Friday, October 8, 2021

No. 441: The Massachusetts Securities Regulator Settles an Investigation of a Massachusetts Mutual Subsidiary

The Journal Article
On September 17, 2021, The Wall Street Journal carried a 600-word article on page B1 of the print edition entitled "GameStop Trader's Firm Is Fined—MassMutual faulted by regulator for lack of procedures to monitor activity of Keith Gill." The reporter was Caitlin McCabe. Here is the first paragraph of the article:
A Massachusetts Mutual Life Insurance Co. subsidiary agreed to pay a $4 million fine to settle an inquiry from Massachusetts securities regulators into the social-media and trading activity of its employees, including well-known GameStop Corp. investor Keith Gill.
The Two Consent Orders
William Francis Galvin is the Secretary of the Commonwealth of Massachusetts and heads the Massachusetts Securities Division. The settlement took the form of two Consent Orders, which readers may wish to review in their entirety, dated September 15, 2021 "In the Matter of MML Investors Services, LLC (MMLIS)."

One of the Consent Orders is Docket No. 2021-0004. Here is the first paragraph of the 18-page Consent Order:
This Consent Order is entered into by the Massachusetts Securities Division and MML Investors Services, LLC with respect to the investigation by the Division into whether MMLIS' activities and conduct violated the Massachusetts Uniform Securities Act, Gen. Laws ch. 110A, and the corresponding regulations promulgated thereunder at 950 Mass. Code Regs. 10.00 - 14.413.
The other Consent Order is Docket No. R-2019-0096. Here is the first paragraph of the 13-page Consent Order:
This Consent Order is entered into by the Massachusetts Securities Division and MML Investors Services, LLC with respect to the investigation by the Registration, Inspections, Compliance and Examinations Section of the Massachusetts Securities Division of the Office of the Secretary of the Commonwealth regarding MMLIS' failure to register its agents who conducted securities business in Massachusetts, as well as the individuals responsible for supervising the agents, in violation of the Massachusetts Uniform Securities Act, Mass. Gen. Laws ch. 110A and the corresponding regulations promulgated thereunder at 950 Mass. Code Regs. 10.00 - 14.413.
General Observations
The regulatory settlement discussed in this blog post is complex. I recommend that you read the Journal article mentioned at the beginning of this blog post and the two Consent Orders. I would welcome comments from readers.

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Friday, October 1, 2021

No. 440: The 9/11 Commission Report

As the 20-year commemoration of the terrorist attack on the United States blanketed the nation, I realized I had not read the 9/11 Commission Report. I have remedied the failure by reading the 593-page Report in its entirety. I then decided to prepare this blog post.

The 9/11 Commission
Congress and President George W. Bush created the National Commission on Terrorist Attacks Upon the United States (Public Law 107-306, November 27, 2002). Ten Commissioners, consisting of five Republicans and five Democrats chosen by elected leaders from our nation's capital, came together to present the Report without dissent.

The Commission's Mandate
The Commission had a sweeping mandate: to investigate facts and circumstances relating to the terrorist attacks of September 11, 2001, including those relating to intelligence agencies, law enforcement agencies, diplomacy, immigration issues, border control, the flow of assets to terrorist organizations, commercial aviation, the role of congressional oversight and resource allocation, and other areas determined relevant by the Commission. The Commission held 29 days of hearings and took public testimony from 160 witnesses.

Thomas H. Kean was Chair of the Commission. Lee H. Hamilton was Vice Chair. The other members were Richard Ben-Veniste, Fred F. Fielding, James S. Gorelick, Slade Gorton, Bob Kerrey, John F. Lehman, Timothy J. Roemer, and James R. Thompson. Philip Zelikow was the Executive Director of the Commission Staff.

Structure of the Report
The first major section of the Report is entitled "Inside the Four Flights." It describes in excruciating detail what happened on the four hijacked flights: American Airlines Flight 11, United Airlines Flight 175, American Airlines Flight 77, and United Airlines Flight 93.

The second major section of the Report is about the Federal Aviation Administration (FAA) and the North American Aerospace Defense Command (NORAD). The third major section is about National Crisis Management. The fourth major section, about "The Foundation of the New Terrorism," focuses on Usama [sic] bin Laden and also discusses Al Qaeda and its renewal in Afghanistan.

