Beyond Structured Settlements

ELNY Liquidation Hearing - 6

During the second day of the Executive Life of New York (ELNY) Liquidation Hearing, presiding Judge John M. Galasso stated: "I have a gun to my head; if the annuitants don't get the Restructuring Agreement, they get a straight liquidation."

That gun discharged metaphorically yesterday in Room 35 of the Nassau County New York State Supreme Court Building. The target, however, was not Judge Galasso. Instead, Judge Galasso took full aim at attorney Edward Stone and the ELNY structured settlement shortfall payees. Some of the key developments:

• No Additional Witnesses - After allowing Stone's expert witness Douglas Hartz to testify and be cross-examined on March 26, Judge Galasso refused to allow Stone to introduce additional witnesses on behalf of the shortfall victims stating "they wouldn't help". Among the witnesses Stone had listed in addition to Hartz:
  
  • Ronald Kehrli - former Chief Executive Officer of ELNY prior to ELNY entering Rehabilitation.
  • Corwin K. Zass - an expert actuary.
  • Marshall Sterman - a forensic accountant.
  • Thomas Gober - a forensic accountant and insurance fraud investigator.
  • Laird Zacheis - a consulting actuary.
• Objections Under Seal - Denying previous requests by attorneys for ELNY shortfall victims to review the compendium of objections submitted by all Objectors to the proposed ELNY Restructuring Agreement, Judge Galasso decided "sua sponte" to place all objections "under seal" thereby preventing those objections from becoming a matter of public record and restricting access by attorneys for the structured settlement shortfall payees.
• Source Materials - Judge Galasso continued to deny attorneys for the shortfall payees access to critical source materials (including the MetLife ELNY database) relied upon by the agents and experts for the Superintendent of the New York State Department of Financial Services (Superintendent), as Receiver for ELNY, in formulating the Superintendent's proposed Restructuring Agreement for ELNY.
• Closing Arguments -  Judge Galasso scheduled closing arguments to begin today, March 28, 2012, with attorneys for the ELNY shortfall victims presenting first.

In their prior cross-examination of witnesses called on behalf of the Superintendent, attorneys representing ELNY structured settlement shortfall payees had attempted to convince Judge Galasso that the proposed ELNY Restructuring Agreement was neither "fair and equitable" nor the "best possible plan". In presenting their clients' case, those attorneys indicated they planned to suggest improvements and/or alternatives.

By denying attorneys for the ELNY structured settlement shortfall payees the right: 1) to present all of their expert witnesses and 2) to review all objections plus critical source documents previously shared by the Superintendent and NOLHGA with their agents and experts, Judge Galasso appears to have added insult to injury by prematurely putting to rest what was supposed to be a fair and open hearing.

S2KM's complete reporting about the ELNY Liquidation Hearing is accessible on the structured settlement wiki.

ELNY Liquidation Hearing - 5

Attorney Edward Stone ignited a firestorm of objections yesterday from Sidley Austin attorneys representing the Superintendent of the New York State Department of Financial Services (Superintendent), as Receiver for Executive Life of New York (ELNY), when he introduced Douglas A. Hartz as an expert witness on behalf of ELNY structured settlement shortfall victims.

Hartz, a consultant, federal receiver and special deputy receiver, is the principal member of Insurance Regulatory Consulting Group (IRCG) which "focuses on insurance regulation, and the transactions and issues involving troubled or insolvent insurance companies."

According to his Curriculum Vitae, which Stone entered an an exhibit, Hartz has administered or assisted in the receivership proceedings of numerous insurers and directed the closure of estates with long-tail claims. He has also developed:

• Procedures for internal audit and accounting analysis (including reinsurance) leading to the recovery of millions of dollars in estate assets.
• A system of insurer liquidation accounting that has, in large part, served as the model for the NAIC Global Receivership Information Database financial reporting requirements.
• Claims and reinsurance tracking systems that meet fiduciary, statutory and guaranty fund requirements

Although Sidley Austin attorneys objected vociferously on the basis of both procedure (lack of notice) and substance (lack of New York liquidation expertise), presiding Judge John M. Gallaso overruled the objections and allowed Hartz to testify. Stone's direct examination of Hartz, and Sidley Austin's related objections, consumed the entire ELNY court hearing on Monday.

Stone's examination of Hartz focused on the methodology Hartz would utilize and the source materials he would require if Hartz were asked to develop an alternative restructuring plan for ELNY. Although the Sidley Austin attorneys objected, arguing lack of relevance, Judge Galasso also permitted Stone to introduce ELNY financial statements from 1989 which showed that ELNY contributed $40 million to capital and surplus and had cash and other liquid assets of close to $600 million in 1989.

Strategic Objective

Following yesterday's hearing, Stone provided S2KM with this exclusive statement:

"My strategic objective is to get our expert (Hartz) to convince the judge to consider whether an alternative restructuring plan for ELNY is feasible and whether such a plan is more fair and equitable than the Superintendent's proposed plan. The Superintendent's attorneys keep saying 'it can't be done'. But they refuse to show us the existing (ELNY) payment schedules or the proposed (GABC) payment schedules. To propose an alternative plan on behalf of the shortfall victims, my experts and I need to see those payout schedules and related source materials.

"After reviewing those payment schedules and source materials, we want the opportunity to propose an alternative plan that considers some combination of the following: 1) converting (discounting) large deferred lump sum payments to up front cash; 2) converting life contingent payments to period certain payments; 3) introducing a third party company or liquidation trustee to purchase and/or manage ELNY. The best way to restructure ELNY is to make all payments finite - and get rid of the perpetual ELNY machine.

"We object to any judicial grant of immunity for the Superintendent, in his role as ELNY's Receiver, or to his agents including the New York Liquidation Bureau (NYLB). ELNY was solvent when the Superintendent and the NYLB assumed management responsibilities for ELNY in 1991. We want an independent third party to be able to pursue causes of action on behalf of the ELNY estate. We intend to submit an expanded witness list with affidavits on Tuesday."

For S2KM's complete reporting about the ELNY liquidation hearing, see the structured settlement wiki.