<DOC>
[107th Congress House Hearings]
[From the U.S. Government Printing Office via GPO Access]
[DOCID: f:83976.wais]
THE COLLAPSE OF EXECUTIVE LIFE INSURANCE CO. AND ITS IMPACT ON
POLICYHOLDERS
=======================================================================
HEARING
before the
COMMITTEE ON
GOVERNMENT REFORM
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
SECOND SESSION
__________
OCTOBER 10, 2002
__________
Serial No. 107-142
__________
Printed for the use of the Committee on Government Reform
Available via the World Wide Web: http://www.gpo.gov/congress/house
http://www.house.gov/reform
83-976 U.S. GOVERNMENT PRINTING OFFICE
WASHINGTON : 2002
____________________________________________________________________________
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512ÿ091800
Fax: (202) 512ÿ092250 Mail: Stop SSOP, Washington, DC 20402ÿ090001
COMMITTEE ON GOVERNMENT REFORM
DAN BURTON, Indiana, Chairman
BENJAMIN A. GILMAN, New York HENRY A. WAXMAN, California
CONSTANCE A. MORELLA, Maryland TOM LANTOS, California
CHRISTOPHER SHAYS, Connecticut MAJOR R. OWENS, New York
ILEANA ROS-LEHTINEN, Florida EDOLPHUS TOWNS, New York
JOHN M. McHUGH, New York PAUL E. KANJORSKI, Pennsylvania
STEPHEN HORN, California PATSY T. MINK, Hawaii
JOHN L. MICA, Florida CAROLYN B. MALONEY, New York
THOMAS M. DAVIS, Virginia ELEANOR HOLMES NORTON, Washington,
MARK E. SOUDER, Indiana DC
STEVEN C. LaTOURETTE, Ohio ELIJAH E. CUMMINGS, Maryland
BOB BARR, Georgia DENNIS J. KUCINICH, Ohio
DAN MILLER, Florida ROD R. BLAGOJEVICH, Illinois
DOUG OSE, California DANNY K. DAVIS, Illinois
RON LEWIS, Kentucky JOHN F. TIERNEY, Massachusetts
JO ANN DAVIS, Virginia JIM TURNER, Texas
TODD RUSSELL PLATTS, Pennsylvania THOMAS H. ALLEN, Maine
DAVE WELDON, Florida JANICE D. SCHAKOWSKY, Illinois
CHRIS CANNON, Utah WM. LACY CLAY, Missouri
ADAM H. PUTNAM, Florida DIANE E. WATSON, California
C.L. ``BUTCH'' OTTER, Idaho STEPHEN F. LYNCH, Massachusetts
EDWARD L. SCHROCK, Virginia ------
JOHN J. DUNCAN, Jr., Tennessee BERNARD SANDERS, Vermont
JOHN SULLIVAN, Oklahoma (Independent)
Kevin Binger, Staff Director
Daniel R. Moll, Deputy Staff Director
James C. Wilson, Chief Counsel
Robert A. Briggs, Chief Clerk
Phil Schiliro, Minority Staff Director
C O N T E N T S
----------
Page
Hearing held on October 10, 2002................................. 1
Statement of:
Corcoran, James P., former insurance commissioner, State of
New York; Steven J. Green, deputy insurance commissioner
and chief counsel, California Department of Insurance; and
Harry Le Vine, special counsel to the commissioner,
California Department of Insurance......................... 47
Jacobson, Dru Ann, Malibu, CA; and Robert Bozeman,
Evansville, IN............................................. 28
Letters, statements, etc., submitted for the record by:
Corcoran, James P., former insurance commissioner, State of
New York, prepared statement of............................ 50
Green, Steven J., deputy insurance commissioner and chief
counsel, California Department of Insurance, prepared
statement of............................................... 65
Jacobson, Dru Ann, Malibu, CA; and Robert Bozeman,
Evansville, IN, prepared statement of...................... 31
Le Vine, Harry, special counsel to the commissioner,
California Department of Insurance, prepared statement of.. 69
Lewis, Hon. Jerry, a Representative in Congress from the
State of California, prepared statement of................. 13
Maloney, Hon. Carolyn B., a Representative in Congress from
the State of New York:
Los Angeles Times article................................ 6
Prepared statement of.................................... 9
Ose, Hon. Doug, a Representative in Congress from the State
of California:
Exhibit 2................................................ 91
Exhibit 5................................................ 101
Exhibit 6................................................ 128
Prepared statement of.................................... 18
Waxman, Hon. Henry A., a Representative in Congress from the
State of California, prepared statement of................. 137
THE COLLAPSE OF EXECUTIVE LIFE INSURANCE CO. AND ITS IMPACT ON
POLICYHOLDERS
----------
THURSDAY, OCTOBER 10, 2002
House of Representatives,
Committee on Government Reform,
Washington, DC.
The committee met, pursuant to notice, at 11 a.m., in room
2154, Rayburn House Office Building, Hon. Dan Burton (chairman
of the committee) presiding.
Present: Representatives Burton, Ose, Waxman, Maloney,
Norton, Tierney, and Watson.
Also present: Representative Lewis of California.
Staff present: Kevin Binger, staff director; Daniel R.
Moll, deputy staff director; James C. Wilson, chief counsel;
David A. Kass, deputy chief counsel; Marc Chretien, senior
counsel; Jennifer Hall, counsel; Blain Rethmeier,
communications director; Allyson Blandford, assistant to the
chief counsel; Robert A. Briggs, chief clerk; Robin Butler,
office manager; Joshua E. Gillespie, deputy chief clerk;
Nicholis Mutton, deputy communications director; Dan Skopec,
energy policy, natural resources and regulatory affairs staff
director; Phil Schiliro, minority staff director; Phil Barnett,
minority chief counsel; Christopher Lu, minority deputy chief
counsel; Ellen Rayner, minority chief clerk; and Jean Gosa and
Earley Green, minority assistant clerks.
Mr. Burton. Good morning. A quorum being present, the
Committee on Government Reform will come to order.
I ask unanimous consent that all Members' and witnesses'
written and opening statements be included in the record.
Without objection, so ordered.
I ask unanimous consent that all written questions
submitted to witnesses and answers provided by witnesses after
the conclusion of this hearing be included in the record.
Without objection, so ordered.
I ask unanimous consent that all articles, exhibits, and
extraneous or tabular material referred to be included in the
record. Without objection, so ordered.
I ask unanimous consent that Congressman Lewis and Berman,
who are not members of the committee, be permitted to
participate in today's hearing. Jerry Lewis, is he not going to
come over, too? I also would like to include Congressman Jerry
Lewis of California, who I believe will be showing up, who will
be able to participate as well. Without objection, so ordered.
I want to welcome all of you and once again apologize for
our tardiness in getting started, but that is the way things
work around here. There are two things you don't want to ever
watch being made: laws or sausage. That was a joke, folks.
[Laughter.]
We are here today to examine the circumstances surrounding
the purchase of Executive Life Insurance Co., the alleged fraud
perpetrated by Credit Lyonnais, and the impact on
policyholders.
Before we get started, I would like to thank my colleagues
from California and the California delegation; the ranking
minority member, Mr. Waxman; Mr. Ose, and Mr. Jerry Lewis for
bringing this issue to my attention. Mr. Ose was the most vocal
about that, and I appreciate that very much.
Over the past year the news has been filled with stories of
corporate greed, stories of corporations going under and
hanging shareholders and employees out to dry. These stories
have outraged the American public, and they have had a very
adverse impact on the stock market.
Today we will hear another story of corporate greed.
However, this story is a lot different. This corporation went
under over a decade ago, but the fraud only became public
knowledge in 1998, and the stakeholders are still trying to
pick up the pieces. Today's hearing is going to focus on how
this happened and what should be done to prevent this from ever
happening again.
Before 1991, Executive Life was one of the country's
largest insurers, with more than 300,000 policyholders and
$10.5 billion in assets. Executive Life had most of its
investments in high-risk, high-yield junk bonds. With the
collapse of the junk bond market in the early 1990's, Executive
Life became insolvent.
Afraid of a run on the company by policyholders, the
Insurance Commissioner seized Executive Life and put it up for
auction. In late 1991, the Insurance Commissioner accepted a
bid for Executive Life that would separate the insurance
business from its portfolio of junk bonds. This separation left
the insurance business without a strong asset base, forcing
benefits to be severely reduced.
The Executive Life debacle resulted in losses to its
policyholders. State insurance guarantee funds made up part of
the losses, but coverage was capped. Of the 300,000
policyholders impacted by the sale, approximately 5,000 reside
in my home State of Indiana. The taxpayers of Indiana have
spent $26.8 million to cover the losses by the policyholders.
There is also an estimated $10.3 million to be spent in Indiana
in the future.
California has approximately 180,000 policyholders. In
California the State guarantees annuities up to $100,000 and
life insurance up to $300,000. Annuitants and recipients of
structured settlements in excess of State guarantees suffered
great economic losses, and these are the people who can least
afford it.
Of the 300,000 policies in effect at the time Executive
Life was sold, 5,600 were structured settlement annuities held
by severely disabled victims of accidents. For most of these
victims the monthly annuity payments are a primary source of
their income. These annuities provide medical care and other
necessities for their disabled recipients.
After the sale of Executive Life, these payments were
severely reduced. The life many victims were guaranteed by
their structured settlement was suddenly jeopardized. This loss
has only compounded the hardship they have already endured from
the accidents that they suffered.
We will hear today from Dru Ann Jacobson. Mrs. Jacobson is
testifying on behalf of her mother, Ann Dixon, an Executive
Life policyholder. Unfortunately, Ann Dixon was too sick to
come here before us today.
Ann Dixon's story is similar to many recipients of an
Executive Life structured settlement annuity. Ann Dixon was in
a terrible accident. She received a settlement to take care of
her medical needs and provide for her future. Ann Dixon did
exactly what she was supposed to do. She followed the advice of
her attorneys. She put that money into a highly rated safe
annuity, which most of us probably would have done.
When Ann Dixon bought that annuity, she was receiving
$3,000 a month. After Credit Lyonnais bought Executive Life,
Ann Dixon's monthly income was reduced to $1,800 a month, cut
almost in half. That is a 40 percent decrease in her income,
and there aren't many people who could survive a 40 percent
decrease in income and live a decent life.
We will also hear today from another structured settlement
recipient, Bob Bozeman. Mr. Bozeman worked for the Illinois
Railroad. Like Ann Dixon, he was in an accident and received a
settlement. Mr. Bozeman told his lawyers he wanted to put his
settlement in a low-risk annuity. He wanted to make sure he had
that money for his future. Mr. Bozeman bought the highly rated
Executive Life annuity.
When he bought the annuity, he was receiving $2,000 a
month. After Credit Lyonnais bought the Executive Life Co., he
received $1,400 per month, which is a 30 percent decrease in
income.
We have learned that these people did not need to suffer
like this. We have learned that an affiliate of Executive Life,
Executive Life of New York, went through similar problems.
However, the policyholders of Executive Life of New York were
made whole.
So how can there be such a dramatic difference in outcome
for these two companies? Mr. James P. Corcoran, the former New
York Insurance Commissioner, is here to explain how he
accomplished this.
There is much more to this story. We will hear from Steve
Green, the Deputy Insurance Commissioner, and Harry LeVine,
Special Counsel to the Commissioner, about the California State
Insurance Commissioner's pending lawsuit against Credit
Lyonnais and others.
We will learn that, unbeknownst to the California Insurance
Commissioner and in violation of Federal and California law,
Credit Lyonnais, a French government-owned bank, was the
ultimate purchaser of Executive Life. Through a series of front
companies and secret agreements, Credit Lyonnais was able to
secretly own the insurance company. This fraud came to light
only after an anonymous whistleblower brought it to the
attention of the Insurance Commissioner in 1998.
This is the part that gets me. This fraud netted profits
for Credit Lyonnais of approximately $2.9 billion, almost $3
billion. This fraud may be the largest ever committed in
American history. That is definitely something to keep in mind
when we hear about Ann Dixon and Robert Bozeman, who can barely
make ends meet.
Luckily for Ann Dixon and Bob Bozeman, the law is on their
side. The law requires that the perpetrator of a fraud must
give up all illegally gotten gains. We are here to shed some
light on this today.
Again, I want to thank the California delegation, in
particular, Mr. Ose, and I see Mr. Lewis is now with us, and we
appreciate your being here, Jerry, to shed light on this.
With that, I see Mr. Waxman is not here.
Incidentally, I have another meeting I have to go to, and
Mr. Ose has consented to chair this hearing when I have to
leave, but I will be back.
Ms. Maloney, do you have an opening statement.
Mrs. Maloney. Yes. Thank you, Mr. Chairman. I look forward
to the testimony today from today's witnesses.
I am angered to learn of the great hardships that have been
caused by the fraudulent actions of Credit Lyonnais, a French
bank. More than 5,000 people, many of whom are disabled,
victims of accidents or medical malpractice, who were the
beneficiaries of settlements managed by Executive Life
Insurance Co., all of these people were robbed of their
settlement payments.
I know that two of our witnesses can speak personally of
this tragedy and the impact this corruption has had on their
lives. I thank you very much for coming and really putting a
human face on the tragedy.
As you have heard from the chairman, the issues surrounding
the collapse of Executive Life Insurance Co., and its sale to
Credit Lyonnais have been scrutinized for many years by the
State of California and now civil courts. Much of the testimony
today will focus on this history, but, as we are not the
California State legislature, the major concern of mine is the
role of the Federal Government in this case.
In 1999, a career assistant U.S. attorney in Los Angeles
conducted an investigation of the role of the French bank in
the sale. This same career prosecutor requested that the
Justice Department approve indictments against the bank and key
officials involved in the fraudulent transactions. This request
was made 2 years ago and still awaits action.
In the current era of business scandals, after Enron,
WorldCom, Arthur Andersen, Global Crossing, Tyco, I would hope
that the Justice Department would not drag its feet on a major
corporate criminal case. Two years is too long to delay. These
corporate scandals have done serious, lasting damage to the
reputations of American business and especially the financial
services industry, and have destroyed and hurt many lives.
Healing in our business community and our financial markets
will come, in part, when the American people believe that the
government will take timely action against bad actors.
As a member of the Financial Services Committee and a
Representative from the financial capital of the world, New
York City, I am especially concerned about the precedent that
this case sets.
I would ask permission from the Chair to place in the
record an article from The Los Angeles Times, ``Little People
Floundering from Executive Life Losses'' that spells out this.
Mr. Ose [assuming Chair]. Without objection.
[The information referred to follows:]
[GRAPHIC] [TIFF OMITTED] T3976.001
[GRAPHIC] [TIFF OMITTED] T3976.002
Mrs. Maloney. But according to these press accounts, the
French government has been aggressively lobbying the Justice
Department and the State Department to stall action, and I
repeat these are allegations, but they were printed in the
press, even going as far as to have President Chirac raise this
issue with President Bush and to hire a former first Bush
administration Deputy Attorney General to lobby administration
political appointees.
Now this I find troubling. One of the things that we have
done in government is to put sunshine on what is happening, so
as to really let people know who is wooing who or who is trying
to influence someone. I know that in the FCC and the SEC and
other organizations there is a sign-in sheet when you go in to
see the head of the Department. Yet, the Justice Department
does not have such a sign-in sheet.
I would appeal to the Members on the other side of the
aisle to join in a bipartisan effort to have uniformity of
sunshine in the departments in the government, particularly
Justice, which is so important and has such an important impact
on people's lives. So I intend to draft that legislation, and I
hope the chairman will join me and the members of the
committee.
I sincerely hope that this political pressure is not the
cause of the delay. If a foreign government can successfully
delay or stop criminal proceedings by playing politics, it sets
an extremely dangerous precedent for U.S. citizens with assets
held by other multinational corporations. It sends a message to
my constituents with accounts in financial institutions that do
business in the United States that are owned by the French,
German, or Swiss holding companies that they should fear that
the executives of these companies may be above the law. These
are serious issues with potentially major economic
consequences.
I look forward to the hearing, and I thank very much the
witnesses for coming. I know it is very difficult always to
testify about your personal life and your personal situation,
but I think that your testimony is critical for us to
understand exactly the impact of this and how it happened. So I
thank you for coming.
I yield back the balance of my time.
[The prepared statement of Hon. Carolyn B. Maloney
follows:]
[GRAPHIC] [TIFF OMITTED] T3976.003
[GRAPHIC] [TIFF OMITTED] T3976.004
Mr. Ose. The committee welcomes the dean of the California
Republican delegation, Mr. Lewis, for the purpose of a
statement.
Mr. Lewis of California. Thank you very much, Mr. Ose and
Mr. Burton, for allowing me to come and sit in a committee
meeting on which I do not serve as a member of the committee.
I would like to also welcome Ms. Jacobson and thank her for
coming and providing testimony for this very serious challenge.
Mr. Chairman, I do have a formal statement I would like to
submit for the record.
Mr. Ose. Without objection.
Mr. Lewis of California. As I express my appreciation for
your allowing me to come, let me say, by way of background, the
reason for my coming involves the fact that I spent very much
of my early life in a field that was not connected with
government. For 30 years I was an active life underwriter.
Indeed, I feel very strongly about this industry that is being
so negatively impacted by companies that would operate in the
fashion that Credit Lyonnais has demonstrated a willingness to
practice.
I have come today in no small part because many years ago,
while I was active in the life insurance business, I became
acquainted with people who were very successfully practicing my
business. Most of those people spent their lives attempting to
help people build security in their own lives. The sale of life
insurance and annuities and pensions provides a foundation for
our personal security for families across the country like no
place else in the world. Indeed, whole life insurance contracts
and pension contracts are the original IRAs of our country that
led to our using our tax laws to broaden the base of people's
willingness to participate in their own independence.
During that time, those early years, there were a few of my
direct associates who did not reflect that same philosophy. It
was a couple of those very people who created Executive Life in
the first place. I watched with great interest as their
business went forward.
I was always astonished in my field to find those who were
willing to go out and talk with citizens who had purchased life
insurance contracts in their efforts to build their own
independence, and in approaching those individuals they would
take their existing contracts and strip out the cash value or
the money, thus, making essentially that contract almost
worthless, and use the money to encourage them to purchase
other contracts. ``Stripping the policies'' it was called. To
say the least, many of us were astonished at the impact that
had on many a life.
The first testimony I ever made before a committee of any
kind, Mr. Chairman, was when I went to the State legislature in
California to testify about our concern regarding those kinds
of practitioners in an industry that is so important to our
economy.
It does not surprise me at all that Executive Life was
eventually sold to a company in Europe that obviously had very
similar levels of value or no value in mind in terms of the
reason for their purchase. To have those people who had put
their faith in Executive Life then in the hands of people who
were willing to strip out the values of their life, the
disability contracts that Mrs. Jacobson will talk about, for
example, that literally have destroyed many a family's ability
to provide for their own independence is totally unacceptable.
I did not come today just because I used to be in the life
insurance business. Californians have communicated to many of
our Members about their concerns relative to the impact of the
actions of Credit Lyonnais on the lives of their families.
