Kentucky Central Life (KY)
August 6 Distribution
NOLHGA plans to distribute $35.4 million to participating guaranty associations by August 6. Amounts greater than $20,000 will be sent by wire; amounts less than that will be sent by check.
Of the $50 million distribution made by the KCL estate June 1, NOLHGA received $41 million for the benefit of the participating guaranty associations. NOLHGA deposited $6 million in Federated Investments to fund the projected fifth plan year funding and administrative costs, and will refund the balance.
Of the $41 million sent to NOLHGA by the estate, $22.8 million was enough to repay the guaranty associations closing funding, plus interest. This amount is allocated based on final closing funding.
The additional amount, $18.9 million including escrow account interest, is allocated based on post-closing support costs to date.
Task Force Chair - John Colpean; Staff Contact - Joni Forsythe American Standard Life (OK)Court Approves Ranch Sale
On July 15, David J. Nicholas and other putative equity holders of American Standard Life (the "equity holders"), filed an appeal with the Oklahoma Supreme Court challenging the District Court's dismissal of their Petition to Vacate ASL's Liquidation Order. In their Petition to Vacate, the equity holders had argued that the liquidation of ASL was improper for a number of reasons, including fraud and the lack of statutory grounds to liquidate. The equity holders further sought to stay the sale of ASL's principal asset, ranch property in Park County, Colorado. In an order issued June 15th, the District Court approved the sale of the property and dismissed the Petition to Vacate.
In their appeal, the equity holders have argued, among other matters, that the District Court erred in dismissing the Petition to Vacate without allowing the equity holders to respond to the motions to dismiss by certain intervening parties. In a separate development, the equity holders also have filed a Petition to Intervene in the ASL Receivership proceedings to oppose the claims of the Life Assurance Company of Pennsylvania and the Pennsylvania Life and Health Insurance Guaranty Association against the assets of the ASL estate.
On a related note, the closing for the ranch property has been rescheduled for August 9 to accommodate the buyers. In consideration for the extension, the buyers have paid an additional $200,000 in earnest deposit money (bringing the total to $500,000). The buyers have also agreed to pay interest on the balance of the purchase price until closing and to cover certain transaction costs caused by the delay.
Task Force Chair - Andrea Bowers; Staff Contact - Bill O'Sullivan Summit National Life (PA)Former Owner's Conviction Upheld
On July 16th, the United States Court of Appeals for the Third Circuit affirmed the jury conviction of Allen W. Stewart, a former partner in a Philadelphia law firm, on 135 counts of mail fraud, wire fraud, money laundering and racketeering. The case arose out of the insolvencies of the Summit National Life and Equitable Benefit Life insurance companies.
At trial, the government showed how Stewart used the two insurance companies (which he owned) and several shell corporations to facilitate his criminal activities. From 1988 through 1994, Stewart orchestrated a complicated series of fraudulent transactions resulting in over $60 million in losses to the insurance companies. Aside from siphoning funds from Summit for his own use, he entered into sham reinsurance agreements, bolstered Summit's assets with several unsecured and worthless IOUs, and circulated money from Summit, through shell companies, and back to Summit as payment on IOUs.
Following his conviction, the court sentenced Stewart to 180 months in prison plus three years of supervised release. He was required to forfeit virtually all of his known assets and pay restitution on the $60 million loss. On appeal, both the conviction and the sentence were upheld. Moreover, the issue of forfeiture was resolved in the government's favor. As a result, the $2.6 million in laundered funds remaining in Stewart's Merrill Lynch account is directly forfeitable, despite the fact that the funds were co-mingled with approximately $160,000 in legitimate funds unrelated to criminal activity.
Of particular note, Assistant United States Attorney Linda Dale Hoffa, the prosecutor in the Stewart case, was one of the featured speakers at NOLHGA's Legal Seminar last week.
Task Force Chair - James Rhodes; Staff Contact - Executive Life (CA)NOLHGA Files Amicus Brief in Gersenson Case
NOLHGA filed an amicus statement last week, in support of the Pennsylvania association's petition to the Pennsylvania Supreme Court for review of the Superior Court's April 8 decision in Gersenson v. Pennsylvania Life. As reported in the June 25 Weekly Wire, on June 16, the Pennsylvania Superior Court denied the Pennsylvania association's application for reargument following that court's April 8 decision, which affirmed a lower court ruling awarding $16.6 million to plaintiffs.
In its statement, NOLHGA disagreed with the lower court's finding that the notice to policyholders describing the ELIC rehabilitation plan was "materially false," and asserted that the holding would substantially undermine the ability of commissioners in large life insolvencies to develop multi-state rehabilitation plans for the protection of policyholders. NOLHGA also stressed the importance of granting full faith and credit to other state court rulings, and of the legislative policies in Pennsylvania and California favoring cooperation among the states in the rehabilitation and liquidation of insurance companies, as essential to the protection of policyholders in insolvencies of nationwide impact.
Staff Contact -ELIC Schedule 9.3.3 Schedules Sent
Last week, certain ELIC PGAs should have received a package from Arthur Andersen containing the Rehabilitator's suggested revisions to Schedule 9.3.3 for their state. The response date for PGAs is July 28. Affected are the Alabama, Arizona, California, Delaware, Florida, Georgia, Illinois, Indiana, Kentucky, Maryland, North Carolina, Missouri, New Jersey, Ohio, Oklahoma, Pennsylvania, Tennessee, Texas, Virginia and Washington associations.
PGAs may recall that the ELIC Enhancement Agreement provides for a process by which the Rehabilitator may modify the existing policyholder listing, Schedule 9.3.3, in order to correct errors that surface and that impact the Guaranty Association Enhancement amount. Arthur Andersen reviewed the latest such schedule and found no reason for PGAs to object to the Rehabilitator's suggested revisions. PGAs are asked to review their schedules and respond by July 28 to either Kevin Stephens of Arthur Andersen (202) 481-8485 or Angela Franklin. PGAs who do not respond by July 28 with objections will be considered to have agreed to the suggested revisions.
It is anticipated that two more "batches" of changes will be circulated to PGAs on or before September 3, 1999, when the revision process will end. PGAs with questions may contact Kevin or Angela.
Task Force Chair - Art Dummer;NOLHGA Legal Seminar
A record of nearly 130 people attended NOLHGA's Legal Seminar last week in Aspen, Colorado. Speakers included Larry Pozner, one of the guaranty associations attorneys in the Dain Bosworth litigation, Linda Dale Hoffa, the federal prosecutor handling the Summit criminal litigation, Martin Weiss of Weiss Ratings, and a host of others examining cutting edge legal issues of interest to the guaranty association system. Complete coverage will be found in the fall NOLHGA Journal. NOLHGA would like to thank the Legal Seminar Planning Committee on its work on the meeting, and, in particular, Committee Chair Frank O'Loughlin.
CALENDAR/CONFERENCE CALLS
July 28 NOLHGA Executive, Compensation and Finance Committees, Baltimore, MD
July 29 NOLHGA Board of Directors Meeting, Baltimore, MD
August 3 Legal Committee Claims Valuation Subgroup, Denver, CO
August 6 Fidelity Bankers Task Force Meeting, O'Hare Marriott, Chicago
August 26 ELIC Task Force/Altus Working Group Teleconference, 11:00 am ET
August 25-27 NOLHGA MPC Meeting, The Coeur d'Alene, Coeur d'Alene, ID