No. 309: Greg Lindberg and Three Others Indicted by a Federal Grand Jury in North Carolina

On March 18, 2019, in a sealed indictment, a federal grand jury in North Carolina charged Greg E. Lindberg and three others with criminal wrongdoing. On April 2, a magistrate judge unsealed the indictment. On April 3, the case was assigned to U.S. District Judge Max O. Cogburn, Jr. President Obama nominated him in January 2011, and the Senate confirmed him in March 2011, (See U.S.A. v. Lindberg, U.S. District Court, Western District of North Carolina, Case No. 5-19-cr-22.)

The Defendants and the Charges

Lindberg, a resident of Durham, North Carolina, is the founder and chairman of Eli Global, LLC, a Durham-based investment company, and the owner of Global Bankers Insurance Group (GBIG), a Durham-based managing company for several insurance and reinsurance companies. The other defendants, all residents of North Carolina, 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. All four defendants were charged 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.

The arrest warrants were issued in Charlotte in March. Each warrant described the offense as follows:

did knowingly combine, conspire, confederate, & agree with one another, and with others known and unknown to the Grand Jury, to devise & intend to devise a scheme and artifice to defraud and to deprive, by means of material false and fraudulent pretenses, representations, & promises, & to transmit and cause to be transmitted by means of wire communication in interstate commerce, any writings, signs, signals, pictures, & sounds for the purpose of executing the scheme & artifice to defraud & deprive, that is, to deprive North Carolina & the citizens of N.C. of their intangible right to the honest services of the COMMISSIONER, an elected State official, through bribery, in violation of 18 U.S.C. §§ 1343 & 1346

The defendants were arrested and arraigned on April 2. They pleaded not guilty, were released with conditions, and each posted an unsecured appearance bond of $100,000. Pretrial reports were filed under seal on April 3. A docket call is set for July 1. The arrest warrant for Lindberg is in the complimentary package offered at the end of this post.

The Indictment

In most states, the insurance commissioner is appointed by the governor. North Carolina is one of the minority of states in which the insurance commissioner is elected. Commissioner Mike Causey heads the North Carolina Department of Insurance (NCDOI). Paragraph 4 of the indictment reads:

GBIG managed several insurance companies across the United States and was subject to regulation by the NCDOI. Beginning in or about September 2017, and continuing through in or about February 2018, GBIG was subject to an ongoing periodic examination conducted by the NCDOI pursuant to North Carolina General Statute § 58-2-131, which provides that the NCDOI shall conduct a financial examination of every domestic insurer when "prudent for the protection of the policy holders or the public," but "not less frequently than once every five years." Following the periodic investigation, GBIG was subject to a remediation agreement it signed with the NCDOI in or about May 2018.

I asked the NCDOI for the remediation agreement. A spokesperson said it is confidential. I also asked for the examination reports. The spokesperson sent me reports for two Lindberg companies: Colorado Bankers Life Insurance Company (a report that is in the complimentary package offered at the end of this post) and Southland National Insurance Corporation. Both reports are as of December 31, 2015, and dated May 10, 2017. I found no reference to a remediation agreement in either report. Other companies mentioned in the reports are:

Colorado Benefits Administration, LLC
Colorado Benefits Administrators, LLC
Dearborn National Life Insurance Company
North Carolina Mutual Life Insurance Company
Preferred Financial Corporation, LLC
SNG Holdings & Reinsurance Company, Inc.
Southern Financial Life Insurance Company
Southland Benefit Solutions, LLC
Southland National Holdings, Inc.
Southland National Reinsurance Corporation

Paragraphs 14, 30, and 31 of the indictment are important. They read as follows:

14. The defendants corruptly gave, offered, and promised things of value to [Causey], including millions of dollars in campaign contributions and through an independent expenditure committee, in exchange for specific official action favorable to GBIG, including the removal of the Senior Deputy Commissioner of the NCDOI responsible for overseeing the regulation, including the pending periodic examination, of GBIG ("Senior Deputy Commissioner A").

30. On or about February 14, 2018, Lindberg and Gray met with [Causey] in a private conference room at the Concord Regional Airport in Concord, North Carolina. Leading up to the meeting, Gray explained that the meeting would be secret, and told [Causey] that Gray and Lindberg would enter the facility through a different door from [Causey] so that nobody would see them together.

31. During the meeting, Lindberg complained about various issues with the NCDOI, including Senior Deputy Commissioner A. Lindberg stated that she was "deliberately and intentionally and maliciously hurting my reputation with other regulators," and that she's "been lying to you to, to hurt my bad name." [Blogger's note: The end of paragraph 31 is exactly the way it reads in the indictment.]

On the website of the NCDOI, the "leadership" section includes a photograph and biographical information for Chief Deputy Commissioner Dr. Michelle Flynn Osborne. There are no other women in the NCDOI leadership. I asked NCDOI whether I am correct in my belief that "Senior Deputy Commissioner A" is Dr. Osborne. The spokesperson said "need to contact FBI." I have not done so, because I know the FBI would have no comment. The indictment is in the complimentary package offered at the end of this post.

Media Coverage

On March 1, 2019, The Wall Street Journal (WSJ) carried a 2,480-word story entitled "Insurance Tycoon Diverts $2 Billion—Greg Lindberg's business practices have little precedent and are under investigation." The reporters were Mark Maremont and Leslie Scism. Here are the opening sentences:

Soon after Greg Lindberg moved into the insurance business, the North Carolina entrepreneur went on a spending spree. He bought nearly 100 companies around the globe, an estate in the Florida Keys, an Idaho lakeside retreat, a Gulfstream jet and the most expensive mansion ever sold in Raleigh, N.C. In September 2018 he added a 214-foot yacht with room for a dozen overnight guests. He also became the largest political donor in North Carolina and lavished money on other races around the country. The cash came, at least in part, from huge sums Mr. Lindberg diverted from the group of life insurance firms he began assembling in 2014, a Wall Street Journal investigation found.

On March 3, Lindberg spokespersons responded to the WSJ story. They said the story omitted key facts and contained numerous inaccuracies.

On April 3, WSJ carried a 591-word story entitled "Financier, State GOP Chairman Indicted," by the same reporters. Here are the opening sentences:

Greg Lindberg, a North Carolina entrepreneur who lent at least $2 billion from insurers he controlled to his own enterprises, was indicted on federal criminal charges of conspiring to bribe the state regulator overseeing his insurers. The indictment rocked North Carolina's Republican Party. One of Mr. Lindberg's three co-defendants in the case is party Chairman and former Congressman Robert "Robin" Cannon Hayes, who allegedly agreed to direct $250,000 from state party coffers to the state insurance commissioner on Mr. Lindberg's behalf. Mr. Hayes, 73 years old, is also alleged to have lied about the scheme to the Federal Bureau of Investigation.

On April 5, WSJ carried an 869-word story entitled "Commissioner Helped Spot Alleged Bribery," by the same reporters. Here are a few of the opening sentences:

In the fall of 2017, Mike Causey, a Republican who had been elected North Carolina's insurance commissioner the year before, was trying to get up to speed on medical-insurance scams. He attended a seminar on the issue in Charlotte, N.C., organized by federal prosecutors. As the event was ending, Mr. Causey said in an interview Wednesday, he mentioned to one of the prosecutors that his department was struggling to understand complex transactions at a couple of life insurers. The prosecutor followed up, requesting more information on the matter. By early 2018, Mr. Causey was secretly recording conversations for the Federal Bureau of Investigation, The Wall Street Journal previously reported, citing people familiar with the matter.

On April 5, The New York Times carried a 1,468-word story entitled "G.O.P. Agenda in North Carolina Is Bruised by a Bout With Scandal." The reporters were Alan Blinder and Richard Fausset. The story included discussions of major political missteps by both political parties, but mostly by Republicans. The story referred to such scandals as the Republican-backed bill limiting the bathroom choices of transgender people, the court-rejected gerrymandering plan, and the recent harvesting of absentee ballots. The story also mentioned that the Republican National Convention in 2020 is scheduled for Charlotte.

General Observations

This is a disturbing case. The details on how the defendants are alleged to have tried to bribe Causey are presented in clinical detail in the indictment. I plan to follow the case, but it is likely to take a long time unless the defendants reach a plea agreement with the federal prosecutors.

The hero in the case is Causey, who tipped off the prosecutors about what was going on, and later cooperated in building the case. It remains to be seen what happens in the case and to Causey's political career.

Available Material

I am offering a complimentary 47-page PDF consisting of the arrest warrant for Lindberg (1 page), the indictment (24 pages), and the examination report on Colorado Bankers Life (22 pages). Email jmbelth@gmail.com and ask for the April 2019 Lindberg package.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 308: Long-Term Care Insurance and the Insolvency of Senior Health Insurance Company of Pennsylvania

On April 3, 2019, I obtained the statutory annual statement of Senior Health Insurance Company of Pennsylvania (SHIP) for the year ended December 31, 2018. SHIP has been running off the long-term care (LTC) insurance business of the former Conseco Senior Health Insurance Company (CSHI) since 2008. I wrote four articles in The Insurance Forum about the transfer of CSHI's LTC insurance business to SHIP; the articles are in the complimentary package offered at the end of this post.

The Insolvency

SHIP's 2018 statement (on pages 2 and 3) shows that total liabilities of $2.66 billion exceed total admitted assets of $2.22 billion by $0.44 billion. Thus the company is insolvent. Also, the statement (on page 4) shows that the company incurred a net loss of $0.5 billion in 2018. Those pages are in the complimentary package offered at the end of this post.

I have posted several items about SHIP on my blog, and have commented from time to time about the worsening financial condition of the company. My most recent prior post, based on the company's 2017 statement, is in No. 260 (April 2, 2018).