There is little doubt that they went about exercising
themselves regarding these contracts in order to literally
cream off profit for their own purposes, and in the process not
just destroy lives, but lay the foundation to destroy this very
industry here at home.
It is very, very appropriate, Mr. Chairman, both of my
chairmen here, that you hold these hearings. I would hope you
would help us followup to find a way legislatively to impact
such transactions that lead to this kind of disaster. It is an
unacceptable form of practice. It casts a shadow on one of the
finest industries that exists in the world, that is, our life
and pension industry in this country. Indeed, whatever we can
do by way of changing the law or otherwise to see that such
organizations cannot operate within the domain of the United
States I certainly am not only delighted, but anxious to
participate in and support.
So thank you very much for having me today, and I will
leave you to your fine work as I go back and work on our
defense bill on the floor. Thank you.
[The prepared statement of Hon. Jerry Lewis follows:]
[GRAPHIC] [TIFF OMITTED] T3976.005
[GRAPHIC] [TIFF OMITTED] T3976.006
[GRAPHIC] [TIFF OMITTED] T3976.007
[GRAPHIC] [TIFF OMITTED] T3976.008
Mr. Ose. Thank you, Mr. Chairman. It is a pleasure to have
you here.
We have another Member on this side who will join us
shortly. I am going to proceed with my statement.
First, I want to thank Chairman Burton for holding this
hearing. It is interesting, since I got here, I have been
involved in a number of things, and you have never flinched
from standing up for what is right. I would like to thank you
on this day for your leadership. I know your stewardship here
is ending, but I do want to compliment you on your leadership.
Mr. Burton. I was just asking Mr. Lewis because I may be
leaving, and maybe you can fill me in, it seems to me that
there ought to be some law against a company like Executive
Life or the Insurance Department out there selling this company
to a front company without the knowledge of the policyholder. I
doubt if the Insurance Commissioner knew about that. I have no
idea.
But it seems that Credit Lyonnais would be subject to some
kind of legal action beyond just liability for knowingly
misleading the California public and all those policyholders by
thinking that some other company is buying that company rather
than them.
Mr. Ose. I think, Mr. Chairman, you will see in the course
of the hearing that both the State of California and the
Federal Reserve Board both had prohibitions on foreign
companies acquiring domestic insurance companies. So that law
was in place then. It has since been pulled back a little bit,
but I think you will see in the course of the testimony today
that that is the case.
Mr. Burton. OK, thank you.
Mr. Ose. I am going to recognize my good friend from
California, Mr. Waxman, for the purpose of an opening
statement.
[The prepared statement of Hon. Doug Ose follows:]
[GRAPHIC] [TIFF OMITTED] T3976.009
[GRAPHIC] [TIFF OMITTED] T3976.010
[GRAPHIC] [TIFF OMITTED] T3976.011
[GRAPHIC] [TIFF OMITTED] T3976.012
[GRAPHIC] [TIFF OMITTED] T3976.013
[GRAPHIC] [TIFF OMITTED] T3976.014
Mr. Waxman. Thank you very much.
The collapse of Executive Life Insurance Co., in 1991 is an
important issue that deserves careful consideration by this
committee, but I am confused by the last-minute timing of this
hearing and the absence of key witnesses. It is unclear what
this hearing will actually accomplish.
The collapse of Executive Life affected over 300,000
policyholders, many of whom lived in California. The hardest-
hit policyholders were those people who relied on annuity
payments for their living expenses. When Executive Life
collapsed, these policyholders, many of whom were disabled,
lost significant amounts of money.
For this reason, I wrote to Chairman Burton 6 months ago
asking him to monitor this issue. According to press accounts,
the Los Angeles Office of the U.S. Attorney's Office
recommended in April 2001 that Credit Lyonnais be indicted.
However, there were disturbing reports from The New York Times
that the Justice Department might be negotiating a lenient
settlement with the bank that would provide little restitution
to policyholders. Concerns were also being raised about efforts
by the French government to lobby President Bush and Secretary
of State Powell, and the French bank had retained a close ally
of President Bush to lobby the Justice Department. My letter
requested that the committee look into these issues.
In addition, Representative Nancy Pelosi and Representative
Howard Berman wrote to Attorney General Ashcroft to express
their concerns about how the Justice Department was handling
this matter. Republican Members, including Mr. Ose and
Representative Jerry Lewis, had made similar requests. How the
Justice Department is proceeding in this matter and whether the
DOJ is being improperly influenced by political considerations
are important issues falling squarely within the committee's
jurisdiction. These issues need to be and can be examined in a
bipartisan manner.
Unfortunately, I doubt whether that will happen today. Or
at least I am worried about it. The key witnesses who can help
us understand why the Justice Department is not taking action
are not here. Plus, there is no indication that future hearings
are planned into the Justice Department's failure to act.
Instead, the timing and focus of this hearing creates the
impression that it is being held primarily to help a fellow
named Gary Mendoza, who is the Republican candidate running
against John Garamendi for Insurance Commissioner in
California. Mr. Mendoza is trying to make an issue out of the
fact that Mr. Garamendi presided over the sale of Executive
Life in 1991. That election is only 26 days from today.
Now here are some interesting facts: According to several
eyewitnesses, Mr. Mendoza told a group of insurance executives
2 weeks ago, well before this hearing was ever publicly
announced, that a congressional committee would be
investigating Mr. Garamendi's role in Executive Life. The Dow
Jones Newswire is reporting today that the Republican staff is
distributing to the media an old 1994 article critical of Mr.
Garamendi.
There is little basis for insinuations about Mr.
Garamendi's conduct. In the late 1980's the junk bond market
was crashing. This drove Executive Life into insolvency. As
Insurance Commissioner, Mr. Garamendi directed that the junk
bond portfolio held by Executive Life be sold as a means of
protecting policyholders from further losses.
With 20/20 hindsight, it is easy to question this decision,
since the junk bond market rose in the 1990's. But as millions
of Americans at this moment are experiencing, there is nothing
improper about being wrong on the direction of financial
markets. How many people are wondering whether they should sell
all their stocks and worry that, if they do so, stocks may be
rebounding in a short period of time, God willing?
Some believe the reason we are holding this hearing is
because Mr. Garamendi is in the middle of a political campaign.
Since Mr. Garamendi can't be here, there could be an
opportunity for political potshots. I hope that won't be the
case. That would be unfair and wrong.
Ironically, this hearing runs the danger of actually
hurting the policyholders of Executive Life. The California
Insurance Commissioner is litigating a major civil fraud
lawsuit against Credit Lyonnais right now. This lawsuit has a
very real chance of recovering some of the over $2 billion that
was fraudulently taken away from policyholders.
The majority has requested testimony from two lawyers in
the Insurance Commissioner's office. They are here today, but
have expressed their great reluctance to testify. These lawyers
are legitimately concerned that their testimony might lock them
into statements that Credit Lyonnais could use against them in
court or that they might be forced to provide a road map of
their legal case. Nevertheless, the majority has insisted that
these lawyers testify.
So at the end of the day, here is what we have: We have a
hearing that is not addressing the Justice Department's failure
to prosecute Credit Lyonnais. We have a hearing that may be
used for partisan political purposes to affect an election 26
days from now, and we have a hearing that could possibly damage
the only chance for policyholders to recover any money. This is
not how I would have approached this hearing. Nevertheless, if
we are able to send a unified message to the Justice
Department, some good can be accomplished.
It is important for the Justice Department to understand
the loss being suffered by Mr. Bozeman, Ms. Jacobson, and other
policyholders, and it is important for the Department to
understand the urgency of Federal action to address their
wrongs. I hope this committee will stand united in making that
point to the Justice Department, who we presume will be
monitoring this hearing, even though they are unwilling to
testify.
Mr. Burton. Would the gentleman yield to me just quickly?
Mr. Waxman. Certainly. I would be happy to yield.
Mr. Burton. Mr. Waxman, my business before I came to
Congress was insurance, all lines, including life insurance and
pensions and things like that. This issue I was not aware of
until recently, and I can assure you, and I give you my word,
there is no political implication, as far as I am concerned, in
this hearing.
I will tell you also that I will be happy, after the
elections are over and after there are no more political
problems to be dealt with, that we will have the Justice
Department over here to find out what they are doing, either in
a public forum or a private forum. I will be happy to have you
or some of your staff with us to find out what they are doing
to get these funds back for these policyholders who have been
really raped in my opinion.
So I just wanted to clarify that because you and I have had
a pretty good working relationship, at least the last couple of
years, and I hate to see that jeopardized by this.
Mr. Waxman. Thank you for your statement.
Mr. Ose. I thank the gentleman.
We come here today for this hearing, and there are any
number of reasons why we should or shouldn't have a hearing. I
mean there are Department of Justice contentions that they are
in the middle of a negotiation. There is an attorney general
who says they are in the middle of litigation. There are some
who say we are in the middle or too close to an election.
But the fact of the matter is we have a recommendation from
a deputy U.S. attorney which has had no action for a number of
months. We have over 300,000 policyholders who for years have
suffered losses. The time is now. It is as good a time as any.
We can wait if you want, and we can continue to have our
constituents and our fellow citizens hurt accordingly, but this
is as good a time as any, because some are still seeking
justice.
We have got lost retirement funds. We have lost settlements
from injury judgments. We have other losses of investments that
have left many Americans floundering following the fall of
Executive Life.
This injury was compounded when it was found that the
efforts to help the victims of this collapse instead left those
policyholders holding the bag while others took the ELIC, the
Executive Life Insurance Co., assets and fled the country.
More than a decade later, some of these victims have
learned to live with their loss. Others still feel the pain
from this loss every day. Two representatives of those folks
are here with us today, and I look forward to their testimony
and appreciate their willingness to share with us their
knowledge and to help us in asking the question: When will we
have a day in court?
Now how did this happen? How did thousands of Americans who
thought their retirements and disability settlements were safe
in the hands of a government-regulated insurance industry
entity end up with cut benefits and no options? How did that
happen?
In the 1980's the Executive Life Insurance Co. was a
thriving business promising better returns and better benefits
at a lower cost. They thought they would be able to achieve
this promise because they had invested heavily in a new growth
bond market. This market came to be known as the junk bond
market, and many of those who relied upon it under the
conditions just described ended up falling by the wayside in
the early 1990's.
When the parent company of Executive Life ultimately became
insolvent in 1991, the California Insurance Commissioner
stepped in, took control of it, and placed it into
receivership. While the Commissioner's mission was to protect
the policyholders and rehabilitate the company, instead the
decision was made to take what could be obtained in the short
term by selling off the bond portfolio separate from the rest
of the package. This decision left the company so weakened as
to require drastic cuts in benefits and led some publications
to write articles in 1994 that were, frankly, not particularly
flattering, accusing certain people of just having failed in
their duty.
There is much more to this case, however. In the process of
following up the insolvency and seizure, the Commissioner asked
for bids to rehabilitate Executive Life for the purpose of
taking care of its policyholders, and the Commissioner received
a number of bids. One company asked to be allowed to cherrypick
the best bonds in exchange for a cash payment. This company was
advised by a gentleman named Leon Black, a former protege and
advisor to Michael Milken. Frankly, if anyone knew which bonds
to pick and which were true junk, this was the guy.
The Commissioner agreed to this deal, despite this unusual
characteristic. Now why he chose this option over the bids of
the other companies that wanted the whole package is unclear.
Frankly, it begs a question: When everyone recommends one
action and you take another, why did you do it?
Even if this decision had proven to be the best, and there
are still more elements that this committee needs to review,
unbeknownst to almost anyone at the time, the company that
bought the bonds from the Commissioner's Office was, in fact, a
front company controlled under a series of agreements by a
French bank known as Credit Lyonnais.
Credit Lyonnais was owned and controlled by the French
government at the time of the transaction. It was illegal under
both State and Federal law for Credit Lyonnais to purchase a
U.S. insurance company. Fortunately, through documents provided
by a former employee, we found out about this.
There is still more. The bonds that Credit Lyonnais
acquired through these machinations performed well, as many
market experts had predicted, and netted Credit Lyonnais a
profit of over $2 billion. Now this past spring we read press
accounts and hear stories here in Congress, and my good friend
on my right, Mr. Waxman, and Mr. Berman and Ms. Pelosi, and
others, and my good friend, Mr. Lewis, myself, and others heard
that there was a proposed settlement coming down the pike in
the neighborhood of $100 million, whereby Credit Lyonnais would
be excused from any criminal penalty and allowed to retain
their banking privileges here in the United States.
There are also accounts that the offer is now up to $500
million. Now $500 million, or $100 million or $500 million
against $2 billion, that sounds like a pretty good deal for the
people who perpetrated this scam, but, frankly, it is not a
good deal for the policyholders.
Now the law says that when a fraud occurs, all the gains
obtained through the fraud, whether subsequently legal or not,
must be returned. On that basis, the State of California is
currently seeking $6 billion in damages from the entity
involved.
Does the involvement of the French government as owners of
Credit Lyonnais complicate the matter? Well, you can be your
own judge, but, frankly, anyone who commits fraud must be held
accountable, and it doesn't matter whether it is a French
government or a U.S. Senator or a U.S. Member of Congress or a
local banker. If the French were responsible for deceiving the
American people, leaving the policyholders in the lurch, then
they need to own up to the fact and take responsibility for
their actions. It is appalling that we are seeing people work
to delay this process and to avoid reaching a fair settlement
with the victims for this act.
I wish Mr. Burton was still here; I would share with him
that California has not sat back and ignored these allegations.
The current Insurance Commissioner and his staff have been
advocates for more than 180,000 policyholders in California and
more than 300,000 across the country who were victims of the
collapse of Executive Life.
As I said earlier, the U.S. Attorney's Office in California
has been involved in this investigation, particularly a
gentleman named Jeff Isaacs, who, by many accounts wants to
bring this matter to trial.
As Mr. Waxman cited, there have been a number of letters to
the U.S. Attorney General, to the U.S. attorney in Los Angeles,
and to key leaders in Congress, including Mr. Burton, urging
them to act on this case now. The chairman of this committee
has responded, and for that we are appreciative.
Now we have invited a number of people here today, and some
have declined our invitation, including the Department of
Justice. That is very disappointing. As Mr. Waxman suggests, it
would be nice to have the people here responding affirmatively
to our invitations, so we can get to the bottom of this in this
hearing instead of having a series of hearings. That would be
helpful. However, if we have to have a series of hearings, we
will do so.
Those who suffered and are still suffering today, two of
whom are with us right now, deserve to hear what their
government is doing. Why is the Department of Justice not
responding to these pleas? When will the people who suffered
through this collapse of Executive Life get their day in court?
With that, I am going to stop.
Now, as we do in this committee every time, we swear all of
our witnesses in. So we are going to put you under oath. If you
would please rise and raise your right hand?
[Witnesses sworn.]
Mr. Ose. Let the record show that the witnesses answered in
the affirmative.
Mrs. Jacobson, you are recognized for an opening statement.
STATEMENTS OF DRU ANN JACOBSON, MALIBU, CA; AND ROBERT BOZEMAN,
EVANSVILLE, IN
Ms. Jacobson. Thank you. I am going to read this because I
am nervous. I have never done this before.
My name is Dru Ann Jacobson. I am here to represent my
mother, Ann Dixon, and my sister, Darian Andes Merrick, who
were policyholders with Executive Life Insurance Co.
My primary reason for being here today is to put to rest
misstatements made by Credit Lyonnais representatives that
Executive Life Insurance policyholders did not suffer any
losses. Equally misleading is former California Insurance
Commissioner John Garamendi's statements that 97 percent of the
policyholders were made whole. When my mother and I and others
met with California Attorney General Bill Lockyer earlier this
year, he confirmed to us that investigations showed that the
real losses in benefits to policyholders were more than $4.5
billion.
Let me briefly tell you how my family became involved with
Executive Life and how our lives drastically changed. My mother
is in a wheelchair and has been since she was in a 1979 auto
accident for which the annuities were granted. My mother and
sister were driving home in the Santa Monica mountains when
they were hit head-on by an oncoming car. My mother tried to
turn her car into the hillside as best she could to protect my
sister, so she got the brunt of the impact.
The paramedics had to use the jaws of life to remove her
and put her in a pressure suit while she was still on the road.
She had no blood pressure and was considered dead for some
seconds. She heard them say, ``We lost her.'' Somehow she
willed herself to live.
That night in the emergency room she had her right leg
amputated below the knee while she was awake because they
couldn't sedate her. She was in ICU for 3 months and in the
hospital for another year. She endured seven surgeries that
year. Almost all her bones in her lower body were broken,
including her pelvis and hip. Her main artery was severed in
her other leg and all the tendons and muscles were cut. Her leg
healed slowly and had to be reset twice. She had a major head
injury. She was literally scalped. It goes on and on.
Needless to say, the pain she has endured for the last 23
years is severe. She was a very beautiful woman before this,
but her face was completely altered. She had been a wonderful
mother, active in our schools and community. She had been a
dancer, an athlete, and a bathing suit model. Her whole life
changed in moments. Our whole family's life changed. My father
couldn't take the fact that he no longer had a beautiful wife
and left after the accident, leaving her to pay a pile of
bills.
My sister, Darian, was seriously injured also. She was in a
coma for 5 days with a massive head injury and broken bones.
The doctors told me that she and my mother might not make it
through that first night. She was in the midst of a promising
modeling career and was about to start on a tour on the pro
beach volleyball tour. Her future plans collapsed after the
accident.
In time my mother and sister went to court and won a
lawsuit. Their lawyers told them that the best company to put
their money in was the AAA-rated Executive Life. Because my
mother and sister would need ongoing care, a lifelong
structured settlement annuity was thought to be the safest
investment.
In 1991, without warning, we received a letter that
Executive Life was being dissolved. We were in shock. The
letter said that the payments would be cut, and the company was
to be sold. It was like reliving the pain of the accident
again, a punch in the stomach for my mother.
Her annuity payments were cut by approximately a third each
month. Also, future bulk payments that she was to receive were
cut. My mom has tried to hold onto our home for as long as we
could, but we finally had to give it up, the home we had lived
in for 33 years. Executive Life was in the hands of the
Insurance Commissioner for 3\1/2\ years while we twisted in the
wind.
I became her sole caregiver and have continued to care for
her for 23 years, while raising my own family. I need surgery
soon for a condition that I developed from lifting my mom all
these years. We can't afford to hire someone to care for her
for the 3-months I will need to recover. First the accident,
then the Executive Life mess has made all our lives very
difficult. It is a constant worry that continues today.
Credit Lyonnais and Mr. Garamendi cannot tell the 160,000
life insurance policyholders and 15,000 annuitants that they
were made whole, and you shouldn't allow them to tell that to
the Justice Department either. We learned that a recent
Pennsylvania high court decision stated that not one single
Executive Life policyholder was made whole.
We ask you to use your powers to help 360,000 policyholders
and their families receive justice. At our meetings as
policyholders when this first happened, we were struck that so
many of them were of the generations that served their country
in World War II and Korea. They thought they were making safe,
prudent plans to protect their loved ones, and they trusted
these companies to uphold our laws.
