Wednesday, June 30, 2021

No. 427: New York's Regulation 187—A Brief Update

In No. 420 (May 7, 2021), I wrote about legal developments relating to amended Regulation 187 (Reg 187) issued by the New York State Department of Financial Services (DFS). The Independent Insurance Agents and Brokers and other entities and individuals (collectively, the petitioners) challenged in court the constitutionality of Reg 187.

In July 2019, the trial court in New York found in favor of DFS by ruling that Reg 187 is constitutional. The petitioners appealed the ruling.

In April 2021, an appellate court in New York reversed the trial court's ruling by finding that Reg 187 is unconstitutional. In No. 420, I said DFS was reviewing the appellate court's ruling.

The Notice of Appeal
On May 27, 2021, DFS filed a Notice of Appeal to the Court of Appeals, which is New York State's highest court. In the notice, DFS said it is appealing from every part of the appellate ruling. At this time, I do not know when the DFS appellate brief will be filed. I plan to report further developments in this important litigation.


Wednesday, June 23, 2021

No. 426: More on Bitcoin after Recent Ransomware Attacks

Several years ago I posted two items about Bitcoin, a form of "virtual currency" or "cryptocurrency." In view of recent ransomware attacks involving Bitcoin, I decided to prepare this update. My previous posts are No. 34 (March 3, 2014) and No. 268 (May 30, 2018). With regard to each of the four sections of this update, I provide a link to allow interested readers to see the relevant document.

The EscoCapital Case
On April 30, 2021, the Texas State Securities Board (TSSB) issued an Emergency Cease and Desist Order directed at EscoCapital and Anthony Jerome. The order requires the respondents to cease and desist immediately from: (1) offering for sale any security in Texas until the security is registered with the Securities Commissioner or is offered for sale pursuant to an exemption under the Texas Securities Act; (2) acting as a securities dealer, agent, investment adviser, or investment adviser representative in Texas until they are registered with the Securities Commissioner or are acting pursuant to an exemption from registration under the Act; (3) engaging in any fraud in connection with the offer for sale of any security in Texas; and (4) offering securities in Texas through an offer containing a statement that is materially misleading or otherwise likely to deceive the public.

The First Unum/Paul Revere Case
On May 12, 2021, the New York State Department of Financial Services (DFS) entered into a Consent Order with First Unum Life Insurance Company and The Paul Revere Life Insurance Company. The order refers to two "Cybersecurity Events" involving violations of New York State statutes or DFS regulations. The companies will pay a civil monetary penalty of $1.8 million to DFS and meet other requirements.

The Tilford Case
On June 8, 2021, the TSSB issued an Enforcement Action entitled "Richard Gregory Tilford: Convicted." Tilford (of Arlington, Texas) was sentenced to serve 40 years in state prison for engaging in a fraudulent digital marketing investment scheme. He was also sentenced to serve ten years in prison for each of six counts of selling unregistered securities, and ten years in prison for each of six counts of acting as an unregistered dealer. The sentences will run concurrently. Tilford had been indicted in Collin County, Texas, in 2018.

The TSSB Guide
For those interested in cryptocurrencies, I recommend a guide prepared by the TSSB entitled The Investor's Guide to Cryptocurrency Offerings. The guide consists of seven parts: (1) Fiat v. Virtual Currency; (2) How Cryptocurrencies Work; (3) Initial Coin Offerings; (4) Digital Money, Real Risk; (5) Crypto-Scams; (6) Enforcement Actions; and (7) Glossary.


Wednesday, June 16, 2021

No. 425: An Important New Book about the United States Secret Service

Carol Leonnig is a top investigative reporter at The Washington Post. She holds three Pulitzer prizes. Her new book, published May 18, 2021, is entitled Zero Fail and subtitled The Rise and Fall of the Secret Service. When I first saw the 532-page book, I was intimidated. However, I got over that feeling. When I started reading the book, I was hooked, and read the entire book.

The book is divided into five major parts: (1) The Tragedy that Birthed a New Secret Service, Kennedy to Nixon, 1963-1974; (2) Meeting the Test, Ford to Clinton, 1974-1999; (3) Terror and Politics, The Bush Years, 2000-2007; (4) The Wheels Come Off, The Obama Years, 2008-2015; (5) Sliding Backward, The Trump Years, 2016-2020. The book also includes a Prologue and an Epilogue. The final section of the Epilogue summarizes the book. It reads:
Today the [Secret] Service remains spread dangerously thin. In addition to protecting a president and vice president and their families, and key senior leaders, the Service also protects hundreds of foreign leaders who visit the United States every year, investigates a broad range of financial crimes, assesses and investigates violent threats whether they are made in bars, in written letters, or on Twitter, researches the traits of school shooters to help communities prevent future attacks, helps local police track down missing and exploited children, and much more. [One Trump Administration] official told me they and their fellow senior national security advisers revere the commitment of so many of the Secret Service's soldiers on the front line, but they remain haunted that the agency hasn't been given the money, staff, or tools to do all its jobs. This neglect creates an opening for a serious attack on our democracy. "Someone in the near future needs to sit down and figure out: What is their mission? Because they can't do the mission they have now," the person said. "These people are patriots. We're letting them down and we're leaving the country at risk." It should haunt us all.
The book is superb. I think it is essential reading for anyone concerned about the survival of our democracy.