A Puzzling Sentence

SHIP's 2018 statement (on page 19.2) contains this sentence: "There is not substantial doubt about the Company's ability to continue as a going concern." I find puzzling the inclusion of such a sentence in the financial statement of an insolvent company. Page 19.2 is in the complimentary package offered at the end of this post.

The Jurat

In the SHIP statement I obtained, the jurat section at the bottom of page 1 shows the names of three officers: Barry Lee Staldine, President and Chief Executive Officer; Ginger Susan Darrough, Chief Financial Officer and Treasurer; and Kristine Tejano Rickard, Secretary. However, there were no signatures of those officers, the notary section was blank, and there was no indication of when the Pennsylvania department received the statement. I contacted the department, and a spokesperson promptly sent me a copy of page 1 showing the signatures, the notarization dated February 26, and the department's March 5 receipt stamp. Both versions of page 1 are in the complimentary package offered at the end of this post.

Directors and Affiliates

The directors listed on page 1 in SHIP's 2018 statement are Staldine, Darrough, Julianne Marie Bowler, Cecil Dale Bykerk, John Martin Morrison, Gregory Vincent Serio, and Thomas Edward Hampton.

According to page 19.12 in the 2018 statement, SHIP is affiliated with Fuzion Analytics, Inc., and both are wholly owned subsidiaries of the Senior Health Care Oversight Trust. SHIP and Fuzion have a management agreement under which SHIP paid $15.5 million to Fuzion in 2018. According to page 19.11 in the 2018 statement, SHIP, Fuzion, and the Oversight Trust file consolidated federal income tax returns. Pages 19.11 and 19.12 are in the complimentary package offered at the end of this post.

Risk-Based Capital

When I discuss risk-based capital (RBC) ratios, I refer to the ratio where the numerator is total adjusted capital and the denominator is company action level RBC, and where the RBC ratio is expressed as a percentage. According to page 22 in SHIP's 2018 statement, the company's RBC ratios were 108 in 2014 (red flag zone), 80 in 2015 (company action zone), 82 in 2016 (company action zone), and 71 in 2017 (regulatory action zone). For 2018, total adjusted capital is minus $466.8 million, authorized control level RBC is $51.3 million, and company action level RBC (twice the authorized control level RBC) is $102.6 million. Thus the RBC ratio for 2018 is minus 455 percent (minus $466.8 million divided by $102.6 million), which means the company is deep in the mandatory control zone. I described the history and nature of RBC ratios in the August 2011 issue of the Forum. Page 22 of the statement and the relevant pages from the August 2011 issue are in the complimentary package offered at the end of this post.

The Surplus Note

In 2015 SHIP issued a $50 million surplus note, which has an impact on the financial condition of the company. Without the note, the company's RBC ratios at the ends of 2015, 2016, and 2017 would have been in the mandatory control zone. SHIP has not repaid any portion of the principal of the note, and has not paid any interest on the note. At the end of 2018, according to page 19.13 in the 2018 statement, the amount of unpaid interest on the note is $11.55 million, so that the total amount of the note is now $61.55 million. I wrote about the note in No. 260. Page 19.13 is in the complimentary package offered at the end of this post.

My Requests

When an insurance company becomes insolvent, it is common practice for the insurance commissioner in the company's state of domicile (Pennsylvania in this case) to seek state court permission to assume control of the company and place it in rehabilitation. When I learned of SHIP's insolvency, I wrote to the Pennsylvania department. I said I was planning a blog post, and asked for a short statement suitable for inclusion in the post. In reply, a spokesperson said:

In terms of the financial statement, we can say we are aware of the company's financial situation from their annual statement. Beyond that, we are prohibited by law from discussing a company's financial status.

I sent a similar request to the National Organization of Life and Health Guaranty Associations (NOLHGA). In reply, a spokesperson said:

It has been reported that the Pennsylvania Insurance Department has given the Senior Health Insurance Company of Pennsylvania 90 days to submit a plan for the continued operation of the company. We continue to monitor the situation, and our member life and health insurance guaranty associations stand ready to provide protection to policyholders should the need arise.

General Observations

SHIP has been a run-off company from its inception, and therefore does not sell new policies. Also, the company's financial condition has been worsening for many years. For those reasons it is possible that the company, for all practical purposes, has been under the direct control of the Pennsylvania commissioner for many years. Thus the commissioner may have felt there was no need to ask the court's permission to formalize control. That is why I sought comments from the Pennsylvania department and from NOLHGA.

With regard to the response from NOLHGA, I do not know how SHIP can erase a deficit of almost half a billion dollars. Further, in view of the current distressed state of the LTC insurance market, I believe that any efforts to rehabilitate the company, or to sell part or all of the company, are doomed to failure. I think the Pennsylvania commissioner will seek court permission to liquidate the company.

A Late Note

Just before this item was posted, I saw a report that SHIP entered into a letter agreement in February 2018 with the Pennsylvania department regarding the company's financial condition (probably the matter referred to in NOLHGA's statement to me). The report also said the company has filed its "Management's Discussion and Analysis" (MD&A) relating to the 2018 statement. I immediately requested the letter agreement and the MD&A from the Pennsylvania department. With regard to the letter agreement, the department spokesperson said the department "does not confirm information regarding a company's financial status unless and until formal action occurs."  The spokesperson sent me the MD&A.  I have reviewed it, and have no comment on it.  However, I am including it in the complimentary package offered at the end of this post.

Available Material

I am offering a complimentary 37-page PDF consisting of the four articles in the Forum about the transfer of CSHI's LTC insurance business to SHIP (10 pages), relevant pages about RBC ratios from the August 2011 issue of the Forum (6 pages), pages of SHIP's 2018 statement from which I drew information for this post (10 pages), and the company's MD&A (11 pages). Email jmbelth@gmail.com and ask for the April 2019 SHIP package.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 307: Nixon and Trump

Introduction

In a blogger's note in No. 300 (December 17, 2018), I said I was taking a vacation for two or three months. What I did not mention was the reason for the vacation, which was to read extensively about the investigation of President Richard Nixon in the 1970s and the investigation of President Donald Trump during the past two years.

The Investigation of Nixon

As the investigation of Nixon progressed in the early 1970s, I followed it, but not in depth. I read about it in newspapers, read All the President's Men, saw the movie, and a couple of years later read The Final Days. I have now completed my reading about the investigation of Nixon by rereading All the President's Men, rereading The Final Days, and reading about the investigation from the viewpoints of several others associated with the investigation: prosecutors (Ben-Veniste, Frampton, Jaworski), historians (Farrell, White), journalists (Bernstein, Doyle, Woodward), and wrongdoers (Dean, Ehrlichman, Haldeman, Nixon).

I did not read all of Nixon's 1,120-page 1978 Memoirs. I was turned off by his incomplete description of the infamous 18½-minute gap on the June 20, 1972 tape recording (three days after the Watergate break-in). Although some evidence points to Nixon personally as having made the erasure, here is how he continued the cover-up on pages 631-632:

I met with Bob Haldeman twice on Tuesday [June 20, 1972]: from 11:26 A.M. until 12:45 P.M., and again from 4:35 until 5:25 in the afternoon. What was said during the morning meeting will never be known completely because the tape of that conversation is the one with the 18½-minute gap. Some of what we talked about during those 18½ minutes can be reconstructed from the notes Haldeman took. According to them, one of my first reactions to the Watergate break-in was to instruct that my EOB [Executive Office Building] office be checked regularly to make sure that I [italic in original] was not being bugged by anyone. They also indicate a concern about the political ramifications of the Watergate incident and a desire to divert its impact by mounting our own counterattack.

On the other hand, I was deeply impressed by Theodore White's 1975 book, Breach of Faith: The Fall of Richard Nixon. Many years ago I read his impressive Making of the President series, for the first of which he received the 1962 Pulitzer Prize for General Nonfiction. The style of his book about Nixon reminds me of the style of my favorite writer, Robert Caro, who received the 1975 Pulitzer Prize in Biography for The Power Broker: Robert Moses and the Fall of New York, and the 2003 Pulitzer Prize in Biography for Master of the Senate (the third volume of Caro's multi-volume biography of Lyndon Johnson).

White, who died in 1986, would have had a field day with the investigation of Trump. To provide a glimpse of White's style, here are a few excerpts from his description of what happened in the U.S. Supreme Court on the day Chief Justice of the United States Warren Burger announced the 8 to 0 decision in U.S. v. Nixon:

Wednesday dawned with an overcast in Washington—hot, sticky, threatening to rain—July 24th, 1974. And the flag over the Supreme Court was at half-staff, in memory of Earl Warren....

Oyez, Oyez, Oyez—the words echoed out of the medieval French and the particular system of justice the Normans imposed almost a thousand years ago on conquered England, from which had developed that common law which still governs Americans and Englishmen. This system of justice holds that the law must act on evidence; to get at that evidence, all the power of the state may be mobilized. What was at issue this day was whether those close associates of Richard Nixon, President of the United States, under indictment at that moment, could be fairly judged in court without necessary facts; and the highest court in the land had been summoned to judge the President's authority to withhold those facts. Oyez, Oyez, Oyez—Give Ear, Give Ear, Give Ear. Listen! And then the Justices, eight out of nine (Justice Rehnquist had disqualified himself from hearing this case), silently materialized from behind the wine-red velvet drapes to take their seats on the bench.

The Chief Justice, Warren Burger, leaned forward in his black leather chair and spoke for a moment of his predecessor, Earl Warren, who had just died. Earl Warren had enlarged the power of the Court more than any other Justice of the twentieth century. Now, Burger was to enlarge that power yet further as he proceeded to speak to Case No. 73-1766, United States against Nixon, and the cross-petition, Case No. 73-1834, Nixon against the United States.