Concerning Credit Lyonnais, we will be shocked if a foreign
government is allowed to plot and scheme to evade State law. It
has been explained to us that, as a result of the Foreign
Sovereign Act, when this French-owned bank lied to State
officials and made false and misleading statements in State
court, vindication rests with the Federal judicial system and
the Justice Department.
We are alarmed that the Justice Department has not acted
against Credit Lyonnais since they learned of the side
agreements that the French signed that broke our laws. Please
understand that we believe that if there are no indictments
against them, the only proper action should be based on
complete disgorgement of all profits and a penalty. Please
understand how much money is involved here. $100 million would
represent only 1 percent of the policy value of each
policyholder. Our loss is enormous.
Finally, we regret that the Justice Department has not
investigated former Insurance Commissioner John Garamendi's
role. To begin with, why did Mr. Garamendi charge the
policyholders millions of dollars for consulting fees of top
investment bankers to set a value on Executive Life's junk
bonds when he never disclosed any of their findings? This
enabled him to tell the court that he hadn't known the value of
the bonds and to sell them to Credit Lyonnais and Leon Black at
fire sale prices. What ever happened to a report that his own
staff completed that set a value to the bonds but was never
made public? Mr. Garamendi's actions beg for a thorough
examination.
Executive Life is a scandal that hurt lots of people like
my mother, my sister, and myself. There were 360,000
policyholders from nearly every State. We have an opportunity
for justice, even at this late date. We need your help.
Thank you very much.
[The prepared statement of Ms. Jacobson follows:]
[GRAPHIC] [TIFF OMITTED] T3976.015
[GRAPHIC] [TIFF OMITTED] T3976.016
[GRAPHIC] [TIFF OMITTED] T3976.017
[GRAPHIC] [TIFF OMITTED] T3976.018
[GRAPHIC] [TIFF OMITTED] T3976.019
Mr. Ose. Thank you, Mrs. Jacobson.
Mr. Bozeman.
Mr. Bozeman. Mr. Chairman, members of the committee, I
would like to thank you for finally getting a chance to
complain to somebody that might be able to do something about
it. I have been telling this story for years, mostly to people
who really couldn't help.
My name is Bob Bozeman. I live in Evansville, Indiana. I am
63 years old. In 1962, I went to work for the L and N Railroad,
part of the CSX now; I don't know what they call it. It was a
pretty good job, and I also had a union job. In addition to the
railroad, I was local chairman and represented brakemen and
conductors. Some crafts call it union steward, whatever you
want to call it.
So during the years I was involved in several derailments.
It is almost like a fighter. I don't know if it was one punch
that got me or it was that last one, but, anyway, the last
injury I ended up with three back surgeries. I was in the
hospital all summer long, 87 days. When it was all over, their
doctors, the company doctors, that is, and my doctors both
agreed that I couldn't do this job anymore. So they wouldn't, I
don't think, in my opinion, be reasonable.
I had to hire an attorney and sue them. After 5 years of
litigation and a trial where we were awarded a nice award--of
course, during the appeal process that got reduced, not by the
court but by my own attorneys. I think they got a little scared
unnecessarily. But, anyway, we settled.
I could have taken the money up front, but I opted for the
structured settlement because I am not smart enough to go out
here in this high finance world and do my own investing. I
would have probably have been broke in a couple of years. I
have seen it happen.
So I told them, ``Get me the most secure, safe-type product
that you can because I'm not some wealthy guy trying to
supplement his income. This is my income.''
So it ended up I was supposed to receive $2,000 a month,
and things went along pretty well from 1985 to 1991. Then, all
of a sudden, this thing happens to a company that was supposed
to be risk-free and rated very highly and all of that, and I'm
notified that I will be receiving $1,300 a month instead of
$2,000. Well, this went on for a year or two, and then,
finally, after the so-called restructuring of this company,
they changed that to $1,455 a month.
I went to a lot of people with this problem. I talked to my
law firm, of course. I went back to them. They were supposedly
friends of mine, not just lawyer-client-type relationship; they
were supposed to be friends of mine. I, with this union job,
had thrown them quite a bit of business. When some of the guys
would get hurt, I would recommend them. They were not able to
help me.
I went to the AARP and talked to their legal staff. The
same thing, they sympathized but they were no help either. I
went to two international presidents of the union, Tom Dubose
and Charlie Little. I haven't talked to Mr. Boyd yet, the new
guy, but I don't think I will bother to do that.
Of course, I went back to the railroad. They flat refused.
They were not embarrassed to tell me that I had already signed
a release, and that was my one and only shot I was going to get
at them.
I called and talked to former Congressman Frank McCloskey.
I think Frank really tried to help me, but he was unable to do
so. I have talked to his successor a couple of times, John
Hostettler; the same thing.
Somebody said, ``Call John Dingell.'' I did that and never
got any response from Mr. Dingell. I don't know what happened,
breakdown in communications or what.
I even talked to the White House, and I got a letter back
that says, ``Sorry, but the Railroad Retirement Board doesn't
feel responsible.'' Well, whoever this guy was that I was
talking to apparently didn't understand. My problem was not
with the Railroad Retirement Board; it was with this insurance
company, and he was too dumb, I think, to realize what I was
trying to explain to him. So I forgot about that.
I've got reams of correspondence, as you might expect, from
this thing and years of anxiety and grief. My whole family has
suffered, not just me. Our lifestyle has been lowered to a
great extent. We have not been able to do many things that we
were planning to do. If we don't get some relief, we never will
be able to.
Now I'm sorry if I am coming across a little bit like I am
bitter, because I am bitter. I'm madder than hell. It is
unfair, and it seems like maybe this is the first opportunity
somebody will listen and do something about it, I hope.
Thank you.
Mr. Ose. Thank you, Mr. Bozeman.
I want to make sure the witnesses understand that Members
on both sides of the aisle welcome their participation today.
We are grateful for the time you have both taken to come to
Washington to testify.
We do have a number of questions. The way this proceeds is
that I will take 5 minutes, then Mr. Waxman will have 5
minutes. Then we will come back over here, and it just goes
back and forth like so.
So now I am going to ask both of you a series of questions.
If you don't know the answer, just say, ``I don't know.'' It is
not a problem.
So, Mrs. Jacobson, when did you or your family buy your
Executive Life annuity?
Ms. Jacobson. Between 1986 and 1989. The lawsuit was over,
I think it settled in 1986, and within that time.
Mr. Ose. OK, so late eighties?
Ms. Jacobson. Late eighties.
Mr. Ose. Mr. Bozeman, how about you?
Mr. Bozeman. I guess it was 1985. That is when the lawsuit
was finally settled, and it must have been right at the first
of the year, 1985.
Mr. Ose. Now, Mrs. Jacobson, at the time you bought your
annuity, do you recall the rating that was given to Executive
Life? Was it a highly rated?
Ms. Jacobson. It was the highest-rated, four-star, triple-A
by Standard and Poors. I think those are the rating systems. It
was the highest-rated one because we asked our lawyers, ``Look
for the best one,'' when they suggested we do this structured.
I was young at the time, so I can't remember all the--but I
know it was the highest-rated one at the time.
Mr. Ose. OK. Mr. Bozeman?
Mr. Bozeman. The same thing. Like I told you a while ago, I
am not familiar with the world of high finance, but something
about A-plus. Then, as it turns out, I find out later that's
not so hot. You need really to have triple A-plus, and I don't
remember for sure just how they were rated, but my attorneys
and everybody involved assured me this was a safe----
Mr. Ose. OK, and that as in the mid-eighties?
Mr. Bozeman. Sir?
Mr. Ose. That was in the mid-eighties in your case and the
latter part of the eighties in Ms. Jacobson's case?
Ms. Jacobson. The latter part of the eighties, yes.
Mr. Bozeman. That is right.
Mr. Ose. OK. Was there any discussion at the time you
bought these annuities that you are aware of having to do with
any problems that might exist at Executive Life?
Ms. Jacobson. No.
Mr. Bozeman. No. In fact, I find out later, through
newspaper articles and, like you say, there wasn't much about
it for a while, but as it turns out, it looks like Executive
Life was in trouble as far back as 1983, and that is why I
couldn't understand why somebody didn't know this.
Mr. Ose. Now after you found out about the collapse and
sale of the company, did you contact anyone at Executive Life,
Ms. Jacobson?
Ms. Jacobson. Tried to. You couldn't get a phone call
through at all. I mean, you just couldn't touch--through our
lawyers; you just couldn't get through to anybody. We just got
letters. Then we would call; they would say it is in
conservation, and they would make us call somewhere else. Then
they would say, ``No, call here.'' You would just get little
middlemen that couldn't give you any answers.
Mr. Ose. Did you call the company?
Ms. Jacobson. Yes.
Mr. Ose. Or did you call somebody else?
Ms. Jacobson. Yes, but they cut the company number off
immediately and gave you a special number to call, and that
special number always had some little person on it that didn't
know any----
Mr. Ose. Do you recall who that, ``little person'' worked
for?
Ms. Jacobson. Oh, I don't remember that. Oh, no, it was
like a secretary-type person type-thing. They would just say,
``Office of Conservation of Executive Life.''
Mr. Ose. OK.
Ms. Jacobson. The main numbers that we had on all our
policies. Were totally non-functional after it dissolved. So
you couldn't talk to anybody to find out personally what was
going on.
Mr. Ose. Mr. Bozeman, what was your experience in that
regard?
Mr. Bozeman. Yes, sir, I was able to get through, and I've
got some names at home of people that I had spoken with
periodically about the problem. They were sympathetic over the
phone and everything, but there was something that really
scared me. They changed the policy number. I thought that is
kind of unusual, but what are you going to do? You accept this
over the phone and hope that the check keeps coming and let it
go.
Mr. Ose. OK. Mrs. Jacobson, do you recall, the folks or the
person that you might have spoken with, do you recall if they
did anything other than say, well, a conservator is working on
this or was there any definitive report?
Ms. Jacobson. No.
Mr. Ose. OK.
Ms. Jacobson. It was roundabout. I was much younger at the
time, and my mom tried to take a lot of the calls at that
point. So I can't really answer exactly what they said, but it
was very hard to find out information and to see if we were
still going to get our checks.
Mr. Ose. Now, Mr. Bozeman, you had the ability or you
actually got through on a couple of occasions?
Mr. Bozeman. Yes, and some of the problems that concerned
me, of course, was like my original contract stated that I was
to receive this check on or before the 9th of each month, and
if it didn't show up--and I actually got a check in the mail. I
didn't have this direct deposit or any of that. Maybe it wasn't
even available back then; I don't know.
But, anyway, when the check was late, I would get
concerned, and it was late several times. And I thought, well,
you know, I would get on the phone and I would call everybody.
I would say, ``Did they go completely under? I am not even
going to get the $1,300 now I guess.'' Finally, it would show
up, and they would always have some lame alibi, excuse, for why
it was late. All it did was irritate you even more, you know.
I am glad I didn't live any closer to California than I did
or I might have got in my car and went over there personally,
and then I'd be in the damned jail, I guess. [Laughter.]
Ms. Jacobson. I did drive there once because it was late.
During that first few years they were late all the time.
Mr. Ose. We are going to come back on these questions. My
time has expired.
Ms. Jacobson. OK. Thank you very much.
Mr. Ose. I am going to recognize Mr. Waxman for 5 minutes.
Mr. Waxman. Thank you very much, Mr. Chairman.
I think what has happened to you is absolutely
unconscionable. You've got nothing but a runaround. You bought
this insurance with the expectation that it was going to pay.
That is what you bargained for. Then this whole business starts
falling apart because they go and invest in junk bonds.
It is sort of like what you see happening now where these
corporations have gone over the cliff because they went into
these investments that didn't make sense. But there they were
actually doing more obvious fraud of creating debts, of hiding
them, and all of that.
But, from your point of view, you really have not been
treated properly. Congresswoman Pelosi and Congressman Howard
Berman and Representative Jerry Lewis, all of us have written
asking for this hearing to try to do something because we are
worried about the Justice Department.
This is now in the hands of the Justice Department. Have
either of you ever been contacted by the Justice Department?
Ms. Jacobson. No.
Mr. Bozeman. No, sir.
Mr. Waxman. Have either of you ever been contacted by the
State Department?
Mr. Bozeman. No, sir.
Ms. Jacobson. No.
Mr. Waxman. Well, we are hearing that the Justice
Department is under pressure, and they have hired a lobbyist
who is very close to the Bush administration and he is trying
to get them to settle this thing and not bring criminal
indictments. The State Department is hearing from France, where
the President of France is standing up for his company. What we
need is American government to stand up for you.
Ms. Jacobson. Yes.
Mr. Bozeman. That just adds insult to injuries, too, sir,
because like this thing was transferred to a foreign--we're
foreign investors now, I guess. It sounds important, but it had
to be--given a choice, most people wouldn't invest in a foreign
company. There's too many good companies right here. That's
another thing.
Mr. Waxman. Well, not only that, they weren't being on the
level about it. They were hiding the fact that they were
violating the law by being a foreign investor in insurance when
they weren't, as I understand it anyway, permitted to do that.
So they created these front groups.
Ms. Jacobson. And we weren't given much choice either.
Mr. Waxman. No.
Mr. Bozeman. No, no choice. No choice. You just get a
letter.
Ms. Jacobson. You just get a letter.
Mr. Waxman. Well, look, I want to tell you that I share
your outrage. I can't even begin to experience how you must
feel. As far as I am concerned, I am going to work with my
colleagues on this committee and in the House not to let the
Justice Department let this thing slide by and not to let
others just figure it is over, because it shouldn't be over.
We want justice to be done. If people have engaged in
criminal behavior, they ought to be prosecuted. If there is a
civil case, as we hope the California Insurance Commission is
able to bring successfully, then they ought to be able to get
money back for you. I want to just express my feelings for you.
I have to leave and won't be here for the other questions.
Well, we don't have too many other Members here, but I think
both of my colleagues have further questions. On the House
floor we are debating the Iraq resolution, and I have to get
over there before that debate ends to get my statement in.
But thank you for the long trip you took to come from
California, a little bit shorter from Indiana.
Mr. Bozeman. Not too bad.
Mr. Waxman. But both of you for being here, I thank you so
much.
Mr. Bozeman. Could I ask a question before you leave?
Mr. Waxman. Sure.
Mr. Bozeman. I saw where, in the paper the other day on
this Enron thing, they were going to have to pay a fine to the
Securities and Exchange Commission. They don't need the money.
Why don't they give that money to the people who lost it, the
investors? That seems confusing to me.
Mr. Waxman. Well, it is confusing. I wrote to a number of
people involved in Enron and some of these other corporations
that, as far as I was concerned, these executives came out
quite well, and they claim they didn't do anything wrong. But
they don't deserve walking away with hundreds of millions of
dollars while their employees and their investors have their
financial security yanked out from under them. I have just
written to them and said there is a moral obligation here to
help those who were left with nothing. So far I haven't gotten
a good response because nobody wants to give up anything.
But if we do talk about higher standards we expect people
to live up to, certainly some of these corporate wrongdoers or
corporate executives, even though they claim they didn't do
anything wrong, some of whom are in the government, have an
obligation to give some of that money to those who have been
treated so poorly.
Thank you very much. Thank you, Mr. Chairman.
Mr. Ose. I thank my friend.
Ms. Watson, for 5 minutes.
Ms. Watson. Thank you, Mr. Chairman, and I would like to
thank our two witnesses for coming forth.
I served in the California legislature for 20 years. We had
some difficulty with insurance companies in California. That is
the reason why I was there when we established the Commission
on Insurance. Over the years we have had different
Commissioners and we have had some problems.
One of the things we were really stressing is that we
should have the insurance companies open up their actuarial
portfolios, because what they do is they make these
investments, as you have mentioned, in junk bonds and abroad,
foolish investments. And who are the losers? So,
accumulatively, they had to go out of business because they
made bad investments, and you are the ones that are suffering
from it now.
As I understand, the conservator expects that from the
liquidation that there will be money there to pay off the
policyholders, but not at the amount that you expected when you
bought that policy. I would hope that the Department of Justice
here would look into this issue nationally, and I would hope,
with the falling stock market and with corporate corruption, as
we are seeing played out today, that the Justice Department
will feel it is their obligation to follow through and will
contact you.
But just understand there are people like Mr. Waxman and
other Members, too, who feel this is a real issue. That is why
you are here. We are not going to let it go. We are going to
sit on top of it.
I am certainly going to be working with our new Insurance
Commissioner in the State of California. As you know, we have
introduced a lot of laws that oversee how the insurance
corporations do business in the State of California. We hope
that we can take some of that policy and make it national
policy. We are on your side, and we are going to stay on this
until you are treated fairly.
Thank you so much, Mr. Chairman.
Mr. Ose. I thank the gentlelady from California.
Ms. Jacobson, when you found out about the sale of
Executive Life, I think your testimony was you received a
letter in the mail.
Ms. Jacobson. Yes.
Mr. Ose. When you found out about the sale of Executive
Life, did you think your annuity payments would be reduced?
Ms. Jacobson. I can't quite remember what the wording was.
They said there was going to be some reductions, but didn't
know what at the time, something like that. Then they wrote
another letter back saying they are going to be reduced by, as
my mom's was, about 30 percent. And then there was nothing we
could do about it. I mean, we couldn't question it or anything.
It was just----
Mr. Ose. Did you call at that point? Do you recall?
Ms. Jacobson. We were calling constantly.
Mr. Ose. OK. To complain and otherwise about such a cut?
Ms. Jacobson. Yes. Then when it was sold, we would call the
Aurora people constantly and never really talked to anybody.
Mr. Ose. But prior to the settlement of the estate, your
calls to the Insurance Commissioner and the like regarding the
proposed settlement----
Ms. Jacobson. Excuse me? Repeat that? I'm sorry.
Mr. Ose. Did you know the terms of the proposed settlement?
Ms. Jacobson. I just knew our money amount, looking at our
letters that we had had from our----
Mr. Ose. OK. So you received a letter before the fact
saying that your monthly payment was going to be reduced by
about 30 percent?
Ms. Jacobson. Well, no--I wish I could--I can't really
answer that totally because I was younger at the time. They
just said it was going to be cut in the beginning. They didn't
know what was going to happen.
Mr. Ose. OK. Then you received a subsequent letter saying
that it was going to be reduced by this amount?
Ms. Jacobson. Yes.
Mr. Ose. OK. So, presumably, I would think that would have
come after the deal had been struck.
Ms. Jacobson. That was after the deal was struck. I guess
that was after the Aurora. I am not good at this part----
Mr. Ose. OK.
Ms. Jacobson [continuing]. Knowing all the details. I am
not very good at this. I'm sorry.
Mr. Ose. All right.
Ms. Jacobson. It was a shock. The whole thing was such a
shock at the time anyway.
Mr. Ose. And you did call and register your obvious----
Ms. Jacobson. Oh, very many times, yes.
Mr. Ose [continuing]. Outrage that, ``Why am I getting
punished?''
