Wednesday, June 30, 2021

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

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

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

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

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


Wednesday, June 23, 2021

No. 426: More on Bitcoin after Recent Ransomware Attacks

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

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

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

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

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


Wednesday, June 16, 2021

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

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

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


Thursday, June 10, 2021

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

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

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

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

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

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

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

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

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

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


Wednesday, June 2, 2021

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

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

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

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

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

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


Thursday, May 27, 2021

No. 422: An Excellent Book about How Bill Garrett Broke the Color Line in Big Ten Basketball

Many people know Jackie Robinson of the Brooklyn Dodgers broke the color line in major league baseball. However, few people know Bill Garrett of Indiana University (IU) broke the color line in Big Ten basketball.

The Book
In 2006, a friend sent me a just-published book entitled Getting Open: The Unknown Story of Bill Garrett and the Integration of College Basketball. I read the book and found it excellent. Recently I reread the book and decided to prepare this blog post.

The Authors
Getting Open was written by the father-daughter team of Tom Graham and Rachel Graham Cody. Tom grew up in Garrett's home town of Shelbyville, Indiana, graduated from Harvard Law School, and became an international trade lawyer. He was on the freshman basketball team at IU and knew many of Garrett's coaches, teammates, and fans. Rachel is a graduate of Swarthmore College and Harvard Divinity School, where she focused on African American studies.

The Book's Structure
The first part of the book ends with Shelbyville High School's victory in the 1947 Indiana state high school basketball championship. The Shelbyville starting lineup that year consisted of five seniors, including Garrett and two other outstanding black players. The second part of the book describes the "gentleman's agreement" that had prevented blacks from playing basketball in the Big Ten conference, and how the agreement was breached.

The Garrett Story
After Shelbyville won the Indiana high school championship in 1947, and after Garrett was named Mr. Indiana Basketball, many people wanted Garrett to enroll in the fall at IU. Great black athletes had been playing football at IU for years. But Garrett decided to enroll at Tennessee State University in Nashville.

Garrett transferred to IU in 1947 from Tennessee State during the legendary tenures of IU president Herman B Wells and IU head basketball coach Branch McCracken. When I arrived at IU in 1962, I began getting my hair cut in the men's barber shop in IU's Indiana Memorial Union. I learned from my barber there that Wells years earlier had fired the barber shop's manager, because he had refused to cut the hair of blacks. Wells had taken many other steps to open up IU, and he also was a staunch defender of academic freedom. Garrett became an outstanding basketball player at IU.

The Robinson Story
The book includes extensive material about Robinson. On April 15, 1947, the Brooklyn Dodgers broke the color line in major league baseball when Robinson started at first base on opening day at Ebbets Field. Branch Rickey, then the president of the Dodgers, often told a story that had haunted him for many years. In 1910, when Rickey was the baseball coach at Ohio Wesleyan University, his team had a black catcher named Charles Thomas. A hotel in South Bend, Indiana, where Rickey's team was to play Notre Dame, refused to give Thomas a room. The hotel, when pressed, agreed to put an extra cot in Rickey's room. When Rickey got to the room, he found Thomas sitting on the cot in tears, pulling at the skin on his hands, and saying, "It's my skin, Mr. Rickey. If I could pull it off, I'd be just like everybody else."

In World War II, blacks served in the military to defend our country, and many died. After the war, there was much talk about the absence of blacks in major league baseball. Rickey asked his scouts to find an outstanding black player. They located Robinson, who had been a four-sport college athlete in California, and who was playing for a black professional baseball team. When Rickey and Robinson met, Rickey asked: "Have you got the guts to play the game no matter what happens?" Robinson asked: "Are you looking for a Negro who is afraid to fight back?" Rickey replied: "I'm looking for a ballplayer with guts enough not to fight back!"

In 1946, when I was a high school junior, I played second base for Nottingham High School in my home town of Syracuse, New York. That year I got an early look at Robinson. I attended a game between the Syracuse Chiefs, then a farm team for the Cincinnati Reds, and the Montreal Royals, then a farm team for the Dodgers. Robinson played in the game, and I could tell he was very talented.