White described Chief Justice Burger's reading of the decision, and what happened immediately thereafter:

Silence. Then the clack of a gavel. And then the Justices swiveled in their chairs, rose and, like ghosts of an olden drama, disappeared through the burgundy drapes behind them, the thwack of the gavel still echoing. It was 11:20 in the morning in Washington, only 8:20 in San Clemente, California, where Richard Nixon had secluded himself. Eight hours later would come the next thwack of a gavel, as Peter Rodino, chairman of the Judiciary Committee of the House of Representatives, would call to order in Room 2141 of the Rayburn House Office Building those members of his committee who, for the next six days, must act to define power—theirs, the people's and the President's—in rolling, vivid and brilliant debate for all the world to see and hear.

"Fiat justitia, ruat coelum," the Roman lawmakers had said, "Let Justice be done, though the heavens fall." Justice, at every level of American power, was now under way: in two weeks a President would fall.

I had lunch within an hour of the decision with Leon Jaworski, whose authority as Special Prosecutor Chief Justice Burger had just affirmed as sovereign. But as Jaworski sat at table, breaking his custom in order to celebrate with a carafe of white wine, there was little of sovereign manner about him. He was an old man, today weary, tufts of white hair above the face of a friendly goblin, the voice firm, now precise, then again grandfatherly, and no elation in his voice about the victory....

"What happened this morning," said the tired man, "proved what we teach in schools, it proved what we teach in colleges, it proved everything we've been trying to get across—that no man is above the law." Jaworski was living now in a two-room-and-dinette suite at the Jefferson Hotel, his wife cooking for him, far from the comforts and pleasant estate of his life in Texas. But he intended to go through with this to the end, he said, he had to, not for reward nor for fame, but simply because of the young people. This case, said Jaworski, would shape what the young of America would think or say or do in this system for all of the next generation. Unless the young people believed, really believed in our institutions, the system simply would not work. He quoted Disraeli; according to his recall, Disraeli had said, "The youth of the nation are the trustees of posterity." His clients were the youth of the nation, his prosecution a defense of the system.

The Investigation of Trump

By coincidence, I completed my reading about the investigation of Nixon during the weekend of March 22-24, 2019, when Special Counsel Robert S Mueller III gave his report on the investigation of Trump to Attorney General William Barr. That same weekend Barr sent two letters to the Senate and House Committees on the Judiciary.

When Trump burst on the political scene, followed by the investigation of him, I thought the investigations of Nixon and Trump had significant similarities. I also thought they had significant differences.

The Similarities

One similarity is the "Road Map" placed under seal on March 1, 1974, and unsealed by a federal judge on October 11, 2018. (See No. 295, posted November 9, 2018.) Another similarity is that both investigations were looking into possible efforts to subvert the U.S. Constitution.

Still another similarity is that both investigations reveal the crucial importance of close associates of Nixon and Trump. After Trump's nomination and before his election, I could not imagine, if he should win, how he would be able to attract highly qualified and capable individuals to serve in his cabinet and in other important positions in his administration.

The Differences

An important difference in the two investigations is that Nixon had extensive political experience—in the House, in the Senate, and as vice president—while Trump had no political experience. Another important difference is that Nixon was an avid reader, while Trump reportedly reads nothing and obtains his information by watching television.

Origins of the Investigations

Some think the investigation of Nixon began with the Watergate break-in on the night of June 16-17, 1972. However, the seeds went much farther back—to Daniel Ellsberg's leaking of The Pentagon Papers in 1971, and even farther back to the techniques Nixon used to win election to the House in 1946 and the Senate in 1950.

As for the investigation of Trump, some think it began with the firing of FBI Director James Comey on May 9, 2017. For me, however, it goes back much farther than that. I was bewildered and angered by Trump's early claim that President Barack Obama was not eligible to hold the office. Trump's antipathy toward Obama continues unabated today.

My second major problem with Trump began with his criticism of immigrants when he began his primary campaign. I took those comments personally, because my beloved grandparents (all four of them) immigrated to our great country through Ellis Island about 120 years ago to escape persecution in eastern Europe and make a better life for their descendants.

There was another early incident that turned me against Trump. It was the horrible insult that Trump, a Vietnam War draft dodger, directed at Senator John McCain, a Vietnam War hero. To this date, months after McCain's death, Trump continues to attack McCain.

Moreover, I have had many other concerns about Trump.  A few of those are his defense of Nazis, his affinity for dictators, his remarks about women, his sexual indiscretions, his vicious attacks on the media, his nasty comments about those he perceives as his enemies, and, above all, his constant lies.

General Observations

I have been following the investigation of Trump closely through newspapers and other media outlets. During my vacation I read extensively about the investigations of Nixon and Trump. Before listing the books, I have some general observations.

For anyone interested in the investigations of Nixon and Trump, I strongly recommend Theodore White's 1975 book. It is not only a superb analysis of the investigation of Nixon, but one through which anyone with knowledge of the investigation of Trump can see important similarities and differences in the two investigations.

I consider the recent books by James Comey and Andrew McCabe mandatory reading. They describe the operations of the FBI and explain why it is vital for the FBI to maintain its independence from the White House. It is regrettable that Trump will never read them.

I am troubled by Attorney General William Barr's March 22, March 24, and March 29, 2019 letters to the House and Senate Judiciary Committees. I think they represent the beginning of a major cover-up of the results of the now completed 22-month investigation by Special Counsel Mueller.

I think the Barr letters, which Trump and his supporters are using to declare victory through the results of the Mueller report, will exacerbate the already extreme political partisanship over the Mueller report. A vivid illustration occurred at the beginning of a public hearing on March 28, 2019 before the House Permanent Select Committee on Intelligence on "Putin's Playbook: The Kremlin's Use of Oligarchs, Money and Intelligence in 2016 and Beyond." The committee consists of Chairman Adam Schiff and 12 other Democrats, and Ranking Member Devin Nunes and eight other Republicans. Following his opening statement, Schiff invited comments from Nunes, who yielded to K. Michael Conaway, who read a letter to Schiff from the nine Republicans requesting that Schiff resign as chairman of the committee. The letter is in the complimentary package offered at the end of this post.

Schiff forcefully rejected the request in a statement that I think will go down in history as important. After delivering his statement, Schiff refused to recognize anyone from the committee. Instead he recognized the first hearing witness: Michael McFaul, a former U.S.Ambassador to Russia. I was not able to locate an official transcript of Schiff's statement, which should be available later. Meanwhile,  I have included in the complimentary package offered at the end of this post my rough transcript of the statement.

The List of Books

Richard Ben-Veniste and George Frampton, Jr. Stonewall: The Real Story of the Watergate Prosecution (1977, 410 pages). They were members of the Watergate special prosecution task force.

Carl Bernstein and Bob Woodward. All the President's Men (1974, 349 pages). A new edition was published in 2012 with an "Afterword." They were The Washington Post reporters who wrote extensively about the investigation of Nixon beginning on June 17, 1972.

James R. Clapper. Facts and Fears: Hard Truths from a Life in Intelligence (2018, 424 pages). He is a retired director of national intelligence.

James Comey. A Higher Loyalty: Truth, Lies, and Leadership (2018, 290 pages). He is a former director of the FBI.

John W. Dean III. Blind Ambition: The White House Years (1976, 415 pages). He was Nixon's White House counsel.

James Doyle. Not Above the Law: The Battles of Watergate Prosecutors Cox and Jaworski (1977, 420 pages). He was the press officer for the Watergate special prosecution task force.

John Ehrlichman. Witness to Power: The Nixon Years (1982, 432 pages). He was a top Nixon assistant. He died in 1999.

John A. Farrell. Richard Nixon: The Life (2017, 737 pages). He is a prominent historian.

H. R. Haldeman. The Ends of Power (1978, 326 pages). He was Nixon's chief of staff. He died in 1993.

Michael Isikoff and David Corn. Russian Roulette: The Inside Story of Putin's War on America and the Election of Donald Trump (2018, 338 pages). They are prominent journalists.

Leon Jaworski. The Right and the Power: The Prosecution of Watergate (1976, 306 pages). He was the second Watergate special prosecutor. He died in 1982.

Andrew G. McCabe. The Threat: How the FBI Protects America in the Age of Terror and Trump (2019, 274 pages). He is a former acting director of the FBI.

Richard M. Nixon. RN: The Memoirs of Richard Nixon (1978, 1,120 pages). He was the 37th president of the United States. He died in 1994.

John J. Sirica. To Set the Record Straight: The Break-In, the Tapes, the Conspirators, and the Pardon (1979, 394 pages). He was the federal district court judge in much of the Watergate-related litigation. He died in 1992.

Theodore H. White. Breach of Faith: The Fall of Richard Nixon (1975, 373 pages). He was a prominent historian. He died in 1986.

Michael Wolff. Fire and Fury: Inside the Trump White House (2018, 321 pages). He is a prominent journalist.

Bob Woodward. Fear: Trump in the White House (2018, 420 pages).

Bob Woodward and Carl Bernstein. The Final Days (1976, 470 pages).

Bob Woodward. The Secret Man: The Story of Watergate's Deep Throat (2005, 249 pages). In 2005, W. Mark Felt, deputy director of the FBI during the Watergate days, and his family disclosed that he was "Deep Throat." Felt died later in 2005.

