In early-December 2007, Eric Rabinowitz got a call from the New York Liquidation Bureau (NYLB), an obscure state regulatory agency charged with managing insurance companies in receivership. Eric was invited to a press conference with New York’s then-Governor Eliot Spitzer. Unbeknownst to Eric, the structured settlement that he has relied on for years was in jeopardy, but thanks to an agreement by Spitzer, the NYLB, guaranty associations, and life insurers, Eric would be protected.
A town car picked up Eric for the press conference. Spitzer announced that the NYLB had identified a shortfall with the Executive Life Insurance Company of New York (ELNY), which had been in receivership by the NYLB since 1991. Without the deal, beneficiaries, like Eric, would face cuts in the benefits they had been guaranteed. Eric was called to the podium. He told his story.
In 1969, when he was only one year old, a doctor performed a surgery to correct Eric’s congenital cataracts. The doctor left lens material in his right eye, and soon that eye was totally blind. Eric’s parents would later sue, and they won a verdict. In order to avoid appeal from the doctor’s malpractice insurer, a judge advised Eric’s parents accept a structured settlement annuity. This would guarantee payments made for the rest of Eric’s life to compensate for his medical costs and some living expenses. They agreed. And while Eric’s poor vision impairs his ability to read or see beyond a few feet in front of him, the settlement has helped to support Eric.
At the press conference, Eric explained that he had no idea ELNY was in trouble, but he was grateful that action had been taken so that he and 11,000 other disabled and dependent individuals would receive the money they were promised.
And so Eric never thought anything more of it.
But today, Eric and 1,500 others face financial disaster, as New York regulators under Gov. Andrew Cuomo liquidated ELNY and instituted cuts of 50% or more in structured settlement payments. Many beneficiaries cannot fund their basic living needs. A severely injured construction worker has already been forced to sell his home.
So what happened? People like Eric understandably want answers, but Gov. Cuomo isn’t offering much. And the insurance industry, which in 2007 worked in good faith to stand behind the policies, is saying even less.
Flash forward just four years to December 2011. As the holidays were fast approaching, Eric received what he says was a “benign looking envelope.” No special markings on it. It looked like junk mail. Inside, he found a letter informing him his benefits were being cut by 55 percent. The letter blamed the economic downturn, though in truth the cut was more closely related to 20 years of financial malpractice by the NYLB. The letter also informed Eric that he had one month to find an attorney to represent him at a hearing regarding his benefits. This was a near impossible task over the holidays.
To make matters worse, other victims tell InsideSources that while the letter provided a phone number to call for more information, it would take a dozen tries to reach a live person. But upon reaching someone, that person would have no information and would simply advise to keep calling back. Of course, this was a useful stalling tactic ahead of the fast-approaching hearing at which the beneficiaries would need to file their objections.
Perhaps even more questionable than the timing and appearance of the letter was that Benjamin Lawsky, who heads New York’s Department of Financial Services (DFS) and oversees the NYLB, would represent Eric and other beneficiaries at the hearing if they were unable to obtain counsel. Edward Stone, an attorney who represents some of the shortfall beneficiaries, called Lawsky’s role a “fatal conflict of interest.” Eric was ultimately able to obtain counsel, but many of the victims were left to be represented by Lawsky, who served as both regulator and receiver. Essentially, if Lawsky were to take any action on behalf of the slighted beneficiaries, he would be taking action against himself.
This was but one more injustice in the corruption-plagued mismanagement of ELNY. It is a case that takes place over more than 20 years, and it goes full circle, father to son. Mario Cuomo served as New York’s Governor when ELNY was taken into receivership, and Andrew Cuomo is ultimately blamed by the beneficiaries for tossing out the agreement reached under Spitzer’s administration.
The fundamentals of the story are that First Executive Corporation (FEC) was the parent company to ELNY and Executive Life Insurance Company of California (ELIC). In the 1980s, the two sister companies sold structured settlement annuities and then invested that money in junk bonds sold by the infamous Michael Milken. While the bonds were earning high yields at the time, they were the type of assets generally considered too risky as investments for insurance companies.
Additionally, ELNY and ELIC were selling a lot of policies because they could undercut the price of their competitors due to the yields on the junk bonds. In most cases, the beneficiaries knew very little about ELNY or ELIC. Annuities were typically purchased by those who paid for the annuity rather than the beneficiaries. The cost of the annuity was not disclosed to plaintiffs, and it was presented as take-it-or-leave-it. In many cases, policies were sold in states where ELNY could not legally sell insurance. This occurred because Ringler Associates and (what is now) EPS Settlements were hired as consultants and paid undisclosed commissions to sell policies to those unaware of whether ELNY could do business in their states.