The fifth major section is entitled "Counterterrorism Evolves." It discusses the Central Intelligence Agency, the National Security Agency, the Department of Defense, the State Department, the Federal Bureau of Investigation, the Defense Intelligence Agency, the Drug Enforcement Administration, the Immigration and Naturalization Service, and other agencies.

General Observations
I was impressed by the quality of the Report. I think it is well worth taking the time to read it in its entirety. A link to the Report is in the first paragraph of this blog post. I would welcome comments from readers.

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Friday, September 24, 2021

No. 439: Another Class Action Lawsuit Against Genworth

The Halcom Lawsuit
On January 11, 2021, Judy Halcom and three other individuals filed a class action lawsuit against Genworth Life Insurance Company (GLIC) and Genworth Life Insurance Company of New York (GLICNY). In this case, the two defendants collectively are referred to as "Genworth." (See Halcom v. Genworth, U.S. District Court, Eastern District of Virginia, Case No. 3:21-cv-19.)

A Brief Summary
The introduction in the Halcom complaint describes the nature of the lawsuit. Here is the third paragraph of the introduction:
3. Since 2008, Genworth has steadily and substantially increased the premiums on these policies. To be clear, this case does not challenge Genworth's contractual right to increase these premiums, or its need for premium increases given changes in certain of Genworth's actuarial assumptions and the historical experience of these policy blocks. Nor does this case ask the Court to reconstitute any of the premium rates or otherwise substitute its judgment for that of any insurance regulator in approving the increased rates. Rather, this case seeks to remedy the harm caused to Plaintiffs and the Classes from Genworth's partial disclosures of material information when communicating the premium increases, and the omission of material information necessary to make those partial disclosures adequate. Without this material information, Plaintiffs and the Classes could not make informed decisions in response to the premium increases and ultimately made policy option renewal elections they never would have made had the Company adequately disclosed the staggering scope and magnitude of its internal rate increase action plans in the first place.
The Judge
The Halcom case was assigned to U.S. Senior District Court Judge Robert E. Payne. President George W. Bush nominated him in November 1991. The Senate confirmed him in May 1992. He assumed senior status in May 2007.

The Halcom Settlement
On August 30, 2021, Judge Payne issued an order granting preliminary approval of the Halcom settlement and directing notice to the class of over 146,000 members in all 50 states and the District of Columbia. He appointed Epiq Class Action & Claims Solutions, Inc. (Epiq) as administrator of the settlement, approved the class notice and the publication notice, and ordered Epiq to disseminate the class notice to class members within 60 days. He approved the form of the Special Election Letter to be mailed to class members, subject to possible changes by state insurance regulators. He described the procedure for exclusions and objections, set the final approval hearing for February 9, 2022, and attached a list of all the policy form numbers. He also attached the notice to class members (nine pages) and the publication notice (one page), which are here.

In the notice to class members, there is a section on attorneys' fees and litigation expenses. It says the class attorneys (the same attorneys who filed the Skochin complaint mentioned later), as part of the request for final approval of the settlement, will request (a) $1 million relating to the injunctive relief that is in the form of the disclosures, and (b) an additional contingent payment of 15 percent of certain amounts related to the class members' selection of options, but no greater than $18,500,000. None of the attorneys' fees will be deducted from the payments made to class members. Also, the class attorneys will request an award of litigation expenses of no more than $50,000. Genworth has agreed to pay all fees and expenses. The class attorneys will also request approval of payment of up to $15,000 for each of the four named plaintiffs.

Genworth's Comments on the Halcom Settlement
On August 5, 2021, Genworth filed its 10-Q report for the quarter ended June 30, 2021, with the Securities and Exchange Commission. On pages 66-67 of the report, Genworth made these comments on the proposed settlement of the Halcom case:
If we enter into a settlement consistent with the agreement in principle reached on June 18, 2021, we do not anticipate the result to have a material negative impact on our results of operations or financial position. If we do not enter into a final settlement, we intend to continue to vigorously defend this action.
The Eastern District of Virginia
The United States District Court for the Eastern District of Virginia (where Genworth is based) has a reputation as the fastest civil trial court in the United States. The Halcom case is an example. The complaint was filed on January 11, 2021. Genworth's answer to the complaint was filed on March 15. A pretrial conference was held on April 21. A scheduling order was issued on May 3. The parties were engaged in private mediation on May 27. The parties agreed to a settlement on June 30. The proposed settlement was filed on August 23. Preliminary approval of the settlement was granted on August 30. The settlement approval hearing on February 9, 2022 was set on September 2, 2021.