Available Material

I am offering a complimentary 18-page PDF consisting of Barr's letter of March 22, 2019 (1 page), his letter of March 24 (4 pages), his letter of March 29 (2 pages), the March 28 letter from the Republicans on the House Intelligence Committee requesting Schiff's resignation as chairman of the committee (2 pages), my rough transcript of Schiff's response to the Republicans' letter (2 pages), the three Articles of Impeachment adopted in 1974 by the House Judiciary Committee (4 pages), and Nixon's resignation speech (3 pages). Email jmbelth@gmail.com and ask for the April 2019 package relating to Nixon and Trump.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 306: Long-Term Care Insurance and the NAIFA Limited and Extended Care Planning Center

The NAIFA LECP Center

Recently I learned of the Limited and Extended Care Planning (LECP) Center created by the National Association of Insurance and Financial Advisors (NAIFA). Here is the December 2018 announcement that brought the LECP Center to my attention:

With over 10K people turning 65 every day, it's essential to know how to talk to your clients about plans for themselves, their parents and their family members. That's why we partnered with the industry's biggest players to create the Limited and Extended Care Planning (LECP) Center. It's the ultimate resource to help meet all of your clients' long-term planning needs. You will have unlimited access to: techniques you can use immediately to close more business and grow your practice, customized advice and solutions from the top leaders in the LTC space, and promotional materials you can use to easily show your clients the options for funding care whether for a limited, extended or long-term period. [Underlinings in original.]

The insurance company partners in the LECP Center are Genworth, Nationwide, New York Life, and Thrivent. The other partners are Advanced Resources Marketing, Certification in Long-Term Care, Intercompany Long Term Care Insurance Conference Association, LTCI Partners, and Target Insurance Services, Inc.

My Initial Inquiry to NAIFA

On December 20, 2018, I sent an email to Carroll Golden, executive director of the LECP Center at NAIFA headquarters. I said I have written extensively about long-term care (LTC) insurance. For example, I attached an article entitled "Shortcomings of Private Insurance in Financing Long-Term Care," which appeared in the July 2008 issue of The Insurance Forum. I also attached a copy of chapter 18 entitled "Long-Term Care Insurance" from my 2015 book, The Insurance Forum: A Memoir. I asked what the LECP Center recommends that agents say to prospective buyers of LTC insurance with regard to several problems that confront buyers and owners of LTC insurance policies, such as large future premium increases.

The NAIFA Response

Golden responded three hours later. She did not mention my attachments or answer my questions. Here is what she said:

Overall, the Center does not recommend what agents or advisors should say to prospective buyers of LTC insurance, or any insurances or options that are included on the Center. The mission of the Center is to maximize professional and consumer awareness and the distribution of limited and extended care solutions through thought leadership, educational resources, research, networking, and advocacy. Using the power of a virtual, private online community, the Center brings solution and service providers, producers and thought leaders together to deliver trends, training, expert advice, communications, networking, and advocacy. The Center posts information, but does not recommend any one option over another.

Given the various informational categories, Education, Designations, Expert Advice (divided into three areas—Planning in Advance, Products and Services, and Point of Need), Networking and Community, Research and Trends, and Advocacy, the Center serves more as a repository than an advice center. We would like to encourage more people and professionals to include current and future care needs in their planning. We recognize that health care can be costly, not only financially but also emotionally. The Center hopes to provide information that starts more conversations and research into limited and extended care planning needs.

My Follow-Up Questions

Three hours later I sent Golden some follow-up questions. First, I asked whether she had read my July 2008 article and the chapter from my memoir, and if so, what thoughts she had on them. Second, regarding her statement that the Center posts information, I asked whether the Center posts information about the problems alluded to in my previous email. Third, to the extent the Center does not post information about those problems, I asked why the Center refrains from doing so, and whether the Center is saying there is no need for agents and consumers to know anything about those problems. She did not reply. On January 3, 2019, I asked the questions again; she did not reply.

My Survey

On March 12, 2019, I directed similar questions not only to NAIFA but also to the other partners who created the LECP Center. I asked them to acknowledge receipt promptly, and designated March 26 as the final date for a substantive response. The survey, which consisted of a cover memorandum and the July 2008 Forum article, is in the complimentary package offered at the end of this post.

In the cover memorandum I inquired about their objective in helping organize the LECP Center, and about how much they had contributed to help organize the Center. Also, because the Center appears to perform an educational function, I asked for their comments on what the Center will provide concerning seven problems that confront buyers and owners of LTC insurance policies: (1) large future premium increases, (2) future offers of large decreases in benefits, (3) endless correspondence when consumers file claims for benefits, (4) departures of companies from the LTC insurance business, (5) transfers of LTC insurance policies from one insurance company to another, (6) failures of LTC insurance companies, and (7) LTC insurance companies taken over by companies in foreign countries.

Two of the partners to whom I sent the survey acknowledged receipt and implied they would respond substantively. One of those two later said: "The team discussed internally and will decline to participate this time. Thanks again for the outreach." From the other one I received nothing further. A spokesperson for another of the partners said: "Following up on your email to us regarding NAIFA's LECP Center. Thanks for your interest but we're going to pass on this opportunity for now." None of the other partners acknowledged receipt, and I received nothing from them.

General Observations

For many years I have said that the problem of financing the long-term care exposure violates important insurance principles, that the problem therefore cannot be solved through the mechanism of private insurance, and that many who buy LTC insurance will be disappointed. A detailed discussion of the subject is in my article in the July 2008 issue of the Forum.

My conclusion from the unsuccessful survey is that the partners who created the LECP Center have no interest in educating prospective buyers of LTC insurance about the problems they will face if they buy LTC insurance. I think the failure of the partners to confront those important problems and disclose them to prospective buyers will lead to the disappearance of the LTC insurance business.

Available Material

I am offering a 7-page complimentary package consisting of the March 12 memorandum to the partners who founded the LECP Center (2 pages) and the July 2008 Forum article (5 pages). Email jmbelth@gmail.com and ask for the April 2019 package relating to NAIFA's LECP Center.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 305: William Neil Gallagher Faces State Criminal and Federal Civil Charges of Securities Fraud

William Neil "Doc" Gallagher, a radio personality in Dallas, is in bankruptcy proceedings. He also faces state criminal and federal civil charges of securities fraud. Here I discuss the charges against him.

The Texas Criminal Charges

On March 4, 2019, a grand jury in Dallas County issued a pair of indictments against Gallagher. One indictment identifies 20 victims of Gallagher's scheme. The other indictment contains this sentence:

That William Neil Gallagher, hereinafter called Defendant, on or about and between the 1st day of March, 2014 and the 31st day of January, 2019, in the County of Dallas, State of Texas, did then and there, pursuant to one scheme and continuing course of conduct, knowingly acquire or maintain an interest in, possess, transfer, and transport the proceeds of criminal activity, to wit: Securities Fraud, and the aggregate value of said funds was $300,000 or more.

The two indictments are in the complimentary package offered at the end of this post. (See State of Texas v. Gallagher, Indictment Nos. F1900119 and F1900138.)

The SEC Civil Complaint

On March 7, the Securities and Exchange Commission (SEC) filed, under seal, a civil complaint against Gallagher, Gallagher Financial Group, Inc. (GFG), and W. Neil Gallagher, Ph.D. Agency, Inc. (Gallagher Agency) charging them with violations of federal securities laws. (The complaint says Gallagher holds a Ph.D. degree from Brown University.) The same day, the court assigned the case to Senior Judge A. Joe Fish, who recused himself without giving a reason; the court then reassigned the case to Senior Judge Sam R. Cummings, and the SEC filed a motion for a preliminary injunction, a temporary restraining order, an asset freeze, and the appointment of a receiver.

The next day, the court appointed Cort Thomas, a Dallas attorney, as the receiver. The court also imposed a freeze on the receivership assets. On March 12, the court unsealed the complaint. (See SEC v. Gallagher, U.S. District Court, Northern District of Texas, Case No 3:19-cv-575.)

The first section of the SEC civil complaint is a six-paragraph summary of the case. Here is the first paragraph:

Since at least December 2014, Gallagher, a long-time radio personality in the Dallas/Fort Worth metroplex, who marketed himself as "The Money Doctor," has perpetrated an affinity-fraud investment scheme on investors through two North Texas-based companies he owns and controls, GFG and Gallagher Agency. Despite having no valid securities-industry credentials, Gallagher has offered and sold securities, raising at least $19.6 million from at least approximately 60 investors—ranging in age from 62 to 91—while claiming to be a fully licensed advisor offering investment advice and investment services. He has raised these funds by selling an investment product called a Diversified Growth and Income Strategy Account.

The full SEC complaint is in the complimentary package offered at the end of this post. It is a chilling document.

The SEC Litigation Release

On March 12, the SEC issued a litigation release entitled "SEC Charges Texas Radio Host 'The Money Doctor,' Halts Ponzi Scheme Targeting Elderly Investors." Here is the first sentence:

The Securities and Exchange Commission announced that it has charged Texas resident William Neil "Doc" Gallagher—the self-styled "Money Doctor" featured on three Dallas-area radio stations—in an emergency action to shut down a $19.6 million Ponzi scheme targeting elderly investors' retirement funds.

The TSSB Press Release

On March 13, the Texas State Securities Board (TSSB) issued a press release entitled "Dallas Investment Promoter 'Doc' Gallagher Indicted in $19 Million Fraud." Here is the first sentence:

William Neil "Doc" Gallagher, who promotes his investment business on Christian radio and in books like "Jesus Christ, Money Master," has been arrested to face first-degree state felony charges of securities fraud and money laundering in Dallas County.

The 1999 Disciplinary Order

The current criminal and civil charges against Gallagher are not his first confrontations with securities regulators. For example, on December 23, 1999, the Texas Securities Commissioner directed at Gallagher ("Respondent") a "Disciplinary Order Reprimanding an Agent." Here are three of the ten "Findings of Fact" in the order, which designated them as "fraudulent business practices" in violation of the Texas Securities Act:

3. During the course of an inspection of Respondent's offices by the State Securities Board, the Staff requested that Respondent produce receipt books for all checks received from investors for a defined period.