Thursday, June 10, 2021

No. 424: Kemper's Long Struggle Relating to Lost Policyholders

On April 5, 2021, the Florida Supreme Court agreed to take a case that has been progressing in Florida state courts. I have been writing for years about the underlying subject matter, which is the handling of lost policyholders. Here I discuss the background and recent developments.

Retained Asset Accounts
The September 2010 issue of Bloomberg Markets magazine carried a special report entitled "Duping the Families of Fallen Soldiers" and subtitled "Life insurers are secretly profiting from the death benefits owed to the survivors of [military] service members and other Americans." The report became a media sensation.

Metropolitan Life Insurance Company (Met) was heavily involved in the administration of government life insurance for members of the military. An attorney at Met dreamed up the idea of sending the beneficiaries of deceased members of the military a book of drafts instead of a check for the death benefit. Met then set up for the beneficiary a "retained asset account" (RAA). Other life insurance companies did the same. As beneficiaries moved around, companies lost contact with many of them. When state unclaimed property agencies learned that companies had not been remitting unclaimed RAA funds in accordance with state unclaimed property laws, the agencies began to investigate.

During the 1990s, many mutual life insurance companies, which at least in theory are owned by their policyholders, converted themselves into shareholder-owned companies through a process called "demutualization." When that occurs, the companies must contact their policyholders, for two reasons. First, they must ask their policyholders for permission to demutualize. Second, if they go through with demutualization, they must compensate their policyholders—with cash or with shares of stock in the new company—for the loss of the policyholders' ownership rights.

Unfortunately, however, the companies may have lost contact with many of their policyholders. The problem was most acute for Met, Prudential, and John Hancock. Those large companies had long been prominent in the sale of so-called industrial life insurance, which is also called "home service life insurance." When the companies exited that business many years ago, they stopped collecting premiums and deemed all their industrial policies as paid-up. Consequently, the companies lost contact with many of their policyholders.

For example, John Hancock, then based in Massachusetts, received huge amounts of undeliverable mail because the mailing addresses were outdated. That attracted the attention of Massachusetts unclaimed property officials. They were concerned that huge amounts of unclaimed property were not being turned over to the state, as required by the state's unclaimed property law, and they launched investigations. Later the matter attracted the attention of state insurance regulators, who also launched investigations.

Kemper's Litigation
In No. 133 (December 16, 2015), I wrote about a lawsuit filed by several Kemper companies against an auditing firm that was conducting an investigation on behalf of state treasurers about unclaimed property held by the companies. In that litigation, Kemper was not successful in blocking the investigation.

Florida's Tough New Rules
In 2016, the Florida Legislature imposed tough new rules on insurance companies with regard to lost policyholders and unclaimed property. Kemper has been fighting the new rules, arguing they are unconstitutional. On June 3, 2020, a three-judge panel of the District Court of Appeal of Florida, First District, in a 2-1 decision, upheld the constitutionality of the new rules. A 26-page document containing the majority and the dissenting June 3, 2020 opinions is here.

Recent Developments
As mentioned at the beginning of this post, on April 5, 2021, the Florida Supreme Court agreed to hear Kemper's appeal of the June 3, 2020 decision by the Florida First District Court of Appeal. As of May 31, 2021, several insurance industry parties have received approval to file amicus briefs in support of Kemper's argument that Florida's new rules are unconstitutional. It appears that no one has indicated an interest in filing an amicus brief in support of the argument that Florida's new rules are constitutional. Clearly the case has a long way to go. (See United Insurance Company of America v. Patronis, Florida Supreme Court, Case No. SC20-1306.)


Wednesday, June 2, 2021

No. 423: William Barr's New Legal Problem: An Update

On May 3, 2021, as reported in No. 421 (May 20, 2021), U.S. District Judge Amy Berman Jackson issued a 41-page partially redacted opinion. The opinion grew out of a lawsuit filed in 2019 by Citizens for Responsibility and Ethics in Washington (CREW) under the federal Freedom-of-Information Act against the U.S. Department of Justice (DOJ). (See CREW v. DOJ, U.S. District Court, District of Columbia, Case No 1:19-cv-1552.)

DOJ's Two Recent District Court Filings
On May 24, 2021, DOJ filed in the district court a one-page notice of appeal, and a 21-page motion for a partial stay pending appeal along with a partially redacted 10-page Exhibit A. Those documents are here.

Circuit Court Developments
On May 25, 2021, DOJ filed its appeal of Judge Jackson's opinion. (See CREW v. DOJ, U.S. Court of Appeals, District of Columbia Circuit, Case No. 21-5113.)

On the same day, the circuit court clerk issued a 2-page order scheduling several items to be filed by June 24, 2021, and dispositive motions (if any) to be filed by July 9, 2021. The clerk's order is here.

General Observations
I do not know how long it will take for the circuit court to handle DOJ's appeal of Judge Jackson's opinion. I plan to report further significant developments in another update.