Ms. Jacobson. We called Mr. Garamendi's office. We called
Executive Life. We called everybody possible at the time during
the transfer.
Mr. Ose. OK. Mr. Bozeman, did you think your annuity
payments were going to be reduced?
Mr. Bozeman. I was pretty sure they would be. Nobody said
for sure, but they were, and then there was some correspondence
and some conversations that led me to believe that maybe in
time they would get it back to where it belonged, but, of
course, that never happened and it's not going to.
Mr. Ose. OK. Now, Mrs. Jacobson, is your annuity payment
your only source of income?
Ms. Jacobson. My mother's, yes.
Mr. Ose. Yes, OK. And, Mr. Bozeman, you testified earlier
that this was your sole source of income.
Mr. Bozeman. Well, I've got a pension from the railroad,
but it is greatly reduced because I quit early.
Mr. Ose. OK.
Mr. Bozeman. My wife is not even eligible for her part of
that yet. So when you take into account the reduction from both
of those, plus you lose some of your benefits like health
insurance--I'm paying $500 a month health insurance. People are
supposed to get increases with the cost of living when they get
old, not cuts, but that's what has happened.
Mr. Ose. Mrs. Jacobson, your mother's annuity payment in
the early eighties was how much?
Ms. Jacobson. When the settlement was made, after the court
it was--oh, dear----
Mr. Ose. What I am trying to do is figure out how much it
was before and after.
Ms. Jacobson. I know. Those first years it was about the
same. It was about $1,800, and then it was supposed to go, as
far as the lawyer, the deal, the settlement thing, it was
supposed to go up another thousand about 2 years after it
started. They were giving an increase 1\1/2\ to 2 years later.
So we had just gotten that increase to $3,000 when this all
happened. Then it was cut. Now she is getting $1,900 a month
rather than the $3,000.
Mr. Ose. So in the mid-eighties you were getting----
Ms. Jacobson. When we first got it, when we first went with
Executive Life, it was $1,900. It was supposed to increase to
$3,000 within a year because of something in the lawsuit, the
way they set the structure.
Mr. Ose. OK.
Ms. Jacobson. But it had just increased to that $3,000 when
it fell apart.
Mr. Ose. And now you are receiving how much?
Ms. Jacobson. We are back down to the $1,900 instead of
what she was supposed to be getting.
Mr. Ose. Mr. Bozeman, your original annuity was scheduled
to be what?
Mr. Bozeman. $2,000.
Mr. Ose. And then it fell to $1,300?
Mr. Bozeman. For about a year, and then they sold some more
property or something, and they got it up to $1,455, and that's
what it is now.
Mr. Ose. How long has it been at $1,455?
Mr. Bozeman. Oh, probably 5 or 6 years anyway.
Mr. Ose. OK. So it is a fixed amount? There is no inflation
adjustment?
Mr. Bozeman. They notified me that would be it; there would
be no more changes.
Mr. Ose. All right. Now, Mrs. Jacobson, when you went from
$3,000 down to $1,900, I mean, that is a heck of a hit.
Ms. Jacobson. Yes.
Mr. Ose. It is over 33 percent. How did that change your
lifestyle?
Ms. Jacobson. Well, like I said in my statement, we have
been trying for years to hang onto our house we grew up in. We
refinanced. You know, you keep mortgaging and mortgaging to
help bring in some extra income, and we finally did it so far
we couldn't do it anymore. So we had to sell it, and now my mom
is living in a mobile home. That was a big--that was our home.
That was a huge blow to her, and that just happened a couple of
years ago. We tried as long as we could to keep hanging on.
Even though it doesn't sound like much, $1,000 a month
means a lot to us that was a lot. It helped with the mortgage
and everything else. Now we are still struggling, and it is
hard, especially when you have been injured so badly.
And she is getting older now, and she needs more care, and
I am not physically doing well to do it as much as I always
have. If we have to bring somebody else in, we are really in
trouble. I can't even get her in and out of the car anymore. It
is getting really hard on us because she can't do any lifting
herself. So we need to get a van that I can roll her into, but
insurance doesn't pay for any of that, and we just don't have
the money for that right now. So it is getting much more
difficult.
Mr. Ose. Mr. Bozeman, how about you? You went from $2,000
down to $1,300. You are back to $1,455. How did that affect
your lifestyle?
Mr. Bozeman. Well, it impacts you quite a bit. I mean, you
drive old, beat-up cars when you would like to trade. There's a
lot of things around the house we wanted to do, remodeling, and
this and that and the other, and we put it all off. We haven't
been able to do much of anything but just exist with the income
we've got now.
I had a grandson, like I told you, that was living with me.
I wanted to do a lot of things for him that I wasn't able to
do. I wanted to put him in college for one thing. I couldn't do
it.
So it's changed our--lowered our lifestyle considerably.
Mr. Ose. I am going to ask you a hindsight question, and I
apologize for doing this, but I need to get your input here.
Now if you had the opportunity, if you had just received your
settlement, would you buy an annuity again? How would you
handle your future needs?
Ms. Jacobson. I don't know. That is hard to say. I don't
think I would want to buy an annuity again or I don't think my
mother would and try to manage it ourselves. I can't really
answer that for her. But after going through this, I don't
think I would ever want to be with an insurance company again.
Mr. Ose. Mr. Bozeman?
Mr. Bozeman. Hindsight, 20/20? Sure, if I knew then what I
know now--well, just last night on the news I heard a guy who
retired from Merrill Lynch and he was able to be honest for a
change. They asked him the same question: ``What would you do
if you had some money and you wanted to invest it?'' He said,
``I'd put it in a glass jar and bury it in the backyard.'' The
man said, ``The reason I specify glass jar is because somebody
with a magnet couldn't find it.''
I don't know of anything that is safe, Mr. Ose. I would
probably take the lump sum and, hopefully, put it into
something that would have been safe and hope for the best. You
know, you couldn't live off of it, but I sure wouldn't have
bought an annuity with Executive Life or probably no other
insurance company, because they tell you, ``Well, this has
never happened.'' It happened once to a company named Baldwin
International, but those people ended up never losing a dime.
Well, they did at Executive Life.
Mr. Ose. I have one final question. Those buzzers you heard
were for a vote. So we are going to take this final question.
Then we are going to recess.
Mrs. Jacobson, if we are able, either through the
Department of Justice or the attorney general's action out in
California to have a financial recovery, what should the
proceeds be used for?
Ms. Jacobson. To pay back the people up to their 100
percent--they have lost so much--at least. It is not a
compensation, but at least go back to what their original
policies were. I think they should give a retroactive payment
to make up for all these years they have lost to struggling. It
has been terrible.
It has really affected our whole family horridly because I
couldn't go out and get a job because I had to help my mom. I
need to be with her 24 hours plus my children, and we are all
struggling to get by. I mean, we live in Malibu, but we live in
a mobile home. Our house we had before, our old ranchhouse that
we lived in for 30 years had to be sold.
Mr. Ose. So there would be a catch-up portion of any such
payment?
Ms. Jacobson. I would think it would be nice to have a
catch-up portion to what they have taken from us.
Mr. Ose. All right.
Ms. Jacobson. Plus, go back to our 100. I mean, I am not
trying to be greedy, but it would be nice to be able to buy a
car----
Mr. Ose. I understand.
Ms. Jacobson [continuing]. For my mom, you know, to lift in
it, to get something that we could feel like we could relax a
little bit. It has been on pins and needles for all these
years. It would be nice to be able to know you had something so
you could just say, ``Well, now we can take a breath.''
Mr. Ose. OK. Mr. Bozeman?
Mr. Bozeman. Basically, the same thing. I think they should
reimburse us for what we have already lost and then put us back
to where we were originally. If there is any way possible to
get some punitive damages, they should do that as well for the
11 or 12 years we have already suffered.
You know, it is like putting a guy in jail sometime and
find out he is innocent. How do you pay him back? So, yes, I
mean, that is the way I feel about it. At least put us back the
way we were.
Ms. Jacobson. Yes.
Mr. Ose. OK. I want to repeat or reiterate that the members
of this committee are thankful and grateful that you both took
the time to come down and testify.
I will tell you that what generated this hearing, and what
we are going to talk about with the second panel, is far more
technical in terms of where we go from here, what is the
Attorney General doing; what is the Insurance Commissioner
doing, etc.
I always think when you sit as a Member of Congress
oftentimes you get insulated; it is helpful to talk to real
people about real life, and I am grateful for you coming down
here.
Mr. Bozeman. Well, the only sympathy and the only real help
that I've got all these years was from the National Structured
Settlement Trade Association. They have been informative. They
have been knowledgeable, and they have reassured me and kept me
abreast of how things are going, and they still are. I talk
with them on a regular basis. If it wouldn't have been for
them, I guess I would still be calling out there to California
trying to talk to the morons at Aurora and Executive Life.
Ms. Jacobson. Which you can't get through to anyway.
Mr. Bozeman. Well, yes, that's right, usually you couldn't
get through anyway.
Mr. Ose. All right. Well, thank you for coming.
Ms. Jacobson. Thank you.
Mr. Bozeman. Thank you.
Mr. Ose. The committee is going to go in recess. I have to
go over and vote. We will be back at 12:40.
If we could, I would like to have the second panel,
comprised of Mr. James Corcoran, Mr. Steven Green, and Mr.
Harry LeVine, front and center when we get back.
[Recess.]
Mr. Ose. The committee will reconvene.
All right, as you heard in the first panel, we routinely
swear in our witnesses. So, gentlemen, if you would rise,
please.
[Witnesses sworn.]
Let the record show the witnesses answered in the
affirmative.
Please be seated.
Joining us on the second panel in order we have Mr. James
P. Corcoran, who is the former New York State Insurance
Commissioner; we have Mr. Steven J. Green, who is the Deputy
Insurance Commissioner and Chief Counsel to the California
Department of Insurance, and we have Mr. Harry LeVine, who is
Special Counsel to the Commissioner at the California
Department of Insurance.
As we did in the first panel, we are going from my left to
my right with the statements. Mr. Corcoran, you are recognized
for 5 minutes. Would you please turn on your microphone there,
though?
STATEMENTS OF JAMES P. CORCORAN, FORMER INSURANCE COMMISSIONER,
STATE OF NEW YORK; STEVEN J. GREEN, DEPUTY INSURANCE
COMMISSIONER AND CHIEF COUNSEL, CALIFORNIA DEPARTMENT OF
INSURANCE; AND HARRY LE VINE, SPECIAL COUNSEL TO THE
COMMISSIONER, CALIFORNIA DEPARTMENT OF INSURANCE
Mr. Corcoran. Yes, thank you very much. I have already
submitted to the committee a copy of the testimony that I gave
in 1987 before Congress on this issue.
Maybe I can review quickly with the committee and with you
some of the history behind why New York State in 1987 we put a
cap on the ability of domestic license life insurance companies
to purchase junk bonds. The reasoning and rationale is
contained in great depth in the copy of the testimony which I
have already provided to the committee, but let me sum it up
quickly.
In 1985 the New York State Insurance Department began
formulating a plan to place limitations on junk bond holdings.
At that time the issue was really brought to our attention
because of the structured settlement market, and we became
aware of what was occurring with Pacific Lumber Co., where the
key concerns that I had were, of course, and you will see in
the testimony, some editorials by The New York Times. I was
being urged by various individuals and also associations to
make sure that companies that had excessive amounts of junk
bonds in their portfolio not be allowed to do the structured
settlement business and that was a serious concern on my part.
We had had a medical malpractice crisis in New York State.
One of the solutions to that was creating a structured
settlement market that would be safe for people to purchase
them. So I had the oversight ability to see what companies were
licensed to issued structured settlements, and that was one of
the key issues in 1985 and 1986 that brought the junk bond
market to my attention.
The second one, when I became aware of the Pacific Lumber
situation, where we saw Drexel and other companies looking to
acquire companies and to leverage out of those companies and
declare their pension funds excessive or surplus funds.
Basically, what was occurring was they were acquiring companies
and then alleging there was a surplus in the retirement funds.
They were changing the structure by terminating the pension
plans--they did this in Pacific Lumber, I am aware--and
purchasing annuities. In this case they were purchasing
annuities from Executive Life.
Now Executive Life had a competitive advantage, obviously.
They were declaring 13 percent interest rates on these single-
premium, deferred annuities while the industry average was 9.9.
So, obviously, if you are going to purchase a guaranteed GIC or
a single-premium, deferred annuity that is declaring 13
percent, you have to lay out less money in order to assure the
pensioner theoretically of their funds.
So what I saw was a tremendous shift of responsibilities
and guarantees and the pension plan of a guarantee corporation
going to the State life guarantee funds and this behavior. So
those two issues, the structured settlement and what I saw
going on in the pension market, it really brought it to my
attention.
I would like to note that in 1978 junk bond holdings in
American insurers was very trivial. By 1989, they had about $70
billion in junk bonds, the life insurance industry. That, in
fact, would have made up the entire equity of shareholders,
stockholders' equity, all the life insurance companies today.
So it was huge, growing rapidly.
In 1986, December 1986, I think we decided we were moving
more rapidly, and there was an NAIC meeting in Orlando which
became a focus point of that issue, my proposing to raise to
put a cap on junk bonds. At that point Mr. Milken showed up
unannounced at the meeting. We had a long discussion about the
issues at a cocktail party actually.
In December 1986, when we first were proactive in it, we
found out the New York company, Executive Life, had about 57
percent of their assets in junk bonds. By the time we had the
public hearing in February 1987, that amount had gone up to 64
percent. We had extensive public hearings in New York in
February 24, 1987, at which time I conducted a hearing, and
Milt Ghoul, a very prestigious lawyer, represented Executive
Life in New York.
We kept stressing with him we were not attacking junk
bonds. We were simply pointing out these were fiduciary funds
and that diversity was a key element. I had asked Mr. Ghoul--he
had become an executor of many estates--would he put 64 percent
of his assets or the assets of any estate that he was managing
in any one aspect like any one investment, and he clearly would
not, but, of course, that wasn't the issue.
We promulgated, after a couple more hearings and tremendous
lobbying effort by Drexel and Mr. Milken to stop the cap, and
we can discuss that at length, if you want to, Mr. Chairman, we
issued the regulation on June 24, 1987 which capped the ability
of domestic life insurance companies in the State of New York
at 20 percent. It is not that simplistic, but that is the
simple way of looking at it.
But, in addition, it required board directors of any
domestic life insurer that invested in junk bonds to adopt a
written policy including quality and diversification standards
with respect to its junk bond investments. We put that in
place. We put that in place in 1987.
Simultaneously, the New York Executive Life was required to
come forward to the Department and present to us a plan of
divestiture and diversity and bring the amount down from 64 to
20 percent. Of course, when the company went insolvent, when
the parent company went insolvent, I believe it was taken over
in April 1991, by that time that plan had been in effect the
amount of junk bonds was being reduced actively.
The only delay that occurred, there was a 10-day delay
between the seizure of the parent company in California and the
New York company. There was a run on the bank, quite extensive
run of the bank in that 10-day period in New York, but the
company was able to withstand that. Ultimately, the company was
taken over by MetLife and the policyholders in New York were
made whole.
So it is a success story, but there is a lot more to the
story in the sense of the things we had to resist to put that
cap. The market pressures and the lobbying effort was huge in
New York against us putting that cap on junk bonds. Mr. Milken
and Drexel I think hired every lobbying firm in Albany to try
to stop us from doing it, so it was quite significant and quite
public. I think all the commissioners were aware we were doing
it, and we are proud of what we did.
Mr. Ose. Mr. Corcoran, we might come back to that.
Mr. Corcoran. Sure.
Mr. Ose. I appreciate your testimony.
Mr. Corcoran. Thank you.
Mr. Ose. And we will submit your statement for the record.
[The prepared statement of Mr. Corcoran follows:]
[GRAPHIC] [TIFF OMITTED] T3976.020
[GRAPHIC] [TIFF OMITTED] T3976.021
[GRAPHIC] [TIFF OMITTED] T3976.022
[GRAPHIC] [TIFF OMITTED] T3976.023
[GRAPHIC] [TIFF OMITTED] T3976.024
[GRAPHIC] [TIFF OMITTED] T3976.025
[GRAPHIC] [TIFF OMITTED] T3976.026
[GRAPHIC] [TIFF OMITTED] T3976.027
[GRAPHIC] [TIFF OMITTED] T3976.028
[GRAPHIC] [TIFF OMITTED] T3976.029
[GRAPHIC] [TIFF OMITTED] T3976.030
[GRAPHIC] [TIFF OMITTED] T3976.031
[GRAPHIC] [TIFF OMITTED] T3976.032
[GRAPHIC] [TIFF OMITTED] T3976.033
Mr. Ose. Mr. Green.
Mr. Green. Good afternoon, Mr. Ose. In response to your
request, California Insurance Commissioner Harry Low has
directed that the California Department of Insurance cooperate
with your investigation of the demise of Executive Life and the
fraud perpetrated upon the department by persons and entities
who, through that fraud, gained control of the assets and
policies of the company. As you are aware, and it has been
discussed this morning, in 1999 the department filed suit
seeking to have those persons and entities held responsible for
their actions.
I am Steven Green, Deputy Insurance Commissioner and Chief
Counsel of the Department of Insurance. With me is Harry
LeVine, Special Counsel to California Insurance Commissioner
Harry Low. Mr. LeVine has a 13-year tenure with the department
and for over 3 years has been primarily responsible for the in-
house direction of the department's civil lawsuit. He is
uniquely qualified to provide this committee with the factual
information to assist your investigation.
I must respectfully ask that in questioning Mr. LeVine or
me the committee consider two matters which are of great
importance to Commissioner Low, which have been discussed with
the staffs of the committee and your staff, and which we trust
you can appreciate.
First, considering that the department is involved in
litigation over events which this committee is also
investigating, we must endeavor to avoid comments, speculation,
and the like, which could conceivably prejudice the
Commissioner's position in that lawsuit.
Second, as has been mentioned earlier today, in a matter of
weeks California will again elect an Insurance Commissioner.
The Commissioner at the time of the events you are
investigating, John Garamendi, is the Democratic candidate for
the office; Gary Mendoza is the Republican candidate. As two
career California public servants, we must avoid any appearance
that we are criticizing or favoring any candidate.
Finally, I have a personal thank you for you, Mr. Ose, in
whose district I live. As you learned this morning, another of
your constituents is here, my son Samuel, a sophomore at the
University of California at Davis. Samuel, for some reason, is
impressed that I sit before a congressional committee. As I
belong to the great universe of parents who can never impress
their 19-year-old children, I owe you and the committee a thank
you.
[The prepared statement of Mr. Green follows:]
[GRAPHIC] [TIFF OMITTED] T3976.034
Mr. Ose. Thank you, Mr. Green. As a parent myself, I am
often trying to find ways to get my children to raise their
sights. So perhaps you might visit with Samuel about that, too.
Mr. LeVine, for 5 minutes.
Mr. LeVine. Good afternoon, Congressman Ose. Thank you for
inviting me to speak today.