The Skochin Lawsuit
The Halcom case resembles the case of Skochin v. Genworth. My most recent update on Skochin is in No. 398 (November 13, 2020).

General Observations
I plan to post a follow-up to this blog post after Judge Payne grants final approval of the Halcom settlement.

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Friday, September 17, 2021

No. 438: The Texas Republicans' Abortion Law

The Texas Abortion Law
The Republican-controlled Texas legislature recently enacted, and the Republican governor of Texas signed, a frightening abortion law that took effect at midnight on September 1, 2021. Opponents immediately asked the U.S. Supreme Court to rule that the law is unconstitutional. In a shocking development, the Supreme Court denied the request in a 5 to 4 Court order, with Chief Justice Roberts joining with the three liberal justices.

The Sotomayor Dissent
Justice Sonia Sotomayor wrote a powerful dissenting opinion, with which liberal Justices Breyer and Kagan joined. The first paragraph and the last two paragraphs of the Sotomayor dissent read as follows:
The Court order is stunning. Presented with an application to enjoin a flagrantly unconstitutional law engineered to prohibit women from exercising their constitutional rights and evade judicial scrutiny, a majority of Justices have opted to bury their heads in the sand. Last night, the Court silently acquiesced in a state enactment of a law that flouts nearly 50 years of federal precedents. Today, the Court belatedly explains that it declined to grant relief because of procedural complexities of the State's own invention. Ante, at 1. Because the Court's failure to act rewards tactics designed to avoid judicial review and inflict significant harm on the applicants and on women seeking abortions in Texas, I dissent....
The Court should not be so content to ignore its constitutional obligations to protect not only the rights of women, but also the sanctity of its precedents and of the rule of law.
I dissent.
Dissenters normally say "I respectfully dissent." In this instance, Sotomayor said "I dissent." I recommend that you read the full Sotomayor dissent and the related filings (12 pages).

The Garland Statement
On September 6, the U.S. Department of Justice released a statement from U.S. Attorney General Merrick B. Garland about the Texas abortion law. Here is the full statement:
While the Justice Department urgently explores all options to challenge [the Texas abortion law] in order to protect the constitutional rights of women and other persons, including access to an abortion, we will continue to protect those seeking to obtain or provide reproductive health services pursuant to our criminal and civil enforcement of the FACE Act, 18 U.S.C. § 248.
The FACE Act prohibits the use or threat of force and physical obstruction that injures, intimidates, or interferes with a person seeking to obtain or provide reproductive health services. It also prohibits intentional property damage of a facility providing reproductive health services. The department has consistently obtained criminal and civil remedies for violations of the FACE Act since it was signed into law in 1994, and it will continue to do so now.
The department will provide support from federal law enforcement when an abortion clinic or reproductive health center is under attack. We have reached out to U.S. Attorneys' Offices and FBI field offices in Texas and across the country to discuss our enforcement authorities.
We will not tolerate violence against those seeking to obtain or provide reproductive health services, physical obstruction or property damage in violation of the FACE Act.
General Observations
My blog posts usually are devoted to insurance matters. However, the Texas abortion law is so outrageous that I decided to comment on it.

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Friday, September 10, 2021

No. 437: The Securities and Exchange Commission Files a Civil Lawsuit Against Several Investment Promoters

On August 20, 2021, the Securities and Exchange Commission (SEC) filed a civil lawsuit in federal court in San Antonio against Robert J. Mueller (Mueller) and several other investment promoters. The defendants allegedly persuaded investors, many of whom are retirees, to cash out annuities and individual retirement accounts they held with other investment companies and invest in funds promoted by the defendants. (See SEC v. Mueller et al., U.S. District Court, Western District of Texas, Case No. 5:21-cv-785.)

