The Executive Life of New York (ELNY) class action lawsuit , filed November 8, 2012 by attorney Edward Stone and representatives of the Christensen & Jensen law firm, on behalf of ELNY shortfall victims, against Benjamin M. Lawsky,
Superintendent of Financial Services of the State of New York, and his
predecessor ELNY Rehabilitators (Superintendent and/or Rehabilitator), MetLife and Credit Suisse, substantially expands the historical allegations of post-1991 ELNY mismanagement and non-disclosure.
What follows is S2KM's re-configuration of selected allegations from the class action complaint into an ELNY "allegation timeline".
For persons seeking more comprehensive understanding of alleged
mismanagement of ELNY during its 21 year rehabilitation, S2KM recommends
reading the ELNY class action complaint which is posted on the structured settlement wiki. The following S2KM blog posts provide additional critiques of the New York Liquidation Bureau's (NYLB) role in ELNY insolvency:
ELNY Class Action Allegation Timeline
April 16, 1991
- New York's Insurance Superintendent Salvatore Curiale states:
"[ELNY] isn't insolvent and has ample cash on hand to pay life
insurance death benefits and meet annuity payments."
- Curiale further
states: "The company is currently neither in an insolvent or impaired
condition. . . . I have not petitioned the Court to make a finding of
insolvency. ELNY is a company well able to meet its current
obligations."
April 23, 1991
- ELNY Rehabilitation Court enters an Order of Rehabilitation which prohibits "all" persons, including the Rehabilitator, from "doing or permitting to be done any act or thing which might waste the assets" of ELNY.
- Under
ELNY's Order of Rehabilitation, no more than 30 percent of ELNY's
assets can be invested in common stock at any given time. This 30
percent cap is 50 percent higher than the percentage allowed by active
insurance companies.
- Consistent
with normal practice, Superintendent Curiale, ELNY's Rehabilitator,
delegates most of his ELNY rehabilitation duties to the New York
Liquidation Bureau [NYLB], directed by a Special Deputy Superintendent
who in 1991 is Kevin Foley.
May 17, 1991
- In a letter to ELNY policyholders, the Superintendent confirms the sole basis for ELNY's rehabilitation has been the risk of policy
surrenders. The letter further states the Superintendent is "presently
analyzing the assets and liabilities of ELNY[.]"
June 7, 1991 -
NYLB files a petition, which the Rehabilitation Court approves to
retain First Boston Corporation (First Boston) as ELNY's exclusive
financial advisor.
- The court also approves an investment advisory and management agreement with a First Boston
affiliate providing for the payment of multi-million dollar fees.
- First
Boston (and its successor/purchaser Credit Suisse) subsequently invests
ELNY's assets in violation of its contractual obligations, in violation
of the court's order, in violation of its representations to the NYLB
and the court, and in violation of its fiduciary duties to ELNY
shortfall payees.
- Instead,
First Boston and Credit Suisse engage in a pattern of risky investments
that generate high management fees and place ELNY's assets at
considerable risk.
- Note: Credit Suisse acquired First Boston Corporation in 1990 but did not phase out the First Boston name until 2006.
June 1991 - The Superintendent contacts the Life Insurance Guaranty Corporation of
New York (LIGCNY) to discuss the disposition of ELNY. MetLife, the
largest domiciled insurance company in New York, has a lead position in
LIGCNY and receives information about ELNY that is not available to
other insurers generally or to the public.
Between June and November 1991
- NYLB
enters into discussions with MetLife. Deputy Superintendent Foley is the principal person representing NYLB in these discussions.
- Under
an agreement ultimately approved by the Rehabilitation Court, MetLife
receives more than $1.5 billion of ELNY's traditional whole life, term
life and single premium deferred annuity books of business plus $1.5
billion of ELNY's highest-quality assets.
- NYLB takes several steps to prevent competitive bids from other insurers.
- The
products transferred to MetLife include 52,748 single premium deferred
annuities and 80,891 life insurance policies. This large book of
business allows MetLife to increase its assets by more than $1 billion
at essentially no risk.
- In addition to receiving cash, MetLife is allowed to pick and choose from among ELNY's bonds and to charge "substantially higher surrender charges" than allowed under the ELNY contracts.
- Part
of the agreement with MetLife includes retention of MetLife to service
ELNY's remaining SPIAs (including structured settlement annuities) with a
monthly fee of $5.50 per payee if payments begin before the last day of
any month and $2.50 per payee if payments have not begun.
- Under
this arrangement, ELNY's true liabilities are ascertainable only by
NYLB and MetLife, the only entities with access to the annuity
contracts.
October 9, 1991 - In a
letter to ELNY policyholders and annuitants, the
Superintendent reiterates the original ELNY takeover was due to
surrender requests and further states: "it remains our belief that
ELNY policyholders, annuitants and contract holders will receive 100% of
the amounts due them under any of the options chosen as part [of] the
rehabilitation plan. ... Please be assured that your money is being well
protected and conservatively invested by the Rehabilitator."