I guess I need to sort of reiterate something that Mr.
Green has just said, which is that with respect to the case I
am not a witness to the facts that occurred in 1991 and don't
have any personal knowledge. So what I say today is simply my
understanding of what occurred and my views as a lawyer on the
matter.
But I need to be particularly cautious in what we talk
about because it is, as has been said today, $1 billion case. I
have heard some numbers of $6 billion. With punitive damages,
who knows? But I need to be cautious because I can't have
things that I say and my thoughts being used to cross examine
our witnesses, those people with actual knowledge, when their
depositions are taken.
We have heard some overviews already about the case. So I
may be a bit redundant. I am going to try to keep it very
short.
Basically, this is a case in which the Insurance
Commissioner alleges that Altus Finance and Credit Lyonnais,
both French government banks, intentionally concealed their
ownership of the California insurance company that was set up
to take the Executive Life policies, that company being Aurora
National Life Insurance Co. They concealed their ownership by
written agreements, in some cases setting up fronts, and the
fronts were their partners in the bid.
In August 1991, Altus and a group that we call the MAAF
group or the MAAF syndicate submitted a bid to buy Executive
Life, and Altus was going to buy the junk bonds and the MAAF
group was going to set up a new insurance company. What the
secret agreement showed was that Altus was going to be a true
owner of the insurance company.
It is our belief in doing this that they violated the
Federal Bank Holding Company Act, which at the time prohibited
banks from owning insurance companies, and they violated
California Insurance Code Section 699.5, which has changed a
little bit, but at the time provided that a foreign government
could not own a California insurance company if its ownership
or actually its financial control of an insurance company would
have a substantial or undue influence upon that company.
So I think getting the story a little bit out of order, but
it is important to keep in mind some facts, one of which is
that so far in the development of this case the French don't
deny signing the contracts. There is no contention that the
contracts weren't effective or they aren't contracts. The
second is there is no denial that the contracts were not
disclosed to the California Department of Insurance in the
numerous filings that were made.
I think, like I say, there has been no testimony so far--
that the contracts do exactly what we say they do. They gave
the French, Altus Finance, the ownership of 67 percent of the
company.
So, then, backtracking a bit, as you know, the Insurance
Commissioner seized Executive Life on April 11, 1991. In May
1991, he put out what can be called a request for proposals,
letting people know that he was negotiating with Altus Finance
for something that would be called a definitive agreement,
which would be a bid, and that other people could then, once
that bid was set, bid against it. In a sense, the Altus bid
would be a template for other bidders.
So on August 7 the definitive agreement with Altus and the
MAAF group was entered into. In the following months other bids
were received. On November 14, 1991, if I have the date
memorized correctly, the Altus bid was accepted by the
Commissioner. Obviously, there are lots of interim steps there,
but in the end we know that the bid was accepted.
What was going on at the same time, or starting at that
time, was a process that the California Department of Insurance
goes through with anybody that wants to set up or own an
insurance company. Insurance is a highly regulated business in
California, and in order to own an insurance company or start
one up, one has to get to set up a company an organizational
permit, a stock permit, and eventually has to file an
application for the license, which we call a Certificate of
Authority.
The Department of Insurance requires of anybody in those
circumstances that they submit financial information,
information about where they are going to get their money to
capitalize the company, about their own financial structure,
their own organizational structure, who owns them, in some
cases who owns the people that own them, and all the financial
connections or corporate connections between the new insurance
company and the owners and the other people that they identify
as having relationships with.
When we think or when we know that there is a foreign
entity that may be involved, we send out a questionnaire which
we call a 699.5 questionnaire. One of the questions to be
answered in there is, ``Does any government entity direct, or
have the power to direct, the management or policies of your
company or of any persons owning, directly or indirectly, any
shares or other interest in your company by means of any
contract?''
Starting in 1991 and continuing, I would say, almost
through the closing of the transaction, which was on September
3, 1993, Altus, MAAF, and Credit Lyonnais, for that matter,
made numerous representations that they would have no ownership
of the new company, Aurora.
The declaration, the 699.5 declaration, was affirmatively
answered ``no'' by all the purported owners, by MAAF, and I
could name the other three or four, which we assert is a
complete misstatement. We received in--I just list the months--
September, October, November, December 1991; January, February,
March 1992, April 1992, up until the organizational permit was
issued in May 1992, indicating the background of all the
purported owners, and nowhere in there, of course, do they
indicate that Altus has entered into secret agreements.
What we know about the secret agreements, of course, is
that two secret agreements were entered into with MAAF and
Altus on August 6, 1991, and they state right in them: These
will not be revealed to anyone. And a subsequent set of
agreements was entered into with MAAF on, I believe--oh, I have
got the date written somewhere--I think November 15, or
thereabouts, in 1991.
Similarly, there were arrangements with Omnium Geneve, one
of the other members of the MAAF group, and they had agreements
in November 1992 and later. Those agreements, of course, also
were not disclosed to the Department of Insurance in connection
with any of its filings.
Mr. Ose. Mr. LeVine, we are over here. So your testimony, I
have a copy of your statement right here, and I presume you are
running through it accordingly. I have actually read it. So how
about we submit it for the record, so we can get to questions?
Mr. LeVine. That would be fine.
Mr. Ose. That is a great idea. Thank you. [Laughter.]
[The prepared statement of Mr. LeVine follows:]
[GRAPHIC] [TIFF OMITTED] T3976.035
[GRAPHIC] [TIFF OMITTED] T3976.036
[GRAPHIC] [TIFF OMITTED] T3976.037
[GRAPHIC] [TIFF OMITTED] T3976.038
[GRAPHIC] [TIFF OMITTED] T3976.039
[GRAPHIC] [TIFF OMITTED] T3976.040
[GRAPHIC] [TIFF OMITTED] T3976.041
[GRAPHIC] [TIFF OMITTED] T3976.042
Mr. Ose. OK, now I am trying to make sure I understand the
process by which we got to the point where the benefits to the
policyholders got a haircut. If you can keep that in mind as
you entertain these questions, I would appreciate it.
Mr. Corcoran, you were Commissioner of Insurance until 1990
in New York?
Mr. Corcoran. Correct. I left February 1990.
Mr. Ose. OK. Now California in 1988 passed some sort of a
referendum or initiative that made the Office of the Insurance
Commissioner elective, and then we elected our first Insurance
Commissioner in November 1990, and they were sworn in in
January 1991.
Mr. Corcoran. Right.
Mr. Ose. So your tenure actually predates us even having
an----
Mr. Corcoran. Elected Commissioner, yes.
Mr. Ose. Correct.
Mr. Corcoran. Roxanne Gillespie was appointed Commissioner
at the time.
Mr. Ose. Up until the time----
Mr. Corcoran. Right.
Mr. Ose [continuing]. When the elected Commissioner was
appointed, we had an appointed Commissioner?
Mr. Corcoran. Correct.
Mr. Ose. OK. I mean, I can tell from your testimony what
the answer to this question is, but you were familiar with the
problem of junk bonds in terms of how big of a percentage of a
portfolio of an investment company or an insurance company it
comprised?
Mr. Corcoran. Correct, and my concern was triggered by the
medical malpractice crisis that we had had in New York a few
years prior to that. We were compelling the use of structured
settlements. I felt it was my obligation to make sure that any
structured settlement purchased by anyone would be a high-
quality company, not a company that was backed up by junk
bonds.
Then the next thing we got involved with was the pension
situation. That really brought it to my attention in 1985.
Mr. Ose. So the medical malpractice issue that arose in New
York had to do with concerns on your part that there wouldn't
be sufficient income to service the structured settlements that
came out of that litigation?
Mr. Corcoran. One of our reforms to all legislation in New
York, we changed--there is a substantial tort for medical
malpractice, but one of the key things was really kind of
imposing structured settlements on these medical mal. awards to
make sure that these people did not ultimately become wards of
the State. Based on that, it was our obligation to make sure
that anyone doing business in the State of New York issue
structured settlements of the highest quality.
It was brought to my attention that this Executive Life Co.
had a large portfolio of junk bonds. That was our initial
awareness.
Mr. Ose. So you were concerned about the quality of the
bonds underlying----
Mr. Corcoran. Well, the lack of diversity in their
portfolio.
Mr. Ose. So you moved to put a limitation, a 20 percent
limitation, on the amount of junk bonds you could have in your
portfolio?
Mr. Corcoran. For a domestic life insurance company,
correct.
Mr. Ose. Now are the domestic life insurance companies the
same entities that were doing the medical malpractice
structured settlements?
Mr. Corcoran. Correct.
Mr. Ose. OK.
Mr. Corcoran. They have to be licensed. Some are licensed;
some are domestic, right.
Mr. Ose. So let me ask the question directly, and you can
just reiterate that: Why did you act to impose a limitation on
the junk bonds?
Mr. Corcoran. Well, one, beyond the fact that we were
concerned about the lack of diversity in their portfolio, that
we were concerned ultimately the company become insolvent. To
us, the particular company, of course, was in my view unfairly
competing. Executive Life in New York became, in my view, we
call it a ``Judas-co.'' of the industry. They were promising 13
percent----
Mr. Ose. Versus the 9.9?
Mr. Corcoran. The 9.9. Now the other companies, of course,
fully realized that that is what they were competing against. I
always felt, as a regulator, a regulator's key job is to make
sure there is a fair competitive environment. So I did have the
support of most of the domestic industry in New York when I did
impose a 20 percent. Only a few companies opposed me. I think
it was Presidential and Executive Life. We acted to make sure
that the environment was fair.
Mr. Ose. Were you ever approached by Michael Milken or
other junk bond salesmen during your tenure?
Mr. Corcoran. Well, we had several would-be appointments
with the chairman of Drexel who didn't show up. He kept wanting
hearings or meetings, but the only meeting I had face to face
with Mr. Milken was a reception held in, I think it was,
Orlando in December 1986, where he approached me at a cocktail
party with two bodyguards. They were not my bodyguards; they
were his bodyguards.
And he came over and he said, ``Hello, Jim.'' And I asked
him who he was, because I had never met him. He then went on
to--he wanted to buy me dinner, and I told him that it was
inappropriate to be buying me dinner in light of the fact that
we had this issue out there, and we had a long conversation. He
was convinced that if I had only fully understood this issue, I
would have a great future, and I was touched that he was
worried about my future.
Mr. Ose. Who was the chairman of Drexel at the time he
requested this----
Mr. Corcoran. I believe it was Josephs at the time.
Mr. Ose. Do you remember the first name, for the record, of
Mr. Josephs?
Mr. Corcoran. It was Lenny, Leonard Josephs? I might have
it here somewhere. I will dig it up for you, Mr. Chairman.
Upon my return to my office, Mr. Milken sent me a
flashlight and 1,000 shares of Drexel and a ``happy
Christmas.'' He allegedly, in my name, gave $15,000 to some
charity, which, of course, I reported all of these things to
the attorney general, because, as you well know, it wouldn't
look good.
So from then on, it was quite--every lobbyist was retained
to--my good friends would call up and get permission to oppose
me because they were giving them huge amounts of money to try
to stop this cap, and it didn't work.
As a matter of fact, between the hearing we had and the
issuing of the regulation, we fined Executive Life of New York
$250,000 and required the parent company to put $155 million
more cash into the New York company. So at the end of the day,
the New York company was in pretty good shape.
Mr. Ose. So you had in New York a sister company, if you
will, to Executive Life of California?
Mr. Corcoran. Right. So when the State, when the California
company was seized, New York was able to have its own separate
rehabilitation and liquidation sale.
Mr. Ose. Are you familiar with the insolvency that occurred
at Executive Life of California?
Mr. Corcoran. Well, I am only familiar to the extent, one,
I am familiar with all the issues involved from reading it, but
also about I represented a group of GICs who were trying to get
recovery from both the Guarantee Fund and Executive Life
subsequently, probably in 1992.
Mr. Ose. OK. Now given that, as the Commissioner in New
York, you identified some flaws, in your opinion, in terms of
how Executive Life might have been operated. What procedures
did you institute to protect the policyholders of New York? No.
1, you moved to reduce the amount of junk bonds in the
portfolio underlying the structured settlements?
Mr. Corcoran. Right.
Mr. Ose. Were there other steps that you took?
Mr. Corcoran. Well, I would say, clearly, from 1986 to at
least my end of office they were on the radar screen, and we
were making sure that dividends were not going from the
subsidiary in New York to the parent inappropriately. We were
making sure that as quickly as possible they had to file a plan
with the Department showing divestiture and diversification of
their investment portfolios. So that was ongoing from 1987 on
to my leaving office 3 years later.
Mr. Ose. Did you ever take any affirmative steps regarding
the structure of the assets and liabilities underlying the
portfolio? In other words, keeping the bonds with the
liabilities?
Mr. Corcoran. Sure. Well, the department, by actively
looking at it--I am sure California does the same thing when
they monitor a company. We were making them reduce their junk
bond portfolio. That was the most proactive thing we could do.
Plus, we put the responsibility on the board of directors.
Mr. Ose. In what way?
Mr. Corcoran. Well, we told the board of directors, as I
noted, the regulation says--I may use the proper language, go
back to my notes for a second. ``Require the board of directors
of any domestic life insurer that invests in junk bonds adopt a
written policy including quality and diversification standards
with respect to its junk bond investments.''
This way, if things went bad, the directors can't say,
``Gee, no one told me. I was out in the men's room when they
voted on that,'' or anything like that. I told the board
members that if there is a shortfall and this company goes
down, we are going to be looking to you. Fortunately for the
policyholders of New York, there was no need to do that because
the company was able to pay its obligations.
Mr. Ose. Now you did require an additional capital
investment from the parent of $155 million?
Mr. Corcoran. Correct.
Mr. Ose. Into the New York subsidiary? For what purpose was
that done?
Mr. Corcoran. Keep it solvent, keep it liquid, keep it
liquid.
Mr. Ose. So you had looked at the portfolio over time, and
the relative solvency or insolvency led you to that step?
Mr. Corcoran. Correct. Of course, and we had some real
concerns about their accounting at that time. We fined them
based on their accounting creativity.
Mr. Ose. In terms of valuing the bonds?
Mr. Corcoran. Valuing their entire portfolio and their
reinsurance.
Mr. Ose. And that $250,000 fine was----
Mr. Corcoran. That was a straight-out fine.
Mr. Ose. That was punitive in nature for the purpose of
sending them a clear and unequivocal message that that was not
going to be tolerated?
Mr. Corcoran. Correct.
Mr. Ose. All right. Now in the process of the collapse of
the parent and the subsequent dealing with that portion of
Executive Life that existed in New York, what losses, if any,
occurred to the New York policyholders?
Mr. Corcoran. Well, of course, I was no longer
superintendent when it occurred. Sal Curiale succeeded me as my
first deputy. But from my understanding, there were no losses
and no long-term agony for the policyholders. MetLife I think
ultimately came in and assumed the book, and I think for them
it was lucrative, but the policyholders were not damaged in any
way.
Mr. Ose. So MetLife assumed both--they took both the bonds
and the accompanying liabilities?
Mr. Corcoran. I believe they took the whole thing----
Mr. Ose. The whole thing?
Mr. Corcoran [continuing]. But I might not be correct on
the exact because I wasn't there. There was some minor
Guarantee Fund assessments for some products, but it was very
minor.
Mr. Ose. Now your successor's name for the record?
Mr. Corcoran. Sal Curiale.
Mr. Ose. Could you spell it?
Mr. Corcoran. C-U-R-I-A-L-E.
Mr. Ose. OK. Are you--I am sure you have been. I don't know
if you were then, but you are now. Are you familiar with the
rehabilitation plan for Executive Life of California?
Mr. Corcoran. Only from recollection, from having
represented the GIC group. I read it, obviously, and gave
opinions to that group of clients, but it would be only
recollection.
Mr. Ose. Now I have a copy of the original memorandum
soliciting the bids and the like, and I have been through it. I
think I am on my fourth read of it. So it is starting to sink
in.
Mr. Corcoran. Well, I was doing it for billable hours, so
it was no problem. [Laughter.]
Mr. Ose. There are a number of suggestions in this as to
how the Commissioner or the conservator chose to proceed. I
would be curious about just some feedback, and you will see it
on the screen here, the memorandum itself. I would be curious
about your feedback. Was this particular approach that is laid
out in this memorandum sound in your opinion?
Mr. Corcoran. In all fairness to the California department
and my own opinion about what could occur in the future, what
should occur, this was new ground then. This was probably the
most complicated, biggest insolvency, and there were many
people, including the NOLHGA, which is the National
Organization of Life/Health Guarantee Associations, making bids
and discussions on this.
Mr. Ose. There were, in fact, eight bids, if I recall?
Mr. Corcoran. There were eight bids, and I think NOLHGA
itself might have made a bid.
Mr. Ose. They did make a bid, yes.
Mr. Corcoran. NOLHGA made a bid themselves.
Mr. Green. NOLHGA's was one of the eight bids.
Mr. Ose. Correct.
Mr. Corcoran. So, I mean, I am aware of that, aware of that
situation, but I was not sitting in the driver's seat. No one
was telling me what the real value of the bonds was and how it
was shaky. Don't forget, I came with a predisposition of
calling them junk bonds. So I wouldn't, you know----
Mr. Ose. Your dealing with the collapse in New York----
Mr. Corcoran. Well, there wasn't much of a collapse.
Mr. Ose. OK. For whatever reason, but the issue that you
dealt with----
Mr. Corcoran. It is an issue I am proud of.
Mr. Ose. I understand that.
Mr. Corcoran. So we didn't get the collapse.
Mr. Ose. We will go through that, if you want, but the
manner in which you----
Mr. Corcoran. I put up with a lot of aggravations so that
thing didn't collapse, so I figured I would just point that
out.
Mr. Ose. The manner in which you handled it in New York, if
I understand, you approached it on a bonds-in basis? In other
words, you left the bonds in the company and worked through it?
Mr. Corcoran. Worked through it. There were liquidity
problems.
Mr. Ose. Why did you choose a bonds-in versus a bonds-out
approach?
Mr. Corcoran. Well, I didn't get to choose, but my
successor got to choose because there was enough liquidity. The
domestic industries were cooperating. The Guarantee Fund in New
York was cooperating because they saw the company was not in
dire straits, and, ultimately, I believe MetLife took it over,
and it was not going to be an issue of pulling out the bonds.
Mr. Ose. In your opinion, do you have to take these things
on a case-by-case basis or is there kind of a template that you
would work with?
Mr. Corcoran. Well, a template that I would suggest for the
future--we can jump ahead and I will come back to this--is you
can look at every one of these major agonies, Confederation
Life, Baldwin, Mutual Benefit, Executive Life, and once the
rehabilitation process is triggered, and this is what is very
difficult for them, and thank God it is not my job, all sorts
of rights begin to vest. You've got issues of, will somebody
get a priority if you pay this one and what share of assets?
I think the rehabilitation process in and of itself must be
changed. There is no reason to go through this agony because
you have these guarantee fund associations, who ultimately pay
the shortfall assessment.
