was facing a shareholder revolt. On January 27, 2020, several disgruntled HC2 shareholders filed with the SEC some proxy material that included a letter to shareholders announcing a plan to file a preliminary proxy statement in which the disgruntled shareholders would solicit votes for the election of their own slate of directors. Here is the final section of the letter:
Time for a Change: Management's unsuitability, consistent under performance and self-dealing patently disqualify them from continuing to manage the Company. This is why we intend to run our own slate for the Company's board at the next meeting of shareholders as a matter of first priority. Management has wasted six years destroying shareholder value. It's time for a fresh approach.
A Glaring Omission
On February 11, 2020, HC2 filed with the SEC an 8-K (significant event) report. A press release was attached to the 8-K. The 8-K and the press release announced the appointment of an additional member to the board of directors, increasing the size of the board from five to six. However, the 8-K also included these comments, which inexplicably were omitted from the press release:
The Compensation Committee of the Board ... has determined that Philip A. Falcone ... will not receive any bonus or other incentive compensation in respect of 2019, whether under the HC2 Executive Bonus Plan ... or otherwise.... Additional information regarding these matters will be provided in the 2020 Proxy Statement.
Falcone's Compensation
On May 27, 2020, HC2 filed with the SEC some proxy material that included the 2019 summary compensation table. The table shows that for 2019 Falcone received $600,000 of salary and no other compensation. The same table shows that for 2018 he received $600,000 of salary and $10,935,545 of other compensation (stock awards, option awards, and non-equity executive plan compensation), for a total of $11,535,545. The report accompanying the summary compensation table includes an extensive discussion of Falcone's compensation.

Falcone's Departure
On July 6, 2020, HC2 issued a press release. It said, among other things:
The Company additionally announced that, in light of the recent change in the Company's executive management, Philip A. Falcone will not be included on the Company's slate of director nominees for the Annual Meeting [scheduled for July 30, 2020].
General Observations
I originally wrote about Falcone because of his involvement with Kanawha's LTC insurance block. Now that he is no longer connected in any way with that block, I do not plan to write further about him.

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