When the junk bond market collapsed in 1986, FEC was the world’s largest holder. The company imploded. ELNY and ELIC faced two very different fates. Beginning in 1991, California put ELIC into conservation and then would later liquidate the company. The process took about three years. But in New York, ELNY was taken into receivership in 1991 under Mario Cuomo’s administration. At the time, ELNY was not actually insolvent. In fact, Cuomo’s Superintendent of Insurance testified before Congress to this point. ELNY was taken into receivership because of concerns the publicity of California’s action would lead to surrenders of ELNY annuities. But ELNY would ultimately become insolvent because of the state’s mismanagement of the company.
The task of ELNY’s rehabilitation fell to the NYLB, with its head appointed by Cuomo’s Superintendent of Insurance. While ELNY’s most-valuable policies were sold to Met Life, the NYLB kept its $3 billion structured settlement portfolio. This deal with Met Life, according to several sources, allowed the insurer to raid valuable assets held by ELNY that otherwise could have brought it back to health. The remaining structured settlement portfolio was then mismanaged for over 20 years. And under New York law, the NYLB faced little to no scrutiny for how it used ELNY’s funds. Among the many mistakes made, the NYLB, working with Credit Suisse, invested in low-grade bonds. Worse: as much as 40% of ELNY’s assets were in stocks, which is double what most insurance companies are permitted. It suffered a loss of $100 million when the dotcom bubble burst.
Additionally, it has been reported that the NYLB is rife with corruption, with cover ups of accounting and staff apparently loaning itself money out of the funds NYLB oversees. Jobs were handed out to the politically-connected, and there was virtually no transparency or accountability.
Under Spitzer’s administration, changes were initiated for the NYLB. Long-time staffers were fired, and the Bureau was audited. Annual reports are now given to the state legislature and New York’s Department of Financial Services, which oversees the NYLB. These reports still remain obscure and of limited value. Real reform is lacking.
The changes made under Spitzer and Eric Dinallo, who Spitzer appointed Superintendent of Insurance, ultimately led to the agreement for which Eric Rabinowitz was summoned to the press conference. The deal created layers of payment guaranty so that beneficiaries would receive their full benefits from a combination of several pools of money. This included ELNY’s assets plus guaranty funds from New York and other states, along with money provided by a number of insurance companies. These insurers, while not liable for helping to bail out ELNY, had an interest in making sure the beneficiaries received their payments. Trust that insurance is guaranteed is essential to the industry’s continued business.
Frank Keating, president and CEO of the American Council of Life Insurers (ACLI), which advocated for the deal, stated at the time: “The Liquidation Bureau has developed a solid plan to respond to the financial challenges facing the ELNY estate in rehabilitation. Working through the New York Life and Health Guaranty association, other individual state guaranty associations and the National Organization of Life and Health Guaranty Associations, life insurers are prepared to help ensure ELNY annuitants continue to receive their steady streams of lifetime income.”
For his part, Governor Spitzer felt a good deal had been made. “This is a remarkable example of how public agencies can aggressively pursue resolutions for the public good rather than ignoring problems for future administrations to address,” he said.
So what happened that caused Eric Rabinowitz and 1,500 other beneficiaries to lose their benefits?
It’s a secret.
Just a few months after the press conference, Spitzer resigned in disgrace as a result of a prostitution scandal. David Paterson would complete the rest of Spitzer’s term, and Andrew Cuomo was elected in 2010. This is when things went south for the beneficiaries.
Cuomo appointed Benjamin Lawsky to head the Department of Financial Services. Under Lawsky, along with NYLB Superintendent Jonathan Bing, the 2007 deal seems to have fallen apart. Lawsky and Bing then made the decision that the ELNY saga had gone on long enough. ELNY would be liquidated.
Lawsky has forced those knowledgeable of what happened with the 2007 deal to sign confidentiality agreements. He has also taken legal action against the beneficiaries and their lawyers, who are seeking to investigate why their money was taken away from them.
In liquidating ELNY, it was clear that 1,500 beneficiaries would face substantial cuts to their benefits. Without the layer cake of guarantees in the 2007 deal, beneficiaries would lose out. One of the key shortfalls is that guaranty associations in states where ELNY was not authorized to do business will not contribute as much to beneficiaries as they deserve. Cuomo and Lawsky could have worked to find a solution to this problem, or the entire shortfall could have been covered by the revenues DFS brings in annually from fines to insurers and other financial companies. Cuomo and Lawsky did neither.
Making matters worse for the beneficiaries, they were given little recourse. They had almost no warning of the cuts or their opportunity to object. The hearing was held at the Nassau County Courthouse on Long Island rather than in Manhattan, which would have been far more convenient for beneficiaries. Nassau also had the disadvantage to beneficiaries that it is unaccustomed to dealing with insurance insolvencies. Courts in Manhattan would have such experience and would have been friendlier to the beneficiaries. A lawyer knowledgeable of the case believes this decision was made intentionally to quickly get court approval of a suspect plan. If so, that plan worked.
Not only did the court approve the liquidation, but Lawsky called for the beneficiaries and their lawyers to be held in contempt of court, punishable by fine or imprisonment, for seeking legal recourse in federal court. New York Judge John Galasso, who also was responsible for approving the liquidation, abided by Lawsky’s contempt motion and threatened further action even though this would appear to go against precedent set by the US Supreme Court.