There is no reason not to have a Federal FDIC guarantee
association with standing to come into these companies and say,
``OK, we're ultimately going to pay the assessment anyway. We
are now going to assume running it.''
To make sure it is not anticompetitive, the Commissioner
would oversee it and start running these companies now,
because, as in this situation, ultimately, the bonds, as no one
knew at the time, proved to be more valuable than people
thought. Surely, the policyholders should not have gone through
this suffering. We all agree with that today, but that, of
course, is 20/20 hindsight.
But the system needs to be changed because I was always
very reluctant--and while I was in there, I was the longest-
tenured superintendent except for the first one in 1865 who was
paid $10,000 a year for 10 years, which was a very good salary
in 1865.
I was very reluctant to take companies down. I made sure I
went in quickly enough to them to stop writing certain lines of
business. We took down 23, but they were small property
casualty companies that were just badly run. But I knew the
minute you triggered a rehabilitation process, you landed up in
a State court. Not like your Federal bankruptcy court, where
you have judges who are trained in the area, who can look at it
and understand the rights--because I have testified as an
expert in the Federal bankruptcy court. You have all these
rights that vest. All of a sudden, the carcass is being pulled
apart by investment bankers, lawyers, accountants, actuaries,
and it really is a feeding frenzy.
It is something, unfortunately, the commissioners don't
have the standing to resist or can they legally. So whatever
plan was put forward here, I am sure in its time and moment it
seemed like a good idea, but the whole system needs to be
changed.
So that is why I was always reluctant. In New York we had
some troubled companies which will go unnamed, but we sat them
down and we had the ability to say, ``You can't write this
line. We're not going to go public,'' without putting them into
rehabilitation.
I had a standard speech I made, and people used to kid me
about it: the will to regulate, the will to act. That is what
you really needed.
Now I think when John Garamendi took over, by that time my
own opinion was Executive Life was long gone because the junk
bond market had become illiquid, a market that Drexel had
created, and there is no recourse back. That was one of our
concerns back in 1987.
Mr. Ose. Do you know of any--let me rephrase this. Your
successor had to deal with the Executive Life of New York
issue.
Mr. Corcoran. Right.
Mr. Ose. Are you aware of any contacts that he may have had
in terms of the rehabilitation plan itself relative to, say,
MetLife's ultimate purchase or any other bidders?
Mr. Corcoran. Oh, sure, I am not privy to the confidential,
but I am aware of the discussions when they were discussing
with him to see what went on.
Mr. Ose. One of the things that I find most curious and I
am trying to understand is the provision that I am aware of at
least anecdotally relative to the sale of these companies.
There is something called a put-back provision where, if
someone comes in and buys the portfolio of an insurance
company, all the bonds and what have you, apparently, there are
provisions in some of these agreements whereby the buyer has a
certain period of time after the close to put unsatisfactory
bonds back to the seller. Are you familiar with this?
Mr. Corcoran. No, I have never dealt with one of those.
Mr. Ose. You understand the concept?
Mr. Corcoran. I understand the concept. I understand the
concept in a private sector way, but not as a regulator.
Mr. Ose. You have never done that? I mean, you never did
that during your tenure?
Mr. Corcoran. No. We never had it in my tenure.
Mr. Ose. Why wouldn't you do that? It seems to me like to
facilitate a sale----
Mr. Corcoran. As a regulator?
Mr. Ose. Yes.
Mr. Corcoran. The issue never came as superintendent. In
fact, we never had that situation. Why would I not do that?
Well, my own theory as a regulator was people would come
forward with investment proposals and all sorts of wonderful
things, and if I didn't understand them, I said, ``Look, we're
not doing it.'' If it is too complicated, we are not in the
business of risk assumption here; we are in the business of
getting things done in the open light of day, and whatever is
simple, I am keeping it simple.
Mr. Ose. I have to admit I am not Michael Milken, or
whatever. I have a passing understanding of the put-back
concept. If I came to New York and I had approached you and
said I would like to buy the seized company known as Executive
Life of New York but I would like a period of time after close
to go through the bond portfolio and basically cull out that
which I really don't want and put them back to you, what would
your reaction have been?
Mr. Corcoran. Well, I am not trying to be argumentative
here, but if I were in a multicomplex situation like that, I
would probably have to go get experts to tell me that that is
something you do, because I am a lawyer by training, and it
sounds like something that the Wall Street brokers would know
more about. I would have to find out if that is fair and
normal, and how does that benefit the policyholders. So they
would have to give me their analysis. Is this the only way I
can get the bonds sold? Maybe it is true. Maybe it isn't. But I
think you would have to go through that process.
My first reaction to it would be, well, you've got to
convince me that that is the best thing for the policyholders,
and maybe they could. I don't really----
Mr. Ose. It seems to me that the ability to put back bonds
from the portfolio that you don't want is almost a risk-free
guarantee.
Mr. Corcoran. It sounds good to me, but the only question I
would have there is, are you the only one that wants to buy
this? Am I so illiquid--and I think I don't really know this,
but let's presume that this company was so illiquid, and I
think that was its problem initially, and you guys can tell me
whether or not it was, that they needed cash. I don't know how
far my back would be to the wall to agree to something like
that. It had to be pretty far back.
Mr. Ose. But you dealt with technical insolvencies also?
Mr. Corcoran. Well, we never had something like that, no.
No, no one----
Mr. Ose. In this issue, in those situations where you did
have a technical insolvency, I mean you would make a judgment
as to the revenue stream and whether it could meet the demands
of policyholders in the structured settlements?
Mr. Corcoran. And the other one you had, they were mostly
small insolvencies, and I had the Guarantee Fund to lean on if
there was a shortfall. Now, of course, the Guarantee Fund would
say, do whatever you can do to make my assessment as small as
possible, and they are sitting at a table with you. So if
someone came to me with a complex deal like that, I would
probably turn around to the Guarantee Fund and say, ``Well, you
know, you're the guys who are ultimately going to pay the
price. This is a national group. Is this the best thing to do?
Tell me. I'm not an expert in all areas. I will admit I don't
understand all these things, but explain to me why I should do
that.''
Mr. Ose. So you would negotiate whether or not to include a
put-back provision into any such deal?
Mr. Corcoran. The only criteria I would have, is this the
best thing for the policyholders?
Mr. Ose. OK.
Mr. Corcoran. I have a real simple criteria as Insurance
Commissioner. It was, is that best for the policyholders?
Mr. Ose. From your understanding of the Executive Life of
California deal, if that included a put-back provision, would
that have been beneficial to the policyholders?
Mr. Corcoran. I am just guessing here, so the testimony
isn't that valuable. But if it was the only way out, if there
was nobody else at the table, if everybody wanted that, if this
was the highest price I could get for the bonds--I wasn't
sitting there doing the negotiating, I can't tell you.
But I do know that the company was illiquid, and they
wanted to start paying claims, I presume, to policyholders as
fast as possible.
Mr. Ose. It is my understanding they were technically
insolvent also.
Mr. Corcoran. Yes, there was a liquidity issue. Now in
hindsight we all agree it was liquidity and the thing could
have probably within time come out of it, but at that time they
needed cash desperately. That I do know. I don't know what
else----
Mr. Ose. Of the seven or eight bids that were received, I
am only aware of one that ended up having the put-back
provision included.
Mr. Corcoran. I am, Mr. Chairman, unaware of any of these.
Mr. Ose. OK.
Mr. Corcoran. All I know is there were seven or eight bids,
and NOLHGA made a bid, and the Guarantee Funds make bids. Of
course, the Guarantee Fund's effort there, don't forget, I mean
in all fairness to the Guarantee Fund, they represent all the
companies that competed with Executive Life and lost business,
and now they get the privilege of paying the bill.
Mr. Ose. Right.
Mr. Corcoran. So they're not happy bunnies when they are
sitting at the table because their whole thrust is try to pay
as little as possible. So that is why I do believe that we need
to go to a Federal system, much more comprehensive, and stop
this process, which is every Commissioner loses control the
minute it gets into that courtroom, because then it becomes the
great game.
Mr. Ose. OK, this has been very illuminating. I appreciate
your time.
Mr. Corcoran. I appreciate the opportunity.
Mr. Ose. Mr. Green, your tenure at the Insurance Commission
commenced when?
Mr. Green. Actually commenced on the evening of July 5,
2000, when Bill Lockyer called me to his office and said,
``Tomorrow morning Law Professor Clark Kelso is going to take
over for Mr. Quackenbush and you get to go over to the
Department of Insurance to be the Deputy Commissioner and Chief
Counsel.''
For the almost 12 years previous to that, I was Deputy
Attorney General of the State of California. I still
technically am; I am on leave and I will be returning to that
position whenever my tenure at the department is over.
Mr. Ose. So from 1988 to 2000 you were at the AG's office?
Mr. Green. Yes.
Mr. Ose. You are on temporary assignment, so to speak, over
at the IC's office at this point?
Mr. Green. Right, right, and most of my hours as a deputy
attorney general from 1988 to 2000 were spent representing the
Department of Insurance.
Mr. Ose. In the course of the transaction in which
Executive Life was seized, what deliberations occurred? Did the
office go outside for third-party advice? How did they make the
decision that in fact the company was insolvent?
Mr. Green. It is very hard for me to say. I need to give
you a little bit of background.
Mr. Ose. OK.
Mr. Green. In December 1990, approximately a month before
Mr. Garamendi took office as the first elected Commissioner,
Commissioner Gillespie, the last appointed Commissioner, came
to John Vandecamp, who was then the attorney general, and
basically said, ``I've got a problem with this company and I
need specialized outside counsel to help me with this
problem.'' Attorney General Vandecamp, pursuant to his ability
under the California Government Code, gave that permission.
So what subsequently transpired is that the attorney
general's office never was really part of the representation,
never has been part of the representation, of three now, four
now, Commissioners in connection with Executive Life because,
as I understand it, Mr. Garamendi took that initial approval
from John Vandecamp and took the position that he was,
therefore, entitled to only use outside counsel, never use the
attorney general for any matter involving Executive Life.
So while, for some technical reasons, Dan Lungren's name
was on some of the pleadings in Executive Life, my office, that
office, had nothing to do with it. I don't know what Mr. LeVine
has seen in the documents about the deliberative process, but,
unlike we were mentioning today when we were speaking before
the hearing, the Pacific Standard case, which I was lead
counsel for the Commissioner as a deputy AG for 10 years, I
don't know what processes the department went through. Maybe
Mr. LeVine has some information from the documents that he has
looked at.
Mr. Ose. So you wouldn't know whether or who advice was
sought from?
Mr. Green. Well, I do know, because it is part of the
record, that the law firm that Ms. Gillespie hired was
Rubenstein and Perry. I do know that Mr. Carl Rubenstein took a
lead role in representing first Roxanne Gillespie and then John
Garamendi in the court proceedings. I do know that.
I don't recall as I sit here--maybe Harry does--the names
of other law firms that were involved, but I do know that law
firm was basically lead counsel for the Insurance Commissioner
in the Executive Life proceedings in the early nineties.
Mr. Ose. OK. Mr. LeVine, the same question.
Mr. LeVine. Yes, I didn't work on Executive Life at the
time. So it is my understanding that the department staff,
financial staff, worked on--yes, the question was monitoring
the solvency of the company, I believe. I know that department
staff worked on that.
I don't know whether there were experts. I know that once
Executive Life went under, as Mr. Green just mentioned, they
hired Rubenstein and Perry, and they hired lots of other
consultants. But prior to the insolvency, I am unclear right
now on whether someone else helped in the analysis of the
financial picture.
Mr. Ose. So in December 1990 Commissioner Gillespie
approached Mr. Van de Kamp and said, ``I've got a problem.''
Van de Kamp approved Gillespie going outside for third-party
counsel, so to speak. Then, subsequently, the newly elected
Insurance Commissioner came into office, inherited Rubenstein's
firm as the lead counsel on the case?
Mr. LeVine. I believe that's correct, and Rubenstein and
Perry certainly was the lead counsel in the conservation.
Mr. Ose. In terms of Gillespie's determination in December
1990 as to the insolvency or lack thereof at Executive Life,
who would have been involved in that deliberative process at
the Insurance Commissioner's office?
Mr. Green. For sure, one of the people who would have been
involved is Norris Clark, who remains the Deputy Commissioner
for Financial Affairs and a very nationally respected
individual.
Mr. Ose. Norris Clark?
Mr. Green. Clark, yes. What he does, he for sure would have
been involved. After that, between Norris and Roxanne
Gillespie, you know, I don't know who that would be. I have
seen--and I have the ability to waive the attorney/client
privilege, and I am to a certain extent--I have seen the memo
that went from----
Mr. Ose. I will be clear: I haven't asked you to do that.
Mr. Green. I know that, sir. I know that.
I have seen the memo once that went from then-Commissioner
Gillespie to Mr. Vandecamp. I just recall it saying that there
was a problem and there was a need for specialized counsel. You
know, I haven't probably looked at it in 8 or 9 months. I had a
reason to look at it about 8 or 9 months ago, and that is the
first time I had ever seen it.
Mr. Ose. Mr. LeVine, you are currently at the Department of
Insurance?
Mr. LeVine. Yes.
Mr. Ose. As counsel, you are career counsel at the
Department of Insurance?
Mr. LeVine. Yes, I am.
Mr. Ose. Your primary duties and responsibilities include
what?
Mr. LeVine. My primary responsibility is overseeing this
current piece of litigation.
Mr. Ose. Relating to Executive Life?
Mr. LeVine. Relating to Executive Life and some other
issues relating to Executive Life that still need to be
resolved.
Mr. Ose. Such as?
Mr. LeVine. There are some trusts that are out there that
are making distributions. There are legal issues that come up
occasionally. Every now and then we need to modify the
rehabilitation agreement to facilitate a distribution, things
like that.
Mr. Ose. OK. So you have, is it fair to say that you have
day-to-day management responsibilities of the Commissioner's
suit against Credit Lyonnais?
Mr. LeVine. Well, subject to Mr. Green's review, yes.
Mr. Ose. OK. Can you review for us briefly the events that
led to the purchase of most of the assets of Executive Life by
agents and subsidiaries of Credit Lyonnais, just generically? I
just want to put it on the record relative to your guys'
understanding.
Mr. LeVine. Well, I mean, I am not sure if I understand
what you are asking, but the basic outline is starting with, I
guess, the----
Mr. Ose. Let me be a little more specific.
Mr. LeVine. OK.
Mr. Ose. We are talking about the initial overtures from
the purported buyer, whether it be Credit Lyonnais or
otherwise. Did the Commissioner's office get approached early
on, and were there any communications back and forth?
Mr. LeVine. Well, I can tell you what I know about that,
but, again, here is where I want to indicate that I need to be
cautious because I am not the witness and there will be people
who will be deposed and testify about various contacts and what
they said, what they meant.
But it is my understanding that Altus was already working
with Executive Life before the insolvency on their own
presumably proposed recapitalization or restructuring, or
whatever it might have been. I believe there were some meetings
or a meeting--I don't know if I should use the plural--with the
Commissioner prior to the seizure of the company. But on April
11, 1991, the Commissioner was appointed as conservator and
seized the company.
Mr. Ose. Now would it have been illegal for Credit Lyonnais
to have openly purchased the assets of Executive Life in 1991?
Mr. LeVine. Yes, I believe so. It would have violated the
Bank Holding Company Act. I don't think they were able to do
that.
Mr. Ose. And you are indicating that Altus may have
approached the Commissioner's office prior to April 11, 1991?
Mr. LeVine. Right, but I don't mean----
Mr. Ose. You don't know what the reason was?
Mr. LeVIne. Exactly, and I don't know that Altus was
proposing buying the company or proposing some piece of it or
working with someone else. I don't know the nature of the
approach.
Mr. Ose. Do you know when the Commissioner's office was
first approached by the agents of Credit Lyonnais?
Mr. LeVine. No, I don't.
Mr. Ose. OK.
Mr. LeVine. I mean, I think it was sometime in--actually, I
shouldn't speculate. I mean I'm going to guess. I will
speculate. Sometime at the end of 1990 or early 1991.
Mr. Ose. Do you know what was discussed in those meetings?
Mr. LeVine. No, I am not the person that would know the
answer to that one.
Mr. Ose. There is a memorandum that was put out dated May
21, 1991, entitled, ``Memorandum,'' and it is addressed to
``Parties Interested in Financial Participation in Executive
Life Insurance Company Rehab. Plan.'' This is the document, and
I would be happy to have the clerk deliver the document to you.
The question is, are you familiar with this document?
Mr. LeVine. I have seen the document, and I know generally
what it is.
Mr. Ose. Does this document constitute the requirements for
bidders interested in purchasing Executive Life?
Mr. LeVine. That is my understanding, but I haven't, again,
I haven't worked with the witnesses and the people that drafted
it, and don't know the context, but on its face that appears to
be what we would have called an RFP.
Mr. Ose. So this is, if you will, the initial document, the
purpose of which would have been to move forward with
rectifying the situation that arose from the insolvency of
Executive Life? In other words, this kind of is the road map
that we are going to go down?
Mr. LeVine. I think whether it was the initial document or
not, again, I don't know, but it was certainly a public
pronouncement of how the Commissioner was going to go about
getting a definitive bid and then inviting overbids, other
bids.
Mr. Ose. Do you have a copy there with you?
Mr. LeVine. Yes, I do.
Mr. Ose. OK. If you will look at page 2, section 2, titled,
``General Structure of Rehabilitation,'' the second sentence
states, ``The general concept is that all fixed assets and
liabilities would be transferred from ELIC to NEWCO.''
If I read that correctly, the initial proposal, as
represented in this memorandum, would track fairly closely what
transpired in New York in the sense that the original bid
requirement was for both the assets and the liabilities to be
transferred to the proposed new company. Am I reading this
correctly?
Mr. LeVine. Well, here's where the rubber meets the road on
my sort of not having personal knowledge. I mean, I could read
that and I agree it says, ``fixed assets,'' but I don't know
whether that means selling the bonds and taking the cash and
giving it to a new company or giving the junk bonds to a new
company or if there's flexibility in there. I mean, I don't
know, and I would suspect that is something that our witnesses
will be asked in the course of discovery in this case.
Mr. Ose. I was going to ask what the word ``fixed'' means,
but the next sentence defines it fairly well to include both
the liabilities and the assets to be transferred.
Now, pursuant to this memorandum, there was a final
purchase agreement, if you will, I think in November, that led
to acceptance of Altus' bid on November 14, 1991. The reason I
ask that--I don't know if you have a copy of this in front of
you; I think you do.
Mr. LeVine. I do.
Mr. Ose. That is a copy of the final purchase agreement?
Mr. LeVine. Well, this is a copy--this has been updated
since then. There have been many modifications. Things didn't
go as anybody initially planned probably in November 1991. As
changes were made, this document was modified. It is my
understanding this is through 1997. So this does include all
the changes through 1997, but it is my understanding that it
embodies the original document as well.
Mr. Ose. How does the original document differ from this
memorandum of May 21, 1991? Do you have any analysis of that?