General Observations
Getting Open remains in print, and is incredibly interesting. I strongly recommend the book, especially for readers interested in the history of race relations in America.


Thursday, May 20, 2021

No. 421: William Barr Is in Trouble Again

Statement by Former DOJ Employees
In No. 358 (posted March 2, 2020), I reported on a February 16, 2020 statement signed by about 2,700 former employees of the U.S. Department of Justice (DOJ). The statement called for the resignation of then U.S. Attorney General William P. Barr after he interfered in the prosecution of Roger Stone. I agreed with the former DOJ employees that Barr should resign. He did not resign at that time, but he resigned shortly before the end of President Donald J. Trump's departure from office. Now that Barr is a former U.S. Attorney General, a recent development has him in trouble again.

CREW's FOIA Lawsuit against DOJ
On May 28, 2019, Citizens for Responsibility and Ethics in Washington (CREW) filed a lawsuit against DOJ under the federal Freedom-of-Information Act (FOIA). The lawsuit challenges DOJ's failure to disclose to CREW certain records pertaining to DOJ's handling of the massive two-volume report of Special Counsel Robert S. Mueller III submitted to Barr on March 22, 2019. The records in question relate to whether the evidence presented in the second volume of the Mueller report was sufficient to establish that President Trump committed obstruction-of-justice offenses. The seven-page complaint is here.

The CREW lawsuit has two counts. Count 1 is "wrongful withholding of non-exempt records." Count 2 is "failure to grant expedition." (See CREW v. DOJ, U.S. District Court, District of Columbia, Case No. 1:19-cv-1552.)

The CREW lawsuit was assigned to U.S. District Judge Amy Berman Jackson. President Obama nominated her in January 2011. The Senate confirmed her in March 2011 on a 97-0 vote.

Judge Jackson's Opinion
On May 3, 2021, Judge Jackson issued a partially redacted opinion. Here is an excerpt from page 25 of the 41-page opinion (the full opinion with redactions is here):
And of even greater importance to this decision, the [DOJ] affidavits are so inconsistent with evidence in the record, they are not worthy of credence. The review of the unredacted document in camera reveals that the suspicions voiced by the judge in EPIC and the plaintiff here were well-founded, and that not only was the Attorney General [Barr] being disingenuous then, but DOJ has been disingenuous to this Court with respect to the existence of a decision-making process that should be shielded by the deliberative process privilege. [DOJ's] redactions and incomplete explanations obfuscate the true purpose of the memorandum, and the excised portions belie the notion that it fell to the Attorney General [Barr] to make a prosecution decision or that any such decision was on the table at any time.
The "Conclusion" in Judge Jackson's opinion is on pages 34-35 of the opinion. It reads:
For all of the reasons set forth above, the Court will grant both motions for summary judgment in part and deny them in part. It will grant [DOJ's] motion and enter judgment in favor of [DOJ] on Count One with respect to Document 6. But [DOJ's] motion will be denied, and [CREW's] motion will be granted with respect to Document 15, and DOJ will be ordered to produce the document to CREW. [DOJ's] renewed motion to dismiss Count Two will be granted, and the claim will be dismissed. [DOJ] must file any motion to stay by May 17, 2021, and it must inform the Court of its position on whether this [opinion] may be unsealed at that time.
DOJ's Request for an Extension
On May 14, 2021, DOJ filed an unopposed motion for a one-week extension (to May 24) to respond to Judge Jackson's May 3 opinion. She granted the motion.

General Observations
At this time (May 14), it is anticipated that DOJ will file a reply on May 24 to Judge Jackson's opinion, and that she will comment on that reply. In due course, we may see some or all of the redacted material in the opinion. We also may see more details about Barr's handling of the Mueller report during the period between his receipt of the report and the release of the redacted report to the public. If it is found that Barr misled Congress and/or the public about the contents of the report, I do not know what actions might be taken against him. I plan to report further developments.