Tuesday, June 30, 2015

No. 107: Aviva, Athene, and Apollo Are Defendants in a RICO Lawsuit about Alleged Phony Reinsurance

On June 12, 2015, eight plaintiffs' attorneys filed a federal class action lawsuit on behalf of two individuals who purchased Aviva annuities in 2010. The elaborate 131-page complaint alleges violations of the Racketeer Influenced and Corrupt Organizations Act (RICO). The complaint further alleges that the defendant companies—Aviva, Athene, and Apollo—together with other companies and certain individuals, participated in an unlawful RICO enterprise involving phony reinsurance with affiliates. No specific amount of damages is mentioned in the complaint. (See Silva v. Aviva, U.S. District Court, Northern District of California, Case No. 5:15-cv-2665.)

Plaintiffs and Their Attorneys
The plaintiffs are Rachel Silva (a resident of California) and Don Hudson (a resident of Oklahoma). They are represented by Steve W. Berman, Jeff D. Friedman, and Sean R. Matt of Hagens Berman Sobol Shapiro LLP (Seattle); Francis J. Balint Jr. and Andrew S. Friedman of Bonnett Fairbourn Friedman & Balint PC (Phoenix); Chuck Crueger and Erin Dickinson of Hansen Reynolds Dickinson Crueger LLC (Milwaukee); and Ingrid M. Evans of Evans Law Firm Inc. (San Francisco).

Defendants and Other Participants
The defendants are Aviva plc (London, England), Athene Annuity and Life Co. (Iowa), Athene USA Corp. (Iowa), Athene Holding Ltd. (Bermuda), Athene Life Re Ltd. (Bermuda), Athene Asset Management LP (California), and Apollo Global Management LLC (Delaware).

The company participants—in addition to the defendants—identified in the complaint are Cure Life Ltd. (Bermuda), Global Atlantic Financial Group Ltd. (Bermuda), Accordia Life and Annuity Co. (Iowa), Tapioca View LLC (Delaware), Vermont special purpose financial captives Aviva Re USA Inc., Aviva Re USA II Inc., Aviva Re USA III Inc., Aviva Re USA IV Inc., Aviva Re USA V Inc., Aviva Re USA VI Inc., Iowa limited purpose subsidiaries Aviva Re Iowa Inc., Aviva Re Iowa II Inc., Cape Verity I Inc., Cape Verity II Inc., and Cape Verity III Inc.

The individual participants identified in the complaint are Leon Black, Mark Rowan, Joshua Harris, Mark Hammond, Christopher Littlefield, Thomas Godlasky, Michael Miller, Brenda Cushing, Richard Cohan, Guy Hudson Smith III, Erik Askelson, David Attaway, James Belardi, John Fowler, and Maureen Closson.

Paragraphs 537-540 on pages 110-111 of the complaint provide a summary of the allegations. Those paragraphs read:
537. To pull off the reinsurance shell game and purport to move liabilities off Aviva's balance sheet and otherwise give it the appearance of financial strength, Defendants had to create and operate [the Aviva Captives] as well as [the Aviva Affiliates]. Additionally, Defendants had to create and utilize the "unaffiliated" Accordia as well as [the Accordia Captives].
538. The special purpose financial captives, including the Aviva Captives, the Aviva Affiliates, and the Accordia Captives formed the heart of the scheme because their finances are not publicly disclosed under state law, and these entities enabled the RICO Enterprise's unlawful activity to violate statutory accounting requirements, hide liabilities, artificially inflate surplus and RBC [risk-based capital], and improperly pay dividends and fees while fraudulently misrepresenting the financial strength of Aviva in order to sell annuities at inflated prices.
539. Defendants' use of the Aviva Captives, the Aviva Affiliates, and the Accordia Captives made it easier to commit and conceal the RICO Enterprise's fraudulent activities and purpose, because it allowed the generation of phony reserve credits and RBC boosts through circular, non-economic reinsurance and modified coinsurance transactions between entities.
540. The decision to use these entities to misrepresent the true financial condition of Aviva not only facilitated but enabled the RICO Enterprise's unlawful activity; in particular, Aviva used the separately incorporated nature of these entities to perpetrate the fraudulent scheme and the acts of mail and wire fraud that were at the center of the scheme.
General Observations
The lawsuit is in its early stages. Although the names of the attorneys representing the defendants are not yet shown on the docket sheet, a case management conference is tentatively scheduled for September 15. Normally I do not discuss a case until a later stage. However, I mention the case now because it is important, it should be brought to public attention immediately, the plaintiffs' attorneys did not issue a press release about the case, and they have not yet responded to my efforts to speak with them.

The defendants' attorneys may respond initially with procedural matters. However, they may argue that everything done by the defendants and the other participants in the alleged RICO enterprise was in accordance with state laws drafted by the participants and enacted by friendly legislators, in accordance with state regulations drafted by the participants and adopted by friendly regulators, approved by friendly regulators, and signed off on by friendly accountants, actuaries, attorneys, auditors, consultants, company executives, and company directors.

The lawsuit has been referred to Magistrate Judge Paul Singh Grewal. On June 26, a plaintiffs' attorney consented to magistrate judge jurisdiction for all proceedings including trial and entry of final judgment rather than requesting reassignment to a district judge. A federal district judge is appointed for life by the President and confirmed by the Senate. A magistrate judge is appointed—usually for eight years—by district judges to assist district judges. It is puzzling that a case such as this one is to be handled exclusively by a magistrate judge.

Available Material
I am offering a complimentary 149-page PDF consisting of the 131-page complaint and 18 pages of exhibits. E-mail jmbelth@gmail.com and ask for the Silva/Aviva RICO complaint.

Also, I wrote about these matters in blog post nos. 44 (4/22/14), 66 (8/21/14), 71 (11/6/14), 72 (11/12/14), 73 (11/19/14), 93 (4/17/15), 94 (4/20/15), 99 (5/6/15), and 100 (5/11/15).