Mr. LeVine. I think they are entirely different. I think
this is basically an outline of a structure for a bid, and this
is all the dirty details.
Mr. Ose. If I understand the memorandum from May 21, the
road map laid out there is a bonds-in kind of deal. Do you know
whether or not this document is a bonds-in or a bonds-out type
of document?
Mr. LeVine. Well, I know that the Altus bid was bonds-out.
I don't know if this is. As I was saying earlier, I don't
really know if this May 21st document contemplated bonds-in or
bonds-out, or who knows what kind of structure. But, yes, the
Altus deal was a bonds-out deal.
Mr. Ose. You say the eventual sales was a bonds-out deal?
Mr. LeVine. Yes.
Mr. Ose. OK. So at some point or another, somebody either
determined that the memorandum did not require a bonds-in deal
or changed what they would be willing to accept to make the
deal to allow a bonds-out deal?
Mr. LeVine. Again, I just don't know because I don't know
that bonds-out or bonds-in was contemplated, prohibited,
allowed, anything in this document.
Mr. Ose. Did the assets as well as the liabilities in this
deal get transferred together to the new company?
Mr. LeVine. Well, it is my understanding, yes, they did. I
mean the cash, not all of it, but most of the cash, most of the
assets from Executive Life were transferred to--well,
transferred to a number of places. They were transferred to
Aurora. Certain assets were put into what we call the
enhancement trusts, and then certain assets were retained by
the estate. But eventually all the assets were for the benefit
of the policyholders.
Mr. Ose. Do you know whether a separate sale of the bonds
without the liabilities or the underwriting portion of the
business was part and parcel of the final agreement on sale?
Mr. LeVine. Again, other people would testify to this, but
I am fairly confident that the answer is no, that the bid was
to--it was a bid, and part of it was that one person would take
the bonds and other people would take the insurance assets and
liabilities, but, no, they were not separate deals. And the
bonds left the company.
Mr. Ose. Do you know whether or not the sale represented in
this document allowed for a separate purchase of the bonds or a
purchase of the bonds separate from the liabilities to the
policyholders?
Mr. LeVine. I think the answer to that is no, but I believe
it is also an issue in the case. I believe you will have the
defendants telling you that the bonds were separated somehow at
some point in time in the transaction, but we don't believe
that's true.
Mr. Ose. That is one of the items being litigated?
Mr. LeVine. Absolutely, yes.
Mr. Ose. As to what--there is writing and then there is
actuality, if I understand the law in some of these cases.
Mr. LeVine. I'm sorry, there's what and there's actuality?
Mr. Ose. There is writing, there is a written document, and
then there is actuality as to what happens, and that is
apparently what the subject of the litigation is. You don't
need to comment.
Mr. LeVine. Thank you.
Mr. Ose. Now the document for the final purchase and sale
was amended over time?
Mr. LeVine. Yes, it was.
Mr. Ose. Do you have a copy of the amended purchase and
sale agreement? That is what this is?
Mr. LeVine. That's what that is.
Mr. Ose. OK.
Mr. LeVine. But, again, I wanted to point out that it is
not up through--not current to date. There are other separate
agreements that have been negotiated, and nobody has taken the
time to put them into one comprehensive agreement.
Mr. Ose. I have a document; it is called exhibit 2, from
Morgan, Lewis & Bockius out of Pennsylvania, which represented
certain French interests. Do you have it there?
[Exhibit 2 follows:]
[GRAPHIC] [TIFF OMITTED] T3976.068
[GRAPHIC] [TIFF OMITTED] T3976.069
[GRAPHIC] [TIFF OMITTED] T3976.070
[GRAPHIC] [TIFF OMITTED] T3976.071
[GRAPHIC] [TIFF OMITTED] T3976.072
[GRAPHIC] [TIFF OMITTED] T3976.073
[GRAPHIC] [TIFF OMITTED] T3976.074
[GRAPHIC] [TIFF OMITTED] T3976.075
[GRAPHIC] [TIFF OMITTED] T3976.076
Mr. LeVine. Yes, I do.
Mr. Ose. Do you recognize it?
Mr. LeVine. I have seen a lot of documents in this case. I
believe I have seen this one.
Mr. Ose. OK. It appears to describe which entity owns what
percentage of the new entity that bought Executive Life. Is
that your understanding?
Mr. LeVine. Yes, that is my understanding. At least that is
what was being proposed in October 1991. This list of proposed
owners actually changed and is not the final list.
Mr. Ose. Does this letter accurately represent the real
ownership of the assets of Executive Life post-purchase?
Mr. LeVine. Of course not because Altus and Credit Lyonnais
aren't listed here.
Mr. Ose. Those are who the real owners were?
Mr. LeVine. At the close of the transaction, it is our
contention they owned 67 percent of the company, yes.
Mr. Ose. I have another document dated April 8, 1992 from
the same law firm. In the document, some pages back, it
contains a statement from Omnium Geneve, which is a Swiss
corporation, that claims that Credit Lyonnais has no ownership
interest in it except for two purportedly irrelevant European
interests. If you will give me a minute, I can find the page.
Mr. LeVine. I have it in front of me.
Mr. Ose. It is paragraph 2 that makes that representation.
Does this document accurately reflect Omnium Geneve's--excuse
me--Credit Lyonnais' ownership interest?
Mr. LeVine. It is our contention that it does not.
Mr. Ose. OK. Who had the ownership and control over
Omnium's share of Executive Life assets?
Mr. LeVine. Well, they had written agreements with--excuse
me--Altus had written agreements with Omnium giving them the
right or selling them the shares; the forward transfer of
shares, I believe it might have been called.
Mr. Ose. These are what are called ``call options''?
Mr. LeVine. The document has been translated from French to
English. I think one of the translations is call options.
Mr. Ose. Actually, it says, the French document says,
``Promesse de Vente D'Actions,'' ``promise of selling''
something. Well, you speak French; I don't.
Mr. LeVine. I figured 3 years ago this case couldn't go
that long, so I wouldn't learn French. [Laughter.]
Mr. Ose. Patience. You might.
Now this document has a call option on Omnium's share of
Executive Life assets, is in favor of Altus?
Mr. LeVine. Yes.
Mr. Green. You're talking about exhibit 5?
Mr. Ose. I am talking about exhibit 5, yes. Thank you.
[Exhibit 5 follows:]
[GRAPHIC] [TIFF OMITTED] T3976.143
[GRAPHIC] [TIFF OMITTED] T3976.144
[GRAPHIC] [TIFF OMITTED] T3976.145
[GRAPHIC] [TIFF OMITTED] T3976.146
[GRAPHIC] [TIFF OMITTED] T3976.147
[GRAPHIC] [TIFF OMITTED] T3976.148
[GRAPHIC] [TIFF OMITTED] T3976.149
[GRAPHIC] [TIFF OMITTED] T3976.150
[GRAPHIC] [TIFF OMITTED] T3976.151
[GRAPHIC] [TIFF OMITTED] T3976.152
[GRAPHIC] [TIFF OMITTED] T3976.153
[GRAPHIC] [TIFF OMITTED] T3976.154
[GRAPHIC] [TIFF OMITTED] T3976.155
[GRAPHIC] [TIFF OMITTED] T3976.156
[GRAPHIC] [TIFF OMITTED] T3976.157
[GRAPHIC] [TIFF OMITTED] T3976.158
[GRAPHIC] [TIFF OMITTED] T3976.159
[GRAPHIC] [TIFF OMITTED] T3976.160
[GRAPHIC] [TIFF OMITTED] T3976.161
[GRAPHIC] [TIFF OMITTED] T3976.162
[GRAPHIC] [TIFF OMITTED] T3976.163
[GRAPHIC] [TIFF OMITTED] T3976.164
[GRAPHIC] [TIFF OMITTED] T3976.165
[GRAPHIC] [TIFF OMITTED] T3976.166
[GRAPHIC] [TIFF OMITTED] T3976.167
Mr. Green. OK, thank you. That is fine.
Mr. LeVine. This is sale of a stock, or a forward sale, I
believe.
Mr. Ose. Well, it gives one party the option to purchase
the stock within some period of time in the future.
Mr. LeVine. I want to be cautious about not categorizing it
as a call because I believe that Omnium absolutely had no
ownership interest, and other people have to testify to this.
Mr. Ose. OK.
Mr. LeVine. In other words, Altus actually had the
ownership interest.
Mr. Ose. The net effect is to give control to some other
party, if I understand?
Mr. LeVine. That is my understanding as well.
Mr. Ose. And that other party would be, according to this
document, Altus that would have control over Omnium's share?
Mr. LeVine. That's right.
Mr. Ose. According to this document. Now when did the
Insurance Department become aware of these arrangements?
Mr. LeVine. We became aware--well, the department was first
told that some arrangement might exist in the middle of June. I
don't have the exact date in mind. The documents actually were
received by us in January 1999.
Mr. Ose. So middle of June 1998----
Mr. LeVine. Yes.
Mr. Ose [continuing]. To January 1999, you heard
anecdotally, more or less, in June 1998; you got actual
documents in January 1999?
Mr. LeVine. That is correct. In January 1999 we received
copies of some--there were a number of different, we called
them ``portage,'' is our version of the French word. We got a
number of the ``portage'' contracts in January 1999.
Mr. Ose. So there are a number of these agreements. In
whole, they comprise 100 percent ownership of the entity, but
Company A has got an agreement, Company B has got an agreement,
Company C has got an agreement. Is that what you are referring
to?
Mr. LeVine. Some of them have different arrangements. MAAF
and Omnium Geneve have written agreements. In connection with
two of the other French fronts, as we say ``fronts,'' I don't
know that they had written agreements quite as nice and neat as
these, but it is our belief and our allegation that they had
effectively agreements whereby they didn't own the shares and
that Altus did own the shares.
Mr. Ose. The net effect, giving Altus control of the
shares?
Mr. LeVine. Right.
Mr. Ose. And, thereby, control of the company?
Mr. LeVine. That's right.
Mr. Ose. All right. Were there any provisions in these
documents for confidentiality, any confidentiality provisions
in these documents?
Mr. LeVine. Yes, there are. They say that they will be kept
secret.
Mr. Ose. For what purpose?
Mr. LeVine. Well, you have to ask the defendants, but I
assume so the violation of the Bank Holding Company Act and
Insurance Code Section 699.5 won't be revealed.
Mr. Ose. Now these documents were executed, if I recall,
back in 1991?
Mr. LeVine. They vary. There are some in 1991; there are
some in 1992; I believe there are some in 1993.
Mr. Ose. So prior to the actual closing of the sale, these
documents were in existence, but nobody knew about it?
Mr. LeVine. That's our belief. It is our belief that--
right, that Altus had the ownership interest prior to the
closing.
Mr. Ose. Now did Credit Lyonnais--the Commissioner's office
required some sort of a guarantor from the successful bidder on
certain assets or payments to be made to the policyholders? Do
you recall that?
Mr. LeVine. I'm not sure what you have in mind. There were
guarantees. Some of the bidders had guarantees; other bidders
had guarantees of capital values. I'm not sure what you have in
mind.
Mr. Ose. Let me ask the question differently. Did Credit
Lyonnais play a public role as a guarantor of certain purchases
in this case?
Mr. LeVine. I don't think--again, I am not the person with
the precise knowledge, but I can tell you what is my basic
understanding. There was a time when they guaranteed Altus'
ability to buy the junk bonds, and I believe that they gave a
guarantee that the minimum capital and surplus of the new
company, Aurora, they guaranteed that capital.
Mr. Ose. At what level?
Mr. LeVine. $300 million.
Mr. Ose. OK. If you will look at exhibit 6, it is a letter
to the Commissioner of the Insurance Department from or on
Credit Lyonnais' stationery, dated April 19, 1991, representing
``such additional funds as may be required to consummate the
additional transactions being discussed as soon as agreement is
reached.''
Is this the document that the department considers to be
the $300 million guarantee?
[Exhibit 6 follows:]
[GRAPHIC] [TIFF OMITTED] T3976.168
[GRAPHIC] [TIFF OMITTED] T3976.169
Mr. LeVine. I don't know how many different documents there
might have been, but I believe this refers to the $300 million
guarantee, yes.
Mr. Ose. So there was correspondence in April 1991 relative
to the guarantee that, if I recall, was outlined in this
memorandum as being a necessary part of the deal between this
party, in this case Credit Lyonnais, relative to Altus' ability
to perform?
Mr. LeVine. Well, the $300 million might relate to the
ability of the MAAF group of investors to perform, but yes.
Mr. Ose. But this is what constitutes a representation that
there was a guarantee? Now this also contemplates that the
transaction would be consummated within 90 days, if you look at
the last paragraph of the letter, dated April 19, 1991, exhibit
6?
Mr. LeVine. They were only off by a little. [Laughter.]
Mr. Ose. Well, that begs the question. I mean I have
borrowed money before, and I have had letters of credit.
Typically, there is a charge for that. I mean $300 million, I
figure half a point.
Mr. LeVine. I have no idea.
Mr. Ose. You don't have any ideas about that?
Mr. LeVine. I have no idea about the mechanics of that, the
mechanics of their guarantee.
Mr. Ose. OK.
Mr. LeVine. I don't mean to be flip, but you know that the
transaction didn't close for years.
Mr. Ose. Well, that is my point. I mean, in fact, it was
September 3, 1993.
Mr. LeVine. That's right.
Mr. Ose. I just want to be clear that I understand the
purpose of this letter of April 19. Is the purpose of this
letter to assure the department that the guarantee is in place?
Mr. LeVine. I am going to have to say that I don't know the
answer to that, and probably the Commissioner's staff who were
involved in the negotiation of this and will be deposed on all
those kinds of questions are the ones that can answer it best.
I mean, it certainly evidences it, and I don't know if there
are other documents that also relate to it.
Mr. Ose. You have already mentioned that or we have already
covered the fact that this had a 90-day period, so you figured
it was going to end in 3 months.
Mr. LeVine. Well, somebody thought that.
Mr. Ose. OK.
Mr. LeVine. Or maybe somebody thought that. I shouldn't
speculate whether they thought they were going to really
consummate anything within 90 days.
Mr. Ose. Was Credit Lyonnais' guarantee--I mean, I presume
from the simple reading of this that they expected a timely
transaction and that they would be out of it in 90 days. It
doesn't say that explicitly, but--well, actually it does. It
says that, ``contemplated transactions will be consummated
within 90 days thereafter,'' of May 19, 1991. So, essentially,
they are saying they are out of this thing in 90 days?
Mr. LeVine. Yes, I read the same words, but I just don't
know what all was going on. As you know, April 19, that is 8
days after we seized the company.
Mr. Ose. Right.
Mr. LeVine. I have no idea all the circumstances that
surround this and----
Mr. Ose. OK.
Mr. LeVine [continuing]. What else might have been spoken
of or written or in words.
Mr. Ose. And the transaction continued for roughly a year,
2 years after that, a little over 2 years beyond that. Can you
give the committee some sense as to why the transaction went on
or took this long?
Mr. LeVine. Yes, there was a lot of litigation. There was
litigation over whether the muni-GICs were properly
policyholders or not. There was then litigation over whether
the Commissioner's plan for valuing the muni-GICs was proper. I
think those are the major pieces of litigation, but perhaps, as
Mr. Corcoran noted, there's a lot of people who had a lot of
dogs in the fight, and everybody was asserting their rights.
Mr. Corcoran. There was Guaranteed Fund litigation. There
was contract definition litigation. It was incredible. It was a
``bar association meeting.''
Mr. Ose. Now I want to go through and make sure I
understand how the succeeding entity dealt with the
policyholder claims. The company was seized. The portfolio, in
part or in whole, was liquidated for the purpose of raising
cash. We heard from our two witnesses earlier, Mrs. Jacobson
and Mr. Bozeman, that their distributions were reduced.
How did the department go about determining who got what
after the seizure?
Mr. LeVine. Well, I believe it is actually in both this
rehab. plan and then probably also in something called the
product books, but it is my understanding that actuaries and
other people were involved in determining how to give what is
colloquially called a haircut to the policies, because
Executive Life being insolvent, it obviously didn't have enough
to pay everybody. I think it was quite a complicated procedure
and Executive Life had quite a complicated collection of
products it sold.
Mr. Ose. Now you had 300,000-odd policyholders. Some of
them, their benefits exceeded the $100,000 and the $300,000
thresholds. To the extent that you had policyholders whose
benefits were $100,000 or less in one case or $300,000 or less
in another, those folks were taken care of by virtue of the
Guarantee Fund?
Mr. LeVine. I would assume generally that is correct,
assuming their State had a $100,000 limit, right.
Mr. Ose. OK, in California I think that is the case.
Mr. LeVine. So there was restructuring--it is a very
complicated transaction. There are restructuring percentages.
There is something called conservation date statutory reserves.
They had to find a way to value the policies to know what they
were worth, to know how to structure them.
So somebody just having a $100,000 shortfall, I don't know
that I could be the one to say they automatically got their
$100,000 from a guarantee association. It was tremendously
complicated.
Mr. Ose. And, yet, in New York you had to deal with
something similar, I am sure, relative to policyholders?
Mr. Corcoran. Well, the nature of the product was pretty
simple. It was single-premium, deferred annuities and some
structured settlements. It wasn't nearly as complicated as the
California company.
The key issue there was what was guaranteed under the
Guarantee Funds and what wasn't, but, once again, as I said,
the assets were adequate long term and only needed to be
provided with some liquidity. MetLife, more or less, stepped up
to the bat. Ultimately, I believe MetLife, it was a good deal
for them. All the old policyholders were made whole, I believe.
Mr. Ose. Now the folks in California, the Guarantee Fund,
to the extent that they stepped up, they now are a creditor to
the estate?
Mr. LeVine. They have subrogation rights, right.
Mr. Ose. So any recovery, they might get a piece of that?
Mr. LeVine. That is correct.
Mr. Corcoran. The Guarantee Fund also had their own exotic
formula, and that was subject to challenge, that we got
involved in. It wasn't so simple. I thought it was simple. We
had written a statute thing that was simple, but they came up
with these theories of weighted coverage. So that became part
of this case.
Mr. Ose. If the department or the attorney general or the
Department of Justice successfully conclude their actions and
they recover $100, for lack of a better number, how does that
$100 get allocated out to the current creditors, if you will?
Mr. Green. I am assuming by that question, Congressman Ose,
that you are presuming that, if the U.S. Department of Justice
prosecutes and gets money, that will assign $100 to the
policyholders, because I don't think Mr. LeVine and I are
competent to testify as to when the Federal Government makes a
recovery, how the award or penalty gets----
Mr. Ose. OK, let's say in terms of the attorney general of
California or the Insurance Department.
Mr. Green. The next one, as you know, the attorney
general's case has been dismissed, but it is on appeal. That is
a qui tam action and there are some real issues about how much
the qui tam gets and how much the attorney general's qui tam
fund gets.
Now the third is ours and, as we have explained to the
staff, it will go pursuant to, first, section 1033 of the
California Insurance Code, which sets up priorities very
similar to the Bankruptcy Code priorities. Then that money
assigned for policyholders, which are a second priority under
our statute, would go pursuant to the rehabilitation plan.