The SEC Complaint
The SEC complaint (24 pages) contains eight counts alleging violations of federal securities laws. The SEC seeks a permanent injunction, disgorgement of ill-gotten gains, and payment of a civil penalty.

The Judge
The case has been assigned to U.S. District Court Judge Xavier Rodriguez. President George W. Bush nominated him, and he assumed office on August 1, 2003.

General Observations
This case is in its very early stages. The defendants have not yet filed an answer to the complaint. I plan to report significant developments.

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Friday, September 3, 2021

No. 436: More on the $97 Million Regulatory Settlement Imposed on TIAA

In No. 434 (August 18, 2021), I reported on the $97 million regulatory settlement imposed on The Teachers Insurance and Annuity Association of America (TIAA) by the Securities and Exchange Commission (SEC) and the New York State Attorney General (NYAG). On August 20, I received an email from a former Wealth Management Advisor (WMA) at TIAA. In response to that email, I sent the former WMA links to three earlier blog posts about developments at TIAA. The purpose of this follow-up is to share those three earlier posts with other readers. In each of the posts, I offered a complimentary package of additional material; those packages remain available upon request.

The Earlier Blog Posts
The first of the earlier blog posts is No. 68 (September 22, 2014) entitled "TIAA, Moody's, and Surplus Notes." In it, I offered the September 2014 TIAA package.

The second of the earlier blog posts is No. 240 (November 9, 2017) entitled "TIAA-CREF Under the Microscope." In it, I offered the November 2017 TIAA package.

The third of the earlier blog posts is No. 321 (July 9, 2019) entitled "TIAA Is Exiting the Life Insurance Business." In it, I offered the July 2019 TIAA package.

More on Surplus Notes
Surplus notes have a long and interesting history in the insurance business in the United States. TIAA and The Northwestern Mutual Life Insurance Company (Milwaukee, WI) were the last two holdouts against what became the widespread use of these extraordinary financial instruments.

My 2015 book entitled The Insurance Forum: A Memoir contains a chapter devoted to the subject of surplus notes. For readers who might be interested, here is a link to Chapter 25.

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Friday, August 27, 2021

No. 435: Ohio National Is the Defendant in a Job Discrimination Lawsuit

The Modified Work Schedule
Jessica Walker (Walker), an Ohio resident, was employed by Ohio National Financial Services. Inc. (Ohio National) from July 7, 2012 to July 31, 2017. In 2017, Ohio National announced it would implement a modified full-time work schedule that would be available to some employees. It was Walker's understanding that the modified work schedule was to benefit female employees with young children. In July 2017, Walker expressed concerns about the modified work schedule not being offered to all similarly situated employees.

The Meeting
On Friday, July 28, 2017, Walker met with several Ohio National officials to discuss her concerns. During the meeting, Walker said that, if the company did not offer the same work schedule to all similarly situated employees, she would likely contact the Equal Employment Opportunity Commission (EEOC) to determine if the disparate treatment would be unlawful. On Monday, July 31, 2017, Ohio National terminated Walker's employment.

The Lawsuit
On April 13, 2021, Walker received a "right to sue" letter from the Indianapolis office of the EEOC. On July 1, Walker filed a job discrimination lawsuit against Ohio National in federal court in Ohio. The "right to sue" letter is attached to the complaint as an exhibit. The complaint and exhibits are here. In her complaint, Walker said she had exhausted her administrative remedies by filing a charge of retaliation with the EEOC alleging that the company had terminated her employment because she had indicated her intent to contact the EEOC. (See Walker v. Ohio National, U.S. District Court, Southern District of Ohio, Case No. 1:21-cv-448.)

The One Claim for Relief
Walker's complaint contains one claim for relief. She alleges that Ohio National's actions constitute retaliation in violation of Title VII of the Civil Rights Act of 1964. She seeks lost wages, fringe benefits, compensatory and punitive damages, and attorney fees and costs.

The Judge
The case has been assigned to U.S. District Judge Donald R. Cole. President Trump nominated him in May 2019. The Senate confirmed him in December 2019.

General Observations
This lawsuit is in its early stages. I think it is likely that the case will be settled. I plan to report significant developments.

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