4. Respondent produced check receipt books to the Staff. Respondent did not disclose to the Staff that certain receipt books produced were, in fact, created at Respondent's direction after the Staff's request was received, and were not copies of receipts given to investors at the time of the receipt of their checks.

5. While registered as an agent of National Securities Corporation, Respondent represented to the public via advertising that he was a registered investment adviser, though he was not registered as an investment adviser.

The order reprimanded Gallagher and assessed an administrative fine of $25,000. He consented to the order "without admitting or denying" nine of the ten "Findings of Fact" in the order. The one "admitted" finding (the first of the ten) is shown in the order, which is in the complimentary package offered at the end of this post. (See "In the Matter of the Agent Registration of William Neil Gallagher," Order No. CAF-1380.)

General Observations

When I hear of an affinity-fraud case such as this one, my first reaction is sadness for the victims of the fraud. They have no knowledge of investments, and the criminals take advantage of the religious faith of the victims. My second reaction is that there are probably not enough people in the law enforcement community to uncover and prosecute all the phony financial schemes perpetrated by large numbers of fraudsters.

Available Material

I am offering a complimentary 26-page PDF consisting of the two indictments (3 pages), the SEC complaint (16 pages), the SEC litigation release (1 page), the TSSB press release (1 page), and the 1999 disciplinary order (5 pages). Email jmbelth@gmail.com and ask for the March 2019 package relating to the Gallagher case.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 304: NAIFA and the John Newton Russell Memorial Award

The National Association of Insurance and Financial Advisors (NAIFA) grants the John Newton Russell (JNR) Memorial Award each year. NAIFA describes the award as "the highest honor that can be bestowed upon an individual in the life insurance and financial planning industry, and recognizes a lifetime of professional excellence, service to the industry and a commitment to ethical conduct."

The Recipients

NAIFA (then the National Association of Life Underwriters) first granted several JNR awards in 1947. They represented the years 1942 through 1947, but were delayed because of World War II. The award for 1942 went to Professor Solomon S. Huebner of the University of Pennsylvania; he is often referred to as the "Father of Insurance Education." According to NAIFA's current list of JNR award recipients, the five oldest living recipients (by year of receiving the award) are Jack E. Bobo (1985), William V. Regan II (1990), Alan Press (1991), Robert W. Verhille (1994), and William B. Wallace (1995).

I was deeply honored to receive the JNR award for 2017. I am the fourth educator to receive the award. The first was Professor Huebner. The second was Davis W. Gregg (1961), who was long-time president of The American College. The third was Kenneth Black, Jr. (1999), who was at Georgia State University and was long-time editor of The CLU Journal.

My Suggestion

My receipt of the award automatically made me a member of the nominating committee for a few years. In that capacity, I informed NAIFA that I had long been troubled that eligibility for the JNR award is limited to living persons. I wrote a letter asking the NAIFA board of directors to consider the possibility of granting the award occasionally to a deceased person. I attached to the letter descriptions of the accomplishments of two towering figures in the history of the life insurance business: Elizur Wright and Charles Evans Hughes. The complimentary package offered at the end of this post contains my entire mailing to the NAIFA board.

In response, NAIFA said the board considered my suggestion. The spokesperson said the decision was made that the JNR award would remain restricted to those who are living.

I would welcome comments from readers on this matter. However, I suggest that anyone interested in commenting should first read my suggestion in its entirety.

Available Material

I am offering a complimentary 16-page PDF consisting of my letter to the NAIFA board (2 pages) and my descriptions of the contributions of Wright and Hughes (14 pages). Send an email to jmbelth@gmail.com and ask for the March 2019 package relating to the JNR award.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 303: Genworth's 10-K Report for 2018 and Another Recent Development at the Company

On February 27, 2019, Genworth Financial, Inc. (GNW), based in Richmond, Virginia, filed its 390-page 10-K annual report for 2018 with the Securities and Exchange Commission. The report begins with an update on the status of GNW's agreement and merger with China Oceanwide; the agreement was entered into on October 21, 2016 and remains pending. The 10-K also lists the current financial strength ratings of GNW's insurance subsidiaries. In addition, after the 10-K, there was a development involving the distribution of certain GNW offerings.

China Oceanwide

In June 2018, the Committee on Foreign Investment in the United States completed its review of the agreement, and GNW and China Oceanwide agreed to implement a data security risk mitigation program. In October 2018, the National Development and Reform Commission in China accepted China Oceanwide's filing in connection with the agreement. In December 2018 and February 2019, GNW and China Oceanwide received the remaining approvals from U.S. state insurance regulators, subject to certain conditions. Closing remains subject to other conditions, such as regulatory approval in Canada and approval by the Financial Industry Regulatory Authority (FINRA), although closing may occur prior to FINRA approval. The complimentary package offered at the end of this post includes GNW's full discussion of the situation.

Financial Strength Ratings

The last time I wrote about the financial strength ratings of GNW's life insurance subsidiaries was in No. 144 (February 16, 2016), and I felt it is time for an update. The recent 10-K shows financial strength ratings as of February 14, 2019. The rating firms are Standard & Poor's (S&P), Moody's Investors Service, and A. M. Best Company. Here are the current ratings of GNW's principal life insurance subsidiaries:

Genworth Life Insurance Company

S&P B– (Weak)
Moody's B3 (Poor)
Best B– (Fair)

Genworth Life and Annuity Insurance Company

S&P B– (Weak)
Moody's Ba3 (Questionable)
Best B+ (Good)

Genworth Life Insurance Company of New York

S&P B– (Weak)
Moody's B3 (Poor)
Best B– (Fair)

The complimentary package offered at the end of this post includes GNW's complete list of ratings and GNW's discussion of the implications of those ratings. In that discussion, "PMIERs" stands for private mortgage insurer eligibility requirements. "GSEs" stands for government-sponsored enterprises such as Federal National Home Mortgage Association ("Fannie Mae)" and Federal Home Loan Mortgage Corporation ("Freddie Mac").

A Recent Bulletin

On March 7, 2019, GNW issued a bulletin entitled "Suspension of All Individual Long Term Care Insurance and Income Assurance Annuity Sales Through the BGA Channel Effective March 11, 2019." I learned of the bulletin from one of my readers. I am not providing it to my readers because it is marked: "For Producer/Agent Use Only. Not to Be Reproduced or Shown to the Public." Instead, I sought comment from a GNW spokesperson, who provided this statement:

Today we announced we are temporarily suspending sales of individual long-term care (LTC) insurance and Income Assurance Annuity products through brokerage general agencies (BGAs). Instead, we will be distributing these products directly to consumers through affinity and association programs and other distribution channels. We will continue to sell group LTC insurance through our traditional channels. Our commitment to helping Americans address the financial challenges of aging remains as strong as ever, and we look forward to bringing new products and services to market that will enable people who need care as they age live their lives as they wish, and how and where they prefer to receive that care.

Available Material

I am offering a complimentary 9-page PDF consisting of GNW's discussions of the status of the China Oceanwide agreement, the financial strength ratings of GNW's life insurance subsidiaries, and the implications of those ratings. E-mail jmbelth@gmail.com and ask for the March 2019 package relating to Genworth.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 302: Universal Life—Transamerica Settles a Class Action Lawsuit Relating to Cost-of-Insurance Increases

In No. 239 (October 23, 2017) and No. 290 (October 18, 2018), I discussed a class action lawsuit filed against Transamerica Life Insurance Company in 2016 by California resident Gordon Feller and others. The case related to large cost-of-insurance (COI) increases imposed on owners of universal life insurance policies. In No. 290, I said the parties had filed a proposed settlement of the case. (See Feller v. Transamerica, U.S. District Court, Central District of California, Case No. 2:16-cv-1378.)

Recent Developments
On October 5, 2018, Senior U.S. District Judge Christina A. Snyder granted preliminary approval of a proposed settlement to resolve the Feller case and related cases that had been consolidated with Feller. On January 20, 2019, she conducted a fairness hearing. On February 6, 2019, she issued an order granting final approval of the settlement, finding that it represents a fair and complete resolution of all claims asserted.

The Settlement
The settlement class consists of more than 69,000 policies. Transamerica agreed to create a settlement fund of $195 million. The fund was reduced to reflect those class members who opted out of the settlement. There were 575 opt outs; those policy numbers are listed in an exhibit attached to the order. Payments from the fund to class members are based on the difference between the COI charges imposed during the class period (August 1, 2015 through February 6, 2019) and the COI charges that would have been imposed without the increases, subject to a minimum allocation of $100. Owners of in-force policies are paid their shares as increases in their policies' accumulation values. Owners of discontinued policies are paid their shares by check.

Transamerica agreed not to impose further COI increases on any class policy within the next five years, unless ordered to do so by a state regulatory body. However, the company will maintain the COI increases previously implemented. The company agreed to certain conditions relating to future COI increases in class policies, and also agreed not to seek rescission of the coverage in class policies.

In addition to creating the fund, Transamerica agreed to pay all settlement expenses, and also to pay the first $10 million of court-approved fees and expenses of the plaintiffs' attorneys. Judge Snyder approved payment, from the fund, of attorney fees of about $27.7 million and legal expenses of about $1 million, less the first $10 million that Transamerica agreed to pay. She also approved payment, from the fund, of service awards of $10,000 to each of eight named class representatives.

General Observations
Attorneys representing the plaintiffs and attorneys representing Transamerica negotiated extensively, and they utilized the services of a mediator. Yet, neither I nor any other outsider can be in a position to determine the adequacy or fairness of the settlement. In this regard, Judge Snyder quoted this famous 2014 statement by the Ninth Circuit:

Of course it is possible, as many of the objectors' affidavits imply, that the settlement could have been better. But this possibility does not mean the settlement presented was not fair, reasonable or adequate. Settlement is the offspring of compromise; the question we address is not whether the final product could be prettier, smarter or snazzier, but whether it is fair, adequate and free from collusion.