InsideSources contacted representatives of Gov. Cuomo and Mr. Lawsky, but they did not respond to multiple requests for comment on what happened to the 2007 deal and why they have taken steps to keep this a secret. InsideSources also asked whether Lawsky’s role as receiver and regulator presented a conflict of interest and if any steps were taken to address potential conflicts. Again, no response. And why were beneficiaries given little notice of the benefit cuts prior to the hearing? Cuomo and Lawsky offered no response.
Now, nearly three years later, the beneficiaries’ hope to appeal, but their benefits have been slashed.
And sadly, many of these beneficiaries are entirely dependent upon these payments.
Tim Culhane was a journeyman ironworker working on the Vista International Hotel in the World Trade Center complex. On March 4, 1980, an accident caused him to fall seven stories. He spent months in the hospital. He would eventually reach an out-of-court settlement for a structured settlement annuity from ELNY that would support him for the rest of his life. Tim has no way to earn a living because of his injuries. But his payments have now dropped by 52%.
In a statement to InsideSources, Tim writes, “The people that were part of the rehabilitation failed miserably. I am wondering how this could happen when my settlement was guaranteed and insured. As I have gotten older, it became harder and harder for me to walk at all and sit for any length of time. I paid a large price, and now the Superintendent of New York Insurance wants me to pay another price for something that was not my fault.”
Tim was forced to sell his home for fear of not being able to pay his bills.
The blame, according to a number of the beneficiaries, ultimately falls on Cuomo for his appointment of Lawsky and his failing to act to help the victims.
“I don’t understand why Andrew Cuomo couldn’t pick up where Eliot Spitzer left off,” said Eric Rabinowitz in an interview with InsideSources. “The buck stops with Cuomo.”
Eric notes that the state collects fines from banks and insurance companies that would allow the beneficiaries to be made whole without spending any tax dollars. “[Cuomo’s] got the power. He’s got the pen. He could put legislation on the table right away, and here in New York State, it would be a great issue for everyone to work together and help the handicapped.”
Some sources see hope for action in Congress.
Several recent op-eds have called on Congress to act. Suzanne Dunn-Bradford received a structured settlement from ELNY when her husband was killed in a car accident and she was left to raise their three daughters. In a statement sent to InsideSources, she explains her payments were cut by 59 percent. She wrote for The Hill in October: “Congress surely never counted that the system it set up to help innocent people would instead ruin their lives while enriching outside consultants. It is time for Congress to investigate!” She notes that this is not a partisan issue, and she hopes Sens. Chuck Grassley (R-IA), John Cornyn (R-TX), and Elizabeth Warren (D-MA) will investigate. Or she suggests this could be a case for Rep. James Langevin (D-RI), who himself is a paraplegic that received a structured settlement after a spinal injury.
Reggie Kelly, the victim of a motorcycle accident that left him permanently disabled, recently wrote in the Alaska Dispatch News to urge lawmakers to act: “Sen. Lisa Murkowski and Rep. Don Young are powerful, experienced legislators. Senator-elect Dan Sullivan is a former attorney general who understands the importance of protecting innocent victims of financial misdeeds. All three have the power to demand answers from the structured settlement consultants who took Congress’ good idea and collected huge, undisclosed fees while creating a financial disaster that has ruined so many lives.”
Eric Rabinowitz is hoping Congress listens. He says, “If there were an opportunity to tell my story and help the 1,500 people who are in my position, I would have no problem going in front of Congress. And tell my story. And let them know how badly we’ve been hurt. And let them know how great it would be if we can get together and make this happen.”
InsideSources reached out to several of the Senate and Congressional offices the victims hoped would act on their behalf. None seemed inclined to investigate.
One positive development for the beneficiaries came earlier this month when a magistrate in Oregon refused to dismiss a lawsuit filed against Ringler Associates for selling policies in states where ELNY was not authorized to do business. Ringler, the country’s largest structured settlement company, is fighting the suit.
InsideSources reached out to Ringler. A representative for Ringler declined to comment on the case, Ringler’s role in selling the policies, and whether Ringler would take any action to help the victims. Ringler encouraged InsideSources to reach out to the National Structured Settlement Trade Association. As of publication, no response has been received.
As for whether Gov. Cuomo may act to help the beneficiaries hurt directly as a result of the actions by his administration—that currently seems unlikely. Requests for comment were not returned from Cuomo, Lawsky, or Bing.
Sources speculate Cuomo’s interest has been to bring a quick end to this saga that has as its root cause the decision by his father’s administration to have a fire sale of ELNY’s most-valuable assets and hand the remaining annuities to a corrupt state agency.
For now, the beneficiaries are left to live on a fraction of the money they relied on. The actions of Cuomo and Lawsky remain a secret.
For those interested in learning more, LifeHealthPro has a comprehensive and well-researched history of the ELNY Saga. Their thorough investigation was frequently referenced by the primary sources cited in this article.