Those participating guarantee associations--for example,
Congressman Burton mentioned Indiana, which we now think that
the debt to that association is $38 million--they are
subrogated to their policyholder rights. So they would get, if
there was money, they would get--their proportionate share
would go to the Indiana Guarantee Association, and
policyholders would get their proportionate share pursuant to
the rehab. agreement.
Mr. Ose. So you've got $38 million going to Indiana.
Mr. Green. Hopefully.
Mr. Ose. You've got $600-odd million that would go to--is
it CIGA?
Mr. Green. CLIGA. It is called CLIGA.
Mr. Ose. OK, California Life Insurance Guarantee
Association. Then there are other states that have
participated.
Mr. Green. Right.
Mr. Ose. So they would each get a piece. So if you add all
that up, what does it come to?
Mr. LeVine. Do you mean what is the percentage?
Mr. Ose. No, what is the number we have got to get or
recover in order to make everybody whole?
Mr. LeVine. Oh, I don't have that number, but it is
astronomical. I think the loss for time value of money and
everything else----
Mr. Ose. This is Washington; I mean the numbers--
[Laughter]----
Mr. LeVine. I don't know the number. It is billions,
``billions '' plural, I am certain.
Mr. Ose. $5 billion?
Mr. LeVine. Oh, I couldn't even speculate because I don't
know. I am not sure that anybody, first of all, has calculated
the actual loss that each policyholder took, taking what they
got versus what they would have gotten had Executive Life never
gone under. I don't think that number exists.
Mr. Ose. OK, so it is more than $1 billion because you said
``billions.''
Mr. LeVine. I think it is more than $1 billion, yes.
Mr. Ose. Is it more than $2 billion?
Mr. LeVine. I'm going to guess more than $2 billion, but, I
mean, I----
Mr. Ose. Is it $10 billion?
Mr. LeVine. I don't even have a basis for speculating on
how much it takes to make everybody whole. I would hope $10
billion would do it, but I don't--I shouldn't even say that
because I just really don't know.
Mr. Ose. If I understand correctly, on qui tam provisions
the whistleblower gets a percentage, is that correct?
Mr. LeVine. That is correct.
Mr. Ose. What is the percentage?
Mr. LeVine. Oh, well, that's the AG's lawsuit. It depends
on whether or not--my understanding of that law is it depends
on whether or not the attorney general has intervened in the
case. In that case, since the attorney general did intervene in
the case, it is lowered, I would say, 15 to something.
Mr. Green. Yes, but once the attorney general intervenes,
while the qui tam recovery goes down, the attorney general is
entitled to make a recovery for his qui tam fund. So, yes, we
understand--again, I am talking as a Deputy Commissioner, not a
Deputy Attorney General--we understand that can be, the fund
recovery can be as high as one-third. That is money that would
not go to policyholders. That money would go to the attorney
general's qui tam fund.
Mr. Ose. What is that money used for?
Mr. Green. Well, it funds--again, I am talking as a Deputy
Commissioner, because in my AG life I don't work on false
claims cases, but it is my understanding it goes to fund the
attorney general's whistleblower lawsuits.
Mr. Ose. I have to ask this question because I don't quite
understand why this would ever occur. We've got a situation
where the policyholders have just been pounded. Why would you
turn over up to a third of a billion dollars in one case or a
third of something even larger to a fund that doesn't benefit
the policyholders? Are there no limits on this?
Mr. LeVine. I believe they say that there are limits, but I
believe the attorney general would tell you that they have some
flexibility, but we agree. That is why we believe the
Commissioner suit--the Commissioner is the proper person to
pursue recovery, because no part of the Commissioner's recovery
goes to an attorney general's qui tam fund.
Mr. Ose. I will admit to some concern about the level of
reward. I mean I recognize we would never have gotten this
information without somebody stepping forward, but having
stepped forward, what is the right amount to reward such a
person? How do we make it enough so that the next guy does the
same thing without hammering the policyholders?
Mr. Green. I can tell you of a case, because I use it in
the business law classes that I teach, of a case for defrauding
Medicare and Medicaid where the whistleblowers, three
whistleblowers are going to share $105 million. That was just
reported in--it was an $875 million penalty that the drug
companies agreed to pay, and $105 million----
Mr. Ose. So they got one-eighth. They got one-eighth of it?
Mr. Green. One-eighth, yes, but it is $105 million being
shared by three individuals.
Mr. Ose. You are making an argument for some sort of a cap
on such rewards.
Mr. Green. No, not--I echo Mr. LeVine's comment, that our
laws--while the Commissioner has gone on record as supporting,
as being in favor of a decision by the Department of Justice to
indict and bring criminal charges, in terms of a civil action
ours is the one that in theory, and we hope in reality, will
prove to provide the best benefit for the policyholders.
Mr. Ose. Let me change the focus here a little bit because
I don't understand something relative to the component parts of
the total estate. There were about $1.9 billion worth of
guaranteed investment contracts that were held by or sold by
Executive Life. The initial determination was that those
constituted junior creditors at the time the insolvency was
declared, and they were essentially wiped out with that
determination.
A subsequent court ruling reinstated them as equal
participants to the initial group of beneficiaries. Have the
holders of the guaranteed investment contracts received
anything in this process?
Mr. Corcoran. No.
Mr. LeVine. Yes.
Mr. Ose. You need to turn on your microphone.
Mr. Corcoran. I don't believe ultimately--I left the case
after a while, but they got payments but they never got
Guarantee Fund coverage, but they got a haircut payment and,
ultimately, some may have been made whole, I think, after time.
There was a time value of money loss to them, but I think they
did not qualify for Guarantee Fund coverage. They lost
something.
Mr. LeVine. That is my understanding as well. They don't
qualify for Guarantee Fund coverage, but they were
policyholders. That was the ruling of the Superior Court. It
was upheld by the Court of Appeals. So they had the rights of
policyholders. It is my understanding that most of them opted
out. So they got their cash when they opted out.
Mr. Ose. They cashed in at the haircut value?
Mr. LeVine. Yes.
Mr. Corcoran. Right. The analysis they did was get the cash
now; by the time this is over, I will get my money back through
my own investments; I'll lose it on my own.
Mr. Ose. Was that a universal approach? Were there some
that did stay in?
Mr. Corcoran. The 60 companies I represented, it was mixed.
It was mixed. Most of them opted out and took their cash, I
believe.
Mr. Ose. In opting out, did they waive any claim to further
payment?
Mr. Corcoran. I believe they did, and they wanted to
litigate separately against the Guarantee Fund, but I don't--in
some courts they were there, but it was state by state.
Mr. Ose. So there are still a few that are in there having
not opted out?
Mr. Corcoran. I believe there is, yes.
Mr. LeVine. Well, opt-out, they are still policyholders, so
they will still share in a recovery.
Mr. Ose. They still get checks?
Mr. LeVine. But you are correct that by opting out they got
their haircut liquidation value. Maybe I shouldn't speak about
liquidation value. They got their haircut and they did not
share in enhancement payments that were received by those who
opted in.
Mr. Ose. Right.
Mr. LeVine. The real estate trust, something called the
base assets trust, something called the----
Mr. Corcoran. Quite a few of them stayed in, I think, for
that purpose, but quite a few got out.
Mr. Ose. If there is further recovery through this
deliberative process with our friends across the pond, will the
policyholders, regardless of class, benefit from that?
Mr. LeVine. Yes.
Mr. Ose. So you will have not only the structured
settlement recipients like Mrs. Jacobson and Mr. Bozeman, but
the holders of the guaranteed investment contracts and the like
also?
Mr. LeVine. Right. They are policyholders according to the
court ruling.
Mr. Ose. Is there a difference in the treatment of any of
these policyholder classes dependent upon who prevails in the
litigation? For instance, if it is the Federal Government
versus the attorney general versus the Insurance Commissioner?
Mr. Corcoran. I think it would go pursuant to a
preference----
Mr. Green. Whatever money is allocated to go to the estate
will go pursuant to the combination of the priority statute and
the rehab. plan.
Mr. Ose. Is that a function of the actual--if there is a
settlement, is that a function of the actual settlement talks
or is that a legally defined----
Mr. Green. It is legally defined.
Mr. Ose. OK. So there is no discretion, if you will?
Mr. Green. Yes, I don't believe the Commissioner has any
discretion. If, for example, tomorrow we sat down and the
defendants said, ``We'll write you a check for `X','' I don't
believe the Commissioner has any discretion except to put that
into the ELIC estate and have it paid out pursuant to the
combination of the Insurance Code and the rehab. plan. That
would be done with notice to the liquidation court, which is
the Los Angeles County Superior Court.
Mr. Ose. All right, now we have invited a number of people
here, as we invited you. You all came; some didn't. I will tell
you I am somewhat disappointed that those didn't. Had they come
and the people would come, the person who was the elected
Insurance Commissioner then, the Department of Justice, or the
person representing ostensibly the French government, we would
have asked them a number of questions, such as:
How long does it usually take for the Department of Justice
to approve the request of a career prosecutor to move forward
on a case, and whether 2 years is an above-average length of
time for that or below average or an average average? Does the
Department of Justice take into account that statutes of
limitations may run out while it is pondering its decision?
That is a very real concern. Is it a normal activity for a
foreign government to lobby the U.S. Government on criminal
cases pending before the Department, and if so, what rules
apply?
I hope to ask these questions at some point in the future,
and I know you guys can't respond because you are not the
subject of the questions.
I appreciate the fact that you all came down here. We may
very well have additional hearings on this matter because there
is a ton of money involved and a ton of people, and they have
just gotten hammered. If somebody on the other side of this
just wants to give us our money back, then maybe we won't have
hearings, but we are going to shine light on this until we get
a satisfactory resolution.
We have the typical practice here at this committee of
following up with our witnesses with written questions. We are
going to do that. Given the passage of time, we are going to go
ahead and end this hearing, but we do have written questions we
will forward to you. We would appreciate timely responses. The
record will stay open for 2 weeks for that purpose.
With that, we are going to wrap up. Gentlemen, we thank you
very much. We thank you for coming. We appreciate your input.
This hearing is adjourned.
[Whereupon, at 2:05 p.m., the committee was adjourned, to
reconvene at the call of the Chair.]
[The prepared statement of Hon. Henry A. Waxman, additional
information submitted for the record, and the complete set of
exhibits referred to follow:]
[GRAPHIC] [TIFF OMITTED] T3976.043
[GRAPHIC] [TIFF OMITTED] T3976.044
[GRAPHIC] [TIFF OMITTED] T3976.045
[GRAPHIC] [TIFF OMITTED] T3976.046
[GRAPHIC] [TIFF OMITTED] T3976.047
[GRAPHIC] [TIFF OMITTED] T3976.048
[GRAPHIC] [TIFF OMITTED] T3976.049
[GRAPHIC] [TIFF OMITTED] T3976.050
[GRAPHIC] [TIFF OMITTED] T3976.051
[GRAPHIC] [TIFF OMITTED] T3976.052
[GRAPHIC] [TIFF OMITTED] T3976.053
[GRAPHIC] [TIFF OMITTED] T3976.054
[GRAPHIC] [TIFF OMITTED] T3976.055
[GRAPHIC] [TIFF OMITTED] T3976.056
[GRAPHIC] [TIFF OMITTED] T3976.057
[GRAPHIC] [TIFF OMITTED] T3976.058
[GRAPHIC] [TIFF OMITTED] T3976.059
[GRAPHIC] [TIFF OMITTED] T3976.060
[GRAPHIC] [TIFF OMITTED] T3976.061
[GRAPHIC] [TIFF OMITTED] T3976.062
[GRAPHIC] [TIFF OMITTED] T3976.063
[GRAPHIC] [TIFF OMITTED] T3976.064
[GRAPHIC] [TIFF OMITTED] T3976.065
[GRAPHIC] [TIFF OMITTED] T3976.066
[GRAPHIC] [TIFF OMITTED] T3976.067
[GRAPHIC] [TIFF OMITTED] T3976.068
[GRAPHIC] [TIFF OMITTED] T3976.069
[GRAPHIC] [TIFF OMITTED] T3976.070
[GRAPHIC] [TIFF OMITTED] T3976.071
[GRAPHIC] [TIFF OMITTED] T3976.072
[GRAPHIC] [TIFF OMITTED] T3976.073
[GRAPHIC] [TIFF OMITTED] T3976.074
[GRAPHIC] [TIFF OMITTED] T3976.075
[GRAPHIC] [TIFF OMITTED] T3976.076
[GRAPHIC] [TIFF OMITTED] T3976.077
[GRAPHIC] [TIFF OMITTED] T3976.078
[GRAPHIC] [TIFF OMITTED] T3976.079
[GRAPHIC] [TIFF OMITTED] T3976.080
[GRAPHIC] [TIFF OMITTED] T3976.081
[GRAPHIC] [TIFF OMITTED] T3976.082
[GRAPHIC] [TIFF OMITTED] T3976.083
[GRAPHIC] [TIFF OMITTED] T3976.084
[GRAPHIC] [TIFF OMITTED] T3976.085
[GRAPHIC] [TIFF OMITTED] T3976.086
[GRAPHIC] [TIFF OMITTED] T3976.087
[GRAPHIC] [TIFF OMITTED] T3976.088
[GRAPHIC] [TIFF OMITTED] T3976.089
[GRAPHIC] [TIFF OMITTED] T3976.090
[GRAPHIC] [TIFF OMITTED] T3976.091
[GRAPHIC] [TIFF OMITTED] T3976.092
[GRAPHIC] [TIFF OMITTED] T3976.093
[GRAPHIC] [TIFF OMITTED] T3976.094
[GRAPHIC] [TIFF OMITTED] T3976.095
[GRAPHIC] [TIFF OMITTED] T3976.096
[GRAPHIC] [TIFF OMITTED] T3976.097
[GRAPHIC] [TIFF OMITTED] T3976.098
[GRAPHIC] [TIFF OMITTED] T3976.099
[GRAPHIC] [TIFF OMITTED] T3976.100
[GRAPHIC] [TIFF OMITTED] T3976.101
[GRAPHIC] [TIFF OMITTED] T3976.102
[GRAPHIC] [TIFF OMITTED] T3976.103
[GRAPHIC] [TIFF OMITTED] T3976.104
[GRAPHIC] [TIFF OMITTED] T3976.105
[GRAPHIC] [TIFF OMITTED] T3976.106
[GRAPHIC] [TIFF OMITTED] T3976.107
[GRAPHIC] [TIFF OMITTED] T3976.108
[GRAPHIC] [TIFF OMITTED] T3976.109
[GRAPHIC] [TIFF OMITTED] T3976.110
[GRAPHIC] [TIFF OMITTED] T3976.111
[GRAPHIC] [TIFF OMITTED] T3976.112
[GRAPHIC] [TIFF OMITTED] T3976.113
[GRAPHIC] [TIFF OMITTED] T3976.114
[GRAPHIC] [TIFF OMITTED] T3976.115
[GRAPHIC] [TIFF OMITTED] T3976.116
[GRAPHIC] [TIFF OMITTED] T3976.117
[GRAPHIC] [TIFF OMITTED] T3976.118
[GRAPHIC] [TIFF OMITTED] T3976.119
[GRAPHIC] [TIFF OMITTED] T3976.120
[GRAPHIC] [TIFF OMITTED] T3976.121
[GRAPHIC] [TIFF OMITTED] T3976.122
[GRAPHIC] [TIFF OMITTED] T3976.123
[GRAPHIC] [TIFF OMITTED] T3976.124
[GRAPHIC] [TIFF OMITTED] T3976.125
[GRAPHIC] [TIFF OMITTED] T3976.126
[GRAPHIC] [TIFF OMITTED] T3976.127
[GRAPHIC] [TIFF OMITTED] T3976.128
[GRAPHIC] [TIFF OMITTED] T3976.129
[GRAPHIC] [TIFF OMITTED] T3976.130
[GRAPHIC] [TIFF OMITTED] T3976.131
[GRAPHIC] [TIFF OMITTED] T3976.132
[GRAPHIC] [TIFF OMITTED] T3976.133
[GRAPHIC] [TIFF OMITTED] T3976.134
[GRAPHIC] [TIFF OMITTED] T3976.135
[GRAPHIC] [TIFF OMITTED] T3976.136
[GRAPHIC] [TIFF OMITTED] T3976.137
[GRAPHIC] [TIFF OMITTED] T3976.138
[GRAPHIC] [TIFF OMITTED] T3976.139
[GRAPHIC] [TIFF OMITTED] T3976.140
[GRAPHIC] [TIFF OMITTED] T3976.141
[GRAPHIC] [TIFF OMITTED] T3976.142
[GRAPHIC] [TIFF OMITTED] T3976.143
[GRAPHIC] [TIFF OMITTED] T3976.144
[GRAPHIC] [TIFF OMITTED] T3976.145
[GRAPHIC] [TIFF OMITTED] T3976.146
[GRAPHIC] [TIFF OMITTED] T3976.147
[GRAPHIC] [TIFF OMITTED] T3976.148
[GRAPHIC] [TIFF OMITTED] T3976.149
[GRAPHIC] [TIFF OMITTED] T3976.150
[GRAPHIC] [TIFF OMITTED] T3976.151
[GRAPHIC] [TIFF OMITTED] T3976.152
[GRAPHIC] [TIFF OMITTED] T3976.153
[GRAPHIC] [TIFF OMITTED] T3976.154
[GRAPHIC] [TIFF OMITTED] T3976.155
[GRAPHIC] [TIFF OMITTED] T3976.156
[GRAPHIC] [TIFF OMITTED] T3976.157
[GRAPHIC] [TIFF OMITTED] T3976.158
[GRAPHIC] [TIFF OMITTED] T3976.159
[GRAPHIC] [TIFF OMITTED] T3976.160
[GRAPHIC] [TIFF OMITTED] T3976.161
[GRAPHIC] [TIFF OMITTED] T3976.162
[GRAPHIC] [TIFF OMITTED] T3976.163
[GRAPHIC] [TIFF OMITTED] T3976.164
[GRAPHIC] [TIFF OMITTED] T3976.165
[GRAPHIC] [TIFF OMITTED] T3976.166
[GRAPHIC] [TIFF OMITTED] T3976.167
[GRAPHIC] [TIFF OMITTED] T3976.168
[GRAPHIC] [TIFF OMITTED] T3976.169
[GRAPHIC] [TIFF OMITTED] T3976.170
[GRAPHIC] [TIFF OMITTED] T3976.171
[GRAPHIC] [TIFF OMITTED] T3976.172
[GRAPHIC] [TIFF OMITTED] T3976.173
[GRAPHIC] [TIFF OMITTED] T3976.174
[GRAPHIC] [TIFF OMITTED] T3976.175
[GRAPHIC] [TIFF OMITTED] T3976.176
[GRAPHIC] [TIFF OMITTED] T3976.177
[GRAPHIC] [TIFF OMITTED] T3976.178
[GRAPHIC] [TIFF OMITTED] T3976.179