I have seen many class action lawsuits relating to COI increases. As far as I know, every one that survived early dismissal and won class certification was settled. I do not anticipate hearing of a case that goes to trial, reaches a verdict by a judge or jury, and completes the appellate process.

Available Material
I am offering a complimentary 32-page PDF showing Judge Snyder's final order approving the settlement. Email jmbelth@gmail.com and ask for the February 2019 package relating to Feller v. Transamerica.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 301: Lost Pensioners—New York Comes Down Hard on Metropolitan Life

Blogger's Note

In a blogger's note in No. 300 (December 17, 2018), I said I was taking a vacation for two or three months. I decided, however, to report now on significant recent developments relating to lost pensioners.

Background

MetLife, Inc. is a major player in the pension risk transfer business, where employers transfer some or all of their employee pension obligations to insurance companies by purchasing group annuity contracts. Prudential Financial, Inc. is another major player in that business.

During 2018 I posted seven items about lost pensioners in general and about lost pensioners at Metropolitan Life Insurance Company, a subsidiary of MetLife, in particular: Nos. 246, 252, 254, 256, 259, 279, and 293. In No. 252 I reported MetLife's disclosure that it had informed the New York Department of Financial Services (DFS), which is Metropolitan Life's primary state regulator, about the company's problems with lost pensioners in the pension risk transfer business.

The New York Press Release

On January 28, 2019, DFS issued a press release announcing that MetLife will pay a $19.75 million fine and provide $189 million in restitution to group annuity contract certificate holders for failures related to the company's pension risk transfer business. The press release and the accompanying consent order are in the complimentary package offered at the end of this post.

The New York Consent Order

DFS performed a market conduct examination of MetLife for the period January 1, 2009 to February 21, 2018, and a supplemental review of the company's pension risk transfer business. DFS plans to issue a report on the examination.

The first section of the consent order is "Findings." It lists several failures by MetLife from 1992 to 2018. Among them, for example, are a failure in certain instances to reserve for outstanding group annuity contracts; a failure to locate, contact, and pay group annuity contract certificate holders; a failure to adequately search for New York group annuity contract certificate holders; and a failure to turn over unclaimed property to the appropriate state. The consent order also lists failures from 2009 to 2018. Among them are a failure to timely search for group annuity contract beneficiaries, a failure to confirm the deaths of group annuity contract holders, and a failure to turn over unclaimed property to the appropriate state.

The second section of the consent order is "Violations." It lists violations of many New York statutes and regulations.

The third section of the consent order is "Agreement." For example, it requires MetLife to maintain full statutory reserves for group annuity contracts, pay retroactive benefits with interest from the normal retirement date, and establish procedures to maintain accurate records of current and future group annuity contract certificate holders.

The Massachusetts Consent Order

In No. 279 I reported that the Enforcement Section of the Massachusetts Securities Division filed, on June 25, 2018, an administrative complaint against MetLife, Inc. relating to lost pensioners in the pension risk transfer business. On December 18, 2018, the Securities Division filed a consent order that is similar in many respects to the New York consent order discussed above. Massachusetts required MetLife to pay an administrative fine of $1 million and enter into undertakings similar but not identical to those in the New York consent order. The Massachusetts consent order is in the complimentary package offered at the end of this post.

General Observations

The New York consent order applies in most respects to group annuity certificate holders everywhere, and in some respects to group annuity contract certificate holders only in New York. The Massachusetts consent order applies only to group annuity certificate holders in Massachusetts. At this time, I am not aware of any regulatory actions taken by other states. However, the undertakings required in the New York consent order will have a significant effect on group annuity contract certificate holders everywhere.

MetLife's Public Filings

In its 10-Q report filed November 8, 2018 with the Securities and Exchange Commission (SEC) for the quarter ended September 30, 2018, MetLife disclosed the then ongoing investigations in New York and Massachusetts. The relevant excerpts from the 10-Q report are in the complimentary package offered at the end of this post.

As of the close of business on February 1, 2018 (four business days after New York issued its consent order), MetLife has not disclosed the consent order in an 8-K (significant event) report filed with the SEC. Nor has MetLife disclosed in an 8-K report the Massachusetts consent order issued December 18, 2018.

The next major report MetLife will file with the SEC is the 10-K report for the year ended December 31, 2018. That report will be filed on or about March 1, 2019, and probably will disclose details of the New York consent order and the Massachusetts consent order.

Available Material

I am offering a 28-page complimentary package consisting of the New York press release (2 pages), the New York consent order (12 pages), the Massachusetts consent order (13 pages), and excerpts from MetLife's 10-Q report for the third quarter of 2018 (1 page). Send an e-mail to jmbelth@gmail.com and ask for the February 2019 package about the New York and Massachusetts consent orders relating to lost pensioners.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 300: Guggenheim and the Dodgers Are Back in the News

Blogger's Note
Long-time readers may recall that I began this blog when I ended my monthly periodical, The Insurance Forum, with the December 2013 issue after 40 continuous years of publication. The first post was on October 7, 2013, and was entitled "Criminal and Civil Charges Against Two Credit Derivatives Employees at JPMorgan Chase." Since then there have been continuous posts at the rate of about five per month. I have now decided to take a vacation for two or three months, after which I plan to resume with No. 301. I would welcome emails during my vacation. Meanwhile, I hope you have happy holidays and a healthy 2019.

A Recent Article
On November 24, 2018, at 7:00 a.m. Eastern time, The Wall Street Journal posted online a 1,366-word article entitled "L.A. Dodgers Are Part of an Unorthodox $20 Billion Plan to Backstop Insurers." It is subtitled "Team Chairman Mark Walter, along with Magic Johnson and other owners, pledged personal holdings to support insurance companies connected with Guggenheim Partners." The reporters are Justin Baer (justin.baer@wsj.com), Margot Patrick (margot.patrick@wsj.com), and Leslie Scism (leslie.scism@wsj.com). The article did not appear in the print editions of the Journal. Here are the first three sentences of the article:

A group of insurance companies associated with Guggenheim Partners LLC provided at least $300 million to help the firm's chief executive and co-investors buy the Los Angeles Dodgers for a record $2.15 billion in 2012—an unusual arrangement that drew scrutiny from regulators before they eventually concluded that nothing was amiss. Now the CEO is going public with an even more unusual arrangement he said is designed to protect policyholders and eliminate any potential conflicts of interest. He said he and a group of business associates have pledged more than $20 billion of their personal net worth to backstop the insurers if they run into financial trouble.

Guggenheim's CEO is Mark Walter. Others are Dodgers co-owners Todd Boehly, Guggenheim's former president; Earvin "Magic" Johnson, the basketball legend; Robert Patton, a Texas businessman; Dan K. Webb, Guggenheim's outside attorney; and individuals not identified. The structure is called "Safe Harbor." The four insurance companies (and their states of domicile) are Delaware Life Insurance Company (DE), EquiTrust Life Insurance Company (IL), Guggenheim Life and Annuity Company (DE), and Security Benefit Life Insurance Company (KS).

The "Opaque" Structure
The Journal article says that the structure of Safe Harbor is "opaque," and that "Guggenheim executives and Mr. Webb won't say when and where it was established or how its assets are valued." Also, a Journal "review of insurance filings found no references to Safe Harbor, and a search of corporate registries was inconclusive."

I sought brief statements for inclusion in this post from Commissioner Trinidad Navarro of Delaware, Director Jennifer Hammer of Illinois, and Commissioner Ken Selzer of Kansas. A spokesperson in Delaware said: "Let me see what I can do. I apologize. I'm just getting back into the office from a conference." I heard nothing further.

A spokesperson in Kansas said: "Regarding your inquiry, the Kansas Insurance Department has no comment." I heard nothing from Illinois.

Webb is co-executive chairman of the Winston & Strawn law firm, and appears to have been a source for some of the information in the Journal article. According to his biography on the firm's website, Guggenheim Partners is one of his corporate clients. I sought a brief statement from him for inclusion in this post. I heard nothing from him.

The Statutory Statements
I reviewed the "Notes to Financial Statements" in the statutory statements of the four insurance companies for the year ended December 31, 2017. I found no mention of Safe Harbor; however, it may have been formed subsequent to the filing of those statements. EquiTrust Life's statement, under "Information Concerning Parent, Subsidiaries, Affiliates, and Other Related Parties," includes this paragraph:

On June 23, 2015, June Bug Insurance Holdings, LLC became the majority controlling shareholder of [EquiTrust Life]. Mr. Earvin Johnson is the sole owner of June Bug Lifetime Trust, which owns 100% of the common membership interests in June Bug Insurance Holdings, LLC. June Bug Insurance Holdings, LLC owns a controlling interest in EquiTrust Investor Holdings, LLC, and is 100% owner of [EquiTrust Life] through wholly-owned subsidiaries. [EquiTrust Life] is no longer an affiliate of Guggenheim Capital, LLC and its subsidiaries.

The Guggenheim Life & Annuity statement refers to reinsurance agreements with many affiliates, former affiliates, and other companies, including Paragon Life of Indiana, Security Benefit Life, EquiTrust Life, and Clear Spring Life Insurance Company. I plan to check the 2018 statutory statements, which are to be filed on March 1, 2019.