January 21, 1992 -
In a letter to ELNY policyholders and annuitants, the
Superintendent states he is proposing a transfer of assets to MetLife
and that "[t]he contemplated exchange and reinsurance agreements [with
MetLife] would place you in a substantially similar position as you were
at the time of the entry of the Rehabilitation Order."
March 26, 1992
- To implement the agreements with First Boston and MetLife, NYLB
submits a proposed ELNY Rehabilitation Plan which the court approves.
- First
Boston represents to the court the only possible course of action
is to transfer virtually all of ELNY's investment grade assets to
MetLife in exchange for MetLife assuming ELNY's
obligations to only part of its policyholders.
- First
Boston and NYLB represent that with First Boston's management of ELNY's
assets, it is more than 90% certain the remaining ELNY assets will be
sufficient to meet 100% of ELNY's obligations.
- Superintendent Curiale represents that, following "an
extensive and detailed analysis ... Petitioner, as Rehabilitator,
determined that the transaction proposed in the Plan would not impose
any unwarranted or unreasonable risks on ELNY's SPIA holders, creditors
or shareholders."
- Deputy Superintendent Foley states that, after the transfer, "we will make continued full payment" to annuitants, that he is "fully confident that these payments can and will be made," and that it is a "100 percent guarantee."
- NYLB
represents that ELNY's remaining assets and liabilities will be
approximately equal after the transfer of assets to MetLife. In fact,
after the highest-value assets are transferred to MetLife, ELNY's
remaining assets are less that its fixed liabilities by at least $300
million.
- From
1992 until 2010, the NYLB never files any reports with or otherwise
updates the ELNY Rehabilitation Court with respect to ELNY's annuities.
April 13, 1992 - In a letter to ELNY policyholders and annuitants, the Superintendent states the proposed transfer of assets to MetLife "best protects all classes of ELNY policyholders and provides security, value, fairness, timeliness and practicality."
During 1992 - The Superintendent conducts "an extensive and detailed," "careful and exhaustive," "comprehensive" "full study" of ELNY's assets and liabilities and afterward reaffirms that ELNY is solvent.
- Following the transfer to MetLife, ELNY retains 23,666 annuity contracts in force and approximately $3.3 billion of assets.
- Foley acknowledges, under the deal, MetLife received "extremely high quality assets" and ELNY was left with lower-quality assets.
- Foley predicts the ELNY rehabilitation process will take "four or five years" or possibly less.
- NYLB
asks Milliman & Robertson [M&R] to render actuarial opinions
regarding the sufficiency of ELNY's remaining assets based upon certain
assumptions and investment strategies.
- M&R does not audit or independently verify any of the information or assumptions provided to it.
- Based upon the assumptions provided by NYLB and First Boston, NYLB represents:
-
"[T]he investment strategy adopted by [the Superintendent] does not
impose any unreasonable risks on ELNY's SPIA holders, creditors or
shareholders."
- "[I]n
more than 90 percent of 500 randomly generated interest rate scenarios
under ... base case assumptions, ELNY's SPIA obligations are satisfied
in full."
- "Under the M&R study, the
projected cash flows from the remaining assets [are] sufficient to meet
95% of the SPIA obligations under approximately 99% of the scenerios
tested using ... base case default, recovery, yield and rate of return
assumptions."
1996 - NYLB for the first time refuses unrestricted access by the New York
State Comptroller's office (Comptroller) to its records and personnel.
- The Comptroller reports: "During
our work, Department and Bureau officials prevented auditors from
examining relevant records related to the liquidation of one estate and
employee personnel-related records. Our audit was precluded from
interviewing agency managers and operating personnel without senior
management present, thereby creating an environment where those
individuals could not speak freely."
- Prior to its takeover of ELNY, NYLB had generally cooperated with audits requested by the Comptroller's office.
- For example, no limitations were placed on the Comptroller in 1976, 1984, or 1990.
- In 1994, the Comptroller performed a follow up audit limited to items that had not been reviewed in 1990.
1998 - Common stock comprises 38 percent of ELNY's portfolio exceeding the 30 percent limit set by the 1991 Order of Rehabilitation.
1999
- A NYLB representative states it could take up to 100 years before ELNY is finally liquidated.
- Former Deputy Superintendent Foley begins employment with MetLife as its Vice President of External and Internal Communications.
2000
- Common stock comprises as much as 44 percent of ELNY's investment portfolio.
- ELNY's common stock portfolio loses hundreds of millions of dollars, nearly one-third of its value.
2001
- In a meeting with a potential ELNY investor representative, the then Deputy Superintendent states: "Why would we want to sell [ELNY] when we can sit here and clip coupons all day."
- ELNY's common stock portfolio drops another 13 percent.
2002 - ELNY's common stock portfolio drops another 19 percent.
2004 - The NYLB refuses a Comptroller request to perform a comprehensive audit to include a review of ELNY's assets and liabilities.
July 23, 2004 - The Comptroller issues subpoenas related to the proposed NYLB audit.
November 17, 2004 - The Superintendent files suit to quash the subpoenas.
June 30, 2005 - A New York Supreme Court quashes the subpoenas, and the Comptroller appeals.
Late 2005 or early 2006
- Then-New York Attorney General Eliot Spitzer campaigns for Governor on an anti-corruption platform.