The 2014 Lawsuit Against Guggenheim
The Journal article contains a brief mention of an elaborate class action lawsuit filed on February 11, 2014. I wrote about the lawsuit in No. 110 (July 17, 2015). The lead plaintiffs were Clarice Whitmore, an Arkansas resident who bought an annuity in 2013 from Security Benefit Life, and Helga Marie Schulzki, a California resident who bought an annuity in 2013 from EquiTrust Life. The defendants were Guggenheim Partners LLC, Guggenheim Life and Annuity, Security Benefit Life, and EquiTrust Life. Ten attorneys associated with four law firms represented the plaintiffs. I do not know who would have represented the defendants. (See Whitmore v. Guggenheim, U.S. District Court, Northern District of Illinois, Case No. 1:14-cv-948.)

The complaint alleged phony reinsurance transactions with affiliates and violations of the Racketeer Influenced and Corrupt Organizations (RICO) Act. Here are two paragraphs of the 366-paragraph complaint:

11. In addition to saddling the Guggenheim Insurers with the highly illiquid affiliated promissory notes and billions of dollars of highly illiquid mortgage and other risky asset-backed securities, Guggenheim Chief Executive Officer Mark R. Walter, Guggenheim President Todd L. Boehly, and Guggenheim business associate Robert "Bobby" Patton Jr. used the Guggenheim Insurers as a cash machine to buy the most expensive sports franchise in world history, the Los Angeles Dodgers, with over a billion dollars in policyholders' funds.

14. At the center of this scheme was a shell game that Defendants hoped no one could follow, where money and liabilities were continuously shifted between companies with whom the Guggenheim Insurers acknowledged an affiliation (Security Benefit Life, Guggenheim Life, EquiTrust Life, and Paragon Life Insurance Company of Indiana) and with a separate, secretly affiliated company that Defendants acquired and corrupted to facilitate the fraudulent scheme, Heritage Life Insurance Company (AZ).

On the day the complaint was filed, it was assigned by lottery to U.S. District Judge Samuel Der-Yeghiayan. The next day, the plaintiffs' attorneys filed a notice of voluntary dismissal without prejudice (subject to refiling), giving no reason for the dismissal. One day later, the court clerk dismissed the complaint without prejudice. I asked one of the plaintiffs' attorneys why they dismissed the case, but received no reply.

A Possible Explanation
When I wrote about the lawsuit in 2015, I had no idea of the reason for the voluntary and immediate dismissal of the case. When I saw the Journal article, I began thinking further about the matter. President George W. Bush nominated Judge Der-Yeghiayan in March 2003, and the Senate confirmed him in July 2003. He retired in February 2018 at age 66. He was an immigration judge. The plaintiffs' attorneys may have thought it would be difficult for the judge to handle a complex insurance case, and may have decided to dismiss the case without prejudice rather than seek to have the case assigned to another judge. If any readers have other possible explanations for the voluntary dismissal of the lawsuit, I would welcome such explanations.

General Observations
I have no confirmation, other than the Journal article, that the Safe Harbor program exists. As described in this post, I tried without success to obtain short statements from the states of domicile of the four insurance companies and from Webb.

I wanted to provide readers who are not subscribers to the online edition of the Journal with access to the entire article. However, I am not able to do so. First, the article is copyrighted, and I would not have been able to obtain the necessary permission within a reasonable time. Second, any version you find on the internet probably will provide only the beginning of the article and invite you to subscribe to see the entire article.

Available Material
When I posted No. 110, I offered a complimentary 172-page package consisting of the complaint against Guggenheim (105 pages) and the exhibits to the complaint (67 pages). The package remains available. E-mail jmbelth@gmail.com and ask for the February 2014 complaint in the case of Whitmore v. Guggenheim.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 299: Zurich Fights a Workers' Compensation Claim

Joseph E. Leichtnam, a resident of South Dakota, worked for Rommesmo Companies d/b/a Dakota Steel & Supply, Inc. from May 2001 until April 6, 2009. American Zurich Insurance Company, Zurich American Insurance Company, and Zurich North America (collectively, Zurich) provided workers' compensation insurance for the employer.

Leichtnam's Injury

On August 29, 2007, Leichtnam injured his head, neck, and low back when he fell off a forklift and landed on the back of his head, neck, and back. He sought medical care and incurred medical expenses as a result of the injury. He continued to have headaches and neck and back pain. Lumbar and cervical MRIs showed a disk herniation at L5-S1 and marked right-sided facet arthropathy at C3-4, C4-5, and C5-6.

On July 17, 2008, Zurich arranged to have Leichtnam see Dr. Wayne Anderson, an occupational medicine specialist. He opined that the work injury was a major contributing cause of the L5 radicalopathy, the low back pain, the headaches, and the neck pain. He assigned permanent impairments for the neck and low back injuries.

Dr. Richard Farnham

On May 16, 2009, Zurich arranged to have Leichtnam see Dr. Richard Farnham. Here are some comments about him in the February 2015 complaint filed in the Leichtnam lawsuit:

Dr. Farnham is not board certified in occupational medicine, having failed the examination on several occasions, and doesn't treat patients. He is widely known as regularly and routinely providing opinions to insurance companies that reduce the insurer's claim payments.

Comments about Dr. Farnham by a magistrate judge appeared in the case of Gowan v. Mid Century (U.S. District Court, District of South Dakota, Case No. 5:14-cv-5025). This paragraph was in a September 2015 order in response to Gowan's motions to compel:

Mid Century hired Richard Farnham, M.D. to conduct an independent medical exam (IME) on Mr. Gowan. Mid Century had previously hired Dr. Farnham on 11 occasions between 2000 and 2012 to provide it with IMEs on various Mid Century claimants. Mr. Gowan alleges that Mid Century hired Dr. Farnham because he was "notoriously biased in favor of insurance companies." Mr. Gowan alleges it was Mid Century's expectation in hiring Dr. Farnham that he would render an opinion that would support Mid Century denying or limiting medical treatment to Mr. Gowan.

Dr. Farnham provided a report saying Leichtnam's injury did not cause anything other than some "post concussion headaches early on." On June 4, 2009, after Dr. Farnham's report, Zurich discontinued payment for any appointment or medication that resulted from Leichtnam's injury.

In the June 2010 issue of The Insurance Forum, I wrote an article about a physician who specialized in providing reports that insurance companies could use to deny or reduce claims. The article is in the complimentary package offered at the end of this post.

Further Developments

On July 15, 2009, Leichtnam filed a petition for hearing with the South Dakota Department of Labor, in part to restore his right to payment of medical bills and prescriptions by Zurich. On October 28, 2009, Zurich offered to pay $1,500 for a full, final, and complete settlement. Leichtnam declined the offer.

In May 2012 Zurich agreed to pay for a doctor's visit with Dr. Lawlor for treatment of the neck condition, back condition, and headaches. Leichtnam saw Dr. Lawlor on June 20, 2012. Dr. Lawlor prescribed medications, physical therapy, an orthotic, and an inversion table. Zurich for many months refused to pay for the medications, orthotic, and inversion table.

In early June 2013, the parties reached a settlement in which Zurich agreed to retract its denial of medical treatments and pay for future medical expenses for the neck and back condition and headaches. On June 7, 2013, Zurich sent a settlement agreement for Leichtnam to sign, but it was not what the parties had agreed upon. It would have released any claim for attorney fees and bad faith. Zurich agreed to remove the release for attorney fees and bad faith. On June 19, 2013, Zurich agreed to pay for future medical expenses for the neck and back condition and headaches. On June 21, 2013, the South Dakota Department of Labor approved the settlement.

Leichtnam's Lawsuit

On February 27, 2015, Leichtnam filed a lawsuit in federal court against Zurich. He alleged: (1) Zurich repeatedly denied benefits without a reasonable basis and with knowledge of the lack of a reasonable basis; (2) Zurich failed to conduct a reasonable investigation; (3) Zurich's conduct is part of a pattern of conduct designed to reduce compensation to injured workers; (4) Zurich acted with fraud, malice, and oppression, making punitive damages appropriate; (5) he has been harmed by delay in payment of his medical expenses, delay and obstruction in his medical care, loss of use of his benefits, emotional upset, aggravation, annoyance, and embarrassment, and it should have been unnecessary for him to incur attorney fees and expenses; and (6) Zurich has shown a reckless disregard of his interests, making punitive damages appropriate. He sought compensatory damages, punitive damages, pre-judgment interest, attorney fees and costs, and any other relief deemed appropriate. (See Leichtnam v. Zurich, U.S. District Court, District of South Dakota, Case No. 5:15-cv-5012.)

The Judges

The case is in the hands of Chief U.S. District Judge Jeffrey L. Viken. President Obama nominated him in June 2009, and the Senate confirmed him in September 2009. He became Chief Judge in 2013. U.S. Magistrate Judge Daneta Wollmann is also involved in the case.

Progress of the Case

The case is progressing, but slowly. On April 30, 2015, Zurich filed a perfunctory answer to the complaint. On October 7, 2015, Chief Judge Viken signed a protective order. Thereafter both parties obtained court approval of numerous extensions of deadlines.

On December 18, 2017, Leichtnam filed a motion to compel discovery. The same day he filed a sealed document that included many exhibits. The next day he filed a redacted document that included many exhibits. On December 28, 2017, Chief Judge Viken referred the motion to compel discovery to Magistrate Judge Wollmann.

On January 8, 2018, Zurich filed a response to the motion to compel discovery. On September 7 Zurich filed a motion to dismiss the complaint. The motion has been briefed but has not been ruled on.

On September 30 Magistrate Judge Wollmann issued an order granting in part and denying in part Liechtnam's motion to compel discovery. Although that description is technically accurate, the order is a victory for Leichtnam. It compels Zurich to provide virtually everything Leichtnam had requested. The order is in the complimentary package offered at the end of this post.

On November 13, Zurich filed an unopposed motion to extend various deadlines. Discovery is to be completed by March 29, 2019, and other matters are to be completed by April 30, 2019. Chief Judge Vilken has not set a trial date.

General Observations

I think Zurich will never allow this case to reach a jury, the case will be settled, and, because it is an individual case rather than a class action, the terms of the settlement will be confidential. Furthermore, I think Leichtnam will be in a strong bargaining position, and therefore able to obtain a substantial settlement. I plan to follow this case and report significant developments.

Available Material

I am offering a 31-page complimentary package consisting of the complaint (5 pages), Magistrate Judge Wollmann's order (23 pages), and the article in the June 2010 issue of the Forum (3 pages). Email jmbelth@gmail.com and ask for the December 2018 package relating to the case of Leichtnam v. Zurich.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com

No. 298: Long-Term Care Insurance—More on General Electric's Massive Legacy Problem

In No. 257 (3/12/18), No. 258 (3/19/18), and No. 261 (4/10/18), I posted items about the massive legacy problem faced by General Electric Company (GE) with regard to long-term care (LTC) insurance. Several class action lawsuits were filed against GE in late 2017 and early 2018. They were later consolidated. The two lead plaintiffs in the current consolidated case are Sjunde AP-Fonden and The Cleveland Bakers and Teamsters Pension Fund. U.S. District Judge Jesse M. Furman is handling the case. (See Sjunde AP-Fonden v. GE, U.S. District Court, Southern District of New York, Case No. 1:17-cv-8457.)

The Consolidated Complaints

When I posted the three items mentioned above in March and April 2018, several related lawsuits already had been consolidated, and I anticipated the filing of a consolidated complaint. In the complimentary package offered in No. 257, I included the original 33-page complaint in one of the cases. When I posted No. 261, I was not aware that, on March 20, the plaintiffs had filed a 289-page amended consolidated complaint. On April 10 they filed a 284-page second amended consolidated complaint. On July 25 they filed a 191-page third amended consolidated complaint. On October 17 they filed a 190-page fourth amended consolidated complaint. Also, in the complimentary package offered at the end of this post, I am including, from the fourth amended consolidated complaint, introductory material, a discussion of GE's alleged LTC insurance fraud, and concluding material.

Nature of the Complaint

The nature of the fourth amended consolidated complaint is described in its first two paragraphs. Here are those paragraphs, which I have edited lightly:

Court-appointed Lead Plaintiff Sjunde-AP Fonden, along with additional plaintiff The Cleveland Bakers and Teamsters Pension Fund, by and through their undersigned counsel, bring this federal securities class action on behalf of themselves and a Class consisting of all persons and entities that purchased or otherwise acquired the common stock of General Electric Company ("GE") from February 27, 2013, through January 23, 2018, inclusive. Plaintiffs assert claims for violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and the rules and regulations promulgated thereunder, including United States Securities and Exchange Commission ("SEC") Rule 10b-5, against Defendants GE, Jeffrey R. Immelt, Jeffrey S. Bornstein, Jamie S. Miller, Keith S. Sherin, Jan R. Hauser, and Richard A. Laxer.

As set forth herein, Plaintiffs and members of the Class purchased GE common stock at artificially inflated prices created and/or maintained by Defendants' materially false or misleading statements and omissions throughout the Class Period. When the truth concerning the Company was belatedly revealed to the market, Plaintiffs and Class members suffered massive monetary damages. Except as to allegations specifically pertaining to Plaintiffs, all allegations herein are based upon the investigation undertaken by Plaintiffs' counsel, which included, but was not limited to, the review and analysis of: public filings made by GE with the SEC; press releases and other public statements issued by Defendants; research reports purchased from securities and financial analysts; media and news reports related to GE; transcripts of GE's earnings and other investor conference calls; publicly available presentations, press releases, and interviews by GE and its employees; economic analyses of the movement and pricing of GE publicly traded common stock; consultations with relevant consultants and experts; media reports and other publicly available information concerning Defendants; and interviews of former employees of GE, several of whom, on information and belief, are known to GE and have been provided counsel by GE. Plaintiffs believe that substantial additional evidentiary support will exist for the allegations set forth herein after a reasonable opportunity for discovery.

The Alleged LTC Insurance Fraud

A section of the fourth amended consolidated complaint is devoted to a discussion of GE's alleged LTC insurance fraud. The "overview" subsection of that discussion includes this paragraph:

In the years prior to the start of the Class Period, LTC insurers began to learn that the major pricing assumptions that fueled the expansion of the LTC market in the 1970s and 1980s were woefully inaccurate. Specifically, insurers had greatly overestimated lapse rates and interest rates, and had dramatically underestimated the number of policyholders that would file claims and the length of time such claimants would require benefits.

The discussion includes a description of GE's spin-off of some LTC insurance business through the Genworth IPO in 2004. The discussion points out that GE retained the insurance and reinsurance operations of GE Insurance Solutions and its subsidiary, Employers Reassurance Corporation (ERAC). It also points out that ERAC reinsured LTC policies originally issued by Allianz, American United, Berkshire Life, Jackson National Life, John Alden, Lincoln Benefit Life, Massachusetts Mutual, State Life, Transamerica, and others. Also, Union Fidelity Life Insurance Company (UFLIC), another GE subsidiary, reinsured LTC policies originally issued by Travelers and reinsured by Genworth.

Prominent in the discussion are the views of several former GE employees (FE-1, FE-2, and so forth, and "defined using masculine pronouns to protect their anonymity.") The thrust of the comments by the former employees is that GE was aware of the LTC problems long before the public disclosure in January 2018.

The fourth amended consolidated complaint notes that "FE-6 has been removed from the complaint at his request." Here are some comments attributed to FE-6 in the second amended consolidated complaint:

FE-6 was an executive at GE Capital from 2014-2015. According to FE-6, an audit team conducted a simple audit on GE Capital's insurance business during his tenure (in 2014-2015) and the audit team had a risk based audit plan going into 2016. According to FE-6, there were quarterly conference calls led by Ronald Peters and the ERAC executive team with individuals from GE Capital's risk team. FE-6 said that during those quarterly calls ERAC would discuss the review process which included discussion of assumptions such as mortality and morbidity.

According to FE-6, the audit team began with a simple audit of ERAC to get people exposed to doing audits of that business. This was likely in the first four months of 2015. According to FE-6, concerns about assumptions, loss recognition testing, and model validation were not covered in that audit; they "came later" when KPMG delved more into those areas. According to FE-6, audit plans for the 2015 simple audit and the planned deeper dive into ERAC's assumptions, model validation, and other risk factors were submitted to Joseph Pizzuto, GE Capital's Chief Audit Executive, and ultimately, GE's Audit Committee which had the final approval authority for the audit plans.

FE-6 stated that the internal consensus amongst senior management, especially Dan Janki ("Janki"), Treasurer of GE, was that there was risk related to the legacy LTC portfolios. FE-6 explained that policies in the legacy LTC blocks were not being written any longer because of how risky they were.

FE-6 advised that GE held onto certain LTC policies that did not get spun off with Genworth because GE "refused to sell them at such a huge discount." FE-6 recalled that Janki had said that "his one big mistake was not selling off all the insurance policies and taking the hit at that time."

The Motion to Dismiss

On September 12 the defendants filed a motion to dismiss the third amended consolidated complaint and a 43-page memorandum of law in support of the motion. The table of contents in the memorandum of law is in the complimentary package offered at the end of this post.

On October 12 the plaintiffs filed a 63-page memorandum of law in opposition to the motion to dismiss the third amended consolidated complaint. The table of contents in the memorandum of law is in the complimentary package offered at the end of this post. On the same day, Judge Furman ordered the plaintiffs to file a fourth amended consolidated complaint removing the allegations attributed to FE-6.

On October 17 the plaintiffs filed the fourth amended consolidated complaint. On October 29 the defendants filed a 20-page memorandum of law in support of the motion to dismiss the third and fourth amended consolidated complaints. The table of contents in the memorandum of law is in the complimentary package offered at the end of this post. As of December 5 Judge Furman has not acted on the motion to dismiss the third and fourth amended consolidated complaints.

The Counts and the Prayer for Relief

The fourth amended consolidated complaint includes two counts: violation of Section 10(b) of the Exchange Act and Rule 10b-5 against all the defendants, and violation of Section 20(a) of the Exchange Act against the individual defendants. The plaintiffs seek compensatory damages against all the defendants, jointly and severally, for all damages sustained as a result of the defendants' wrongdoing, including interest; extraordinary, equitable, and/or injunctive relief, including, but not limited to, rescission; plaintiffs' costs and expenses, including reasonable counsel and expert fees; and such other relief as may be just and proper.

General Observations

When GE dropped its $15 billion bombshell on January 16, 2018, I thought the company had simply overlooked the unfolding disaster in its legacy LTC insurance business. However, the plaintiffs' amended consolidated complaints, including the views of former employees as described in those complaints, make it appear that company officials had been aware of the problem for years, and had failed to disclose it. In short, I think the amended consolidated complaints are a powerful indictment of GE's failure to keep shareholders and prospective shareholders informed of the company's legacy problem relating to its LTC insurance business.

It remains to be seen whether the fourth amended complaint will survive—in whole or in part—the defendants' motion to dismiss. I plan to follow the case and report major developments.

Available Material

I am offering a 95-page complimentary package consisting of introductory material in the fourth amended consolidated complaint (26 pages), material in that complaint describing GE's alleged LTC insurance fraud (50 pages), concluding material in that complaint (12 pages), and the tables of contents in three legal memoranda (7 pages). Email jmbelth@gmail.com and ask for the December 2018 package relating to GE's LTC insurance.

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Email: jmbelth@gmail.com

Blog: www.josephmbelth.com