- NYLB
officials approach NOLHGA and the two entities begin working on a plan
to liquidate ELNY without informing the Rehabilitation Court or ELNY's
policyholders and annuitants of ELNY's insolvency.
- Under this plan, more than 1400 ELNY annuitants would suffer reduced payments of up to 66 percent.
August 2006 -
Then-Special Deputy Superintendent Jody Hall, who has
responsibility for NYLB, is fired for suspected corruption. She later
pleads guilty and is convicted.
November 2006 - Governor-elect Spitzer identifies an investigation of the NYLB as an important priority for his administration.
2007
- On
at least three occasions prior to 2007, groups of potential investors
advise the Superintendent of an interest in purchasing ELNY's assets and
liabilities. On each occasion, the Superintendent directly interposes
impediments to the performance of due diligence and other
investment-related activities.
- NYLB personnel begin
contacting insurance companies and others, such as purchasers of
structured settlement payment rights, demanding they contribute money to
shore up ELNY or face punitive actions by the New York Department of
Insurance.
January 2007 - Governor Spitzer appoints Mark Peters as the new Superintendent.
March 6, 2007 - The New York Appellate Division rules the Comptroller can enforce its subpoenas against NYLB.
May 2007 - Superintendent Peters announces NYLB will be subjected to a "top to bottom"
audit by an independent auditor for the first time in NYLB history. The
auditors discover the NYLB's financial records are in complete disarray
requiring the NYLB to "reconstruct" the financial records of all 60 estates under its supervision.
October 11, 2007 - In Dinallo v. DiNapoli
, the New York Court of Appeals holds that, in his capacity as
rehabilitator/liquidator of insurance companies, the Superintendent is
not a state officer. Therefore, acting as the Superintendent's agent,
the NYLB is not a state agency and is not subject to audit by the New
York State Comptroller.
December 2007
- NYLB
personnel inform Governor Spitzer that a deal has been reached with
insurance companies and others assuring 100 percent payment to ELNY
policyholders and/or annuitants.
- Unknown
to Governor Spitzer, no deal has been reached. Instead, the NYLB is
still working privately with NOLHGA on the plan to liquidate ELNY.
- Governor Spitzer announces an "agreement in principle" for ELNY, subject to approval by ELNY's Rehabilitation Court. The agreement is designed to:
- Continue paying all ELNY annuitants 100% of their benefits;
- Provide protection for approximately 11,000 ELNY annuity recipients including structured settlement recipients.
- The
announced plan, whereby various insurers and guarantee associations
apparently agree to pay $650 to $750 million to help fund $2 billion of
future ELNY payments, never materializes.
October 2008
- Independent auditors discover NYLB has been understating ELNY's
shortfall by more than $1 billion for years. Examining ELNY's estate as
of December 31, 2006, the auditor concludes ELNY's liabilities exceed
its assets by $1.26 billion.
March 18, 2009 - without notification to ELNY policyholders and annuitants, Judge Daniel Martin signs an Order allowing NYLB to:
- Replace Credit Suisse as ELNY's investment advisor with Wellington Management Company and Goldman Sachs Asset Management; and
- "[F]rom
time to time amend the [Investment] Guidelines set by the Rehabilitator
in consultation with his new financial advisors if the Rehabilitator
deems it beneficial to ELNY."
December 17, 2010 - State Supreme Court Judge Galasso orders the Superintendent
to present the Court with a proposed order and plan of liquidation for
ELNY on or before July 1, 2011 after the Superintendent confers with the
New York Life Insurance Company Guaranty Corporation and other
interested parties.
June 23, 2011 -
The Superintendent files a motion to postpone the deadline for filing a
proposed order and plan of liquidation for ELNY from July 1, 2011 to
August 10, 2011 "in order to present a comprehensive and consensual
proposed Plan of Liquidation that maximizes the potential benefits for
ELNY's structured settlement and other annuitants."
August 8, 2011 - Counsel for the Superintendent advises the court the Superintendent 'is not in a position to submit a consensual proposed order and plan of liquidation on or before August 10, 2011" as previously promised. Instead, he anticipates the Superintendent doing so on or about August 26, 2011.
October 3, 2011
- Governor Andrew Cuomo creates the New York Department of Financial
Services by consolidating the New York Insurance and Banking
Departments. The Superintendent of Financial Services becomes the court
appointed fiduciary and Receiver/Rehabilitator of ELNY as well as other
impaired and insolvent insurance companies in New York.
December 2011 - NYLB:
- Files an ex parte motion stating its intent to liquidate ELNY.
- Notifies ELNY shortfall payees for the first time that their benefits will be cut.
March 2012 -
Following a hearing, Judge Galasso determines ELNY is
insolvent and approves the liquidation plan and restructuring agreement
upon which NYLB and NOLHGA have been collaborating since 2006.
- Under the plan, ELNY shortfall payees face a potential loss of benefits exceeding $920 million.
- During the hearing, NYLB successfully prevents shortfall payees from exploring the causes of ELNY's insolvency.
- The order approving the ELNY liquidation plan and restructuring agreement is currently being appealed.
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