State Audit Confirms $1.1 Billion Secured for Executive Life Policyholders

October 20, 2006

  • October 20, 2006 at 3:27 am
    Quackamendi should have fun says:
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    Gee, Quackamendi should have fun with this one now that he wants to be Lt. Gov. Hope the unsuspecting public will see through it.

  • October 20, 2006 at 4:55 am
    compman says:
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    Does it really surprise anybody that Quackamendi would toot his own horn over this? If people would realize, that if he hadn\’t screwed this up to begin with, there wouldn\’t have been any additional \”expenditures\” needed. What the article headline should read is \”Quackamendi partially fixes his screwup with EL from before but not until after spending millions to fix it\”

  • October 20, 2006 at 5:07 am
    Maureen Marr says:
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    Response from ELIC policyholder organizer to Garamendi\’s press release:

    The California State Auditor’s report is fundamentally incomplete:

    Key findings:

    1. Information unavailable to the auditor to determine policyholder losses.

    “The data needed to determine how much money policyholders have received and are yet to receive, the percentage of policyholders who have recovered their entire investment, and the percentage of loss to ELIC policyholders…resides with Aurora…ELIC’s successor.” This information is unavailable to the auditor at present.

    ELIC policyholders have repeatedly requested to know how much of the sale of the assets over the years has been returned to the insurance companies who make up the state guaranty funds. Policyholders still don’t know. The CA Dept. of Insurance includes distributions to these insurance companies when it talks about how much they have “distributed to policyholders.” It has been estimated that 75% of the state guaranty funds’ obligations are or will be recovered by these insurance companies out of the ELIC estate. The Commissioner and his staff say they don’t know how much the state guaranty funds have recovered from the ELIC estate!

    The state guaranty funds are taking the department to arbitration this month to seize another $256M of the recent litigation funds, even though their court approved contract said they agreed not to take funds until policyholders are made whole. They’ve already received $46 million from the litigation.

    2. The Auditor’s recitation of Executive Life’s history and financial status is fiction and is based on Commissioner Garamendi’s Chief Deputy’s report:

    The auditor’s report is based on a false premise. It begins with a recitation of the Executive Life Insurance Co. saga at the time that Commissioner John Garamendi seized it, based on Chief Deputy Insurance Commissioner Rick Baum’s report. Though the Commissioner’s staff and attorneys repeatedly testified in court over the years that they never did a bond by bond analysis of the now famous ELIC junk bond portfolio, the auditor now quotes Baum’s report as saying “…according to the department’s analysis the portfolio’s market value was closer to $3.5 billion or $4 billion.”

    We call on Commissioner Garamendi to release the Department’s own 1990 triennial audit, completed days before he seized ELIC â€â€Ŕ and never filed — which showed that the Department put a $6.6 billion value on the portfolio, though they sold it for $3 billion. (The triennial audit’s finding is similar to the 1990 finding of the portfolio’s worth by the National Association of Insurance Commissioners (NAIC)). And we call on the Commissioner to release the Salomon Brothers report which he commissioned in 1991 to value the bonds and which showed a much higher valuation than Mr. Baum is now claiming. These documents languish in a Department of Insurance San Leandro warehouse. The state auditor surely never saw them.

    Commissioner Garamendi has hidden the truth about the more than $4 billion loss he’s caused 360,000 ELIC. These were the cash values and policy benefits; many lives were ruined. This is not a 15 year old issue: thousands of policyholders are stuck with these policies which they can’t surrender. Their losses are amplified with every reduced benefit check they receive.

    We call on Commissioner Garamendi to release the 2001 forensic accounting of policyholders’ losses, which he is also hiding. We’ve sent public record act requests to him without success to obtain this report. His own attorney, Gary Fontana, confirmed in 2005 that their losses are “…upward of $4.5 billion.”

    3. Auditor says Commissioner’s outside counsel fees “were reasonable.”

    Commissioner Garamendi set aside $110 million for attorney’s fees and costs in the recent fraud litigation, approximately 1/3 of his civil recoveries. He inflates his recoveries for policyholders by including nearly $500 million that was part of the U.S. Attorney’s criminal settlement in 2005! The department was merely a pass through for those recoveries.

    Commissioner Garamendi’s outside counsel, Gary Fontana, boasted that he received $54 million.

    The auditor says, regarding the CLO’s recordkeeping, “…we were unable to rely on the CLO’s general ledger because of the internal control weaknesses identified by the Department of Finance” (pg. 17).

    I leave any thinking person to his or her own conclusion as to what’s “reasonable.”

    Additional information may be available after a closer examination of todays’ release of some audit information. It is my opinion after following the Executive Life saga for 15 years, in and out of the courtroom, that the story is of scandal proportions. Commissioner Garamendi’s role in it has yet to be told. It will be.

  • October 20, 2006 at 5:10 am
    Maureen Marr says:
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    Dan Walters: Garamendi skates in state audit
    By Dan Walters â€â€Ŕ Sacramento Bee columnist
    Published 12:00 am PDT Friday, October 20, 2006
    When the state auditor\’s office released its long-awaited examination of Insurance Commissioner John Garamendi\’s 1991 seizure and sale of Executive Life Insurance Co. on Thursday, Garamendi\’s office immediately declared that the audit \”confirms that appropriate actions have been taken on behalf of policyholders who were harmed by the company\’s failure. …\”
    Not quite. The audit neither supports Democrat Garamendi\’s long-standing defense of how he handled the case, nor gives Tom McClintock, Garamendi\’s Republican opponent for lieutenant governor, any new ammunition.
    The auditor, in fact, only superficially examined how Garamendi and the Department of Insurance dealt with Executive Life, the largest insurance company liquidation in U.S. history, and totally ignored the most important issue: whether Garamendi\’s hasty sale to a group of French investors undervalued the company\’s portfolio of junk bonds by several billion dollars.
    Although the buyers turned out to be illegal fronts for a French bank — which Garamendi claims he didn\’t know when he sold the company and its assets — it\’s the price he received, some $3 billion, that\’s the chief source of friction between him and a militant group of policyholders who contend the sale cheated them out of pension and annuity income.
    Garamendi claimed at the time that his seizure and sale were positive actions that would protect 300,000 policyholders, but later, when he was suing the French buyers, his lawyer claimed that policyholders had been cheated out of $4.5 billion — contradictory positions that frame the case\’s most fundamental aspect. The policyholders have contended that Garamendi, in his haste to complete the sale and enhance his political image, ignored authoritative advice on the intrinsic value of the corporate junk bond portfolio that corporate finance guru Michael Milken and his associates had assembled.
    One of those associates, Leon Black, was, by all accounts, the pivotal figure in brokering the seizure and sale to the French group, and his private investment firm garnered a reported $1 billion windfall profit as part of the deal. Others involved earned billions more when the junk bonds were resold.
    The state auditor\’s office, however, didn\’t delve into any of the details of the seizure and sale, and concentrated, instead, on the technicalities of what happened later. Nor could the auditors even pinpoint the ultimate effects on policyholders, saying they needed more data from the insurance company that assumed responsibility for policies after the sale.
    Maureen Marr, who runs the policyholder group, is calling for the release of documents held by the Department of Insurance and the Department of Justice that she believes will prove her contention that Garamendi peddled the company for billions of dollars less than its true value. \”We believe that the story hasn\’t yet been told as to Commissioner Garamendi\’s sale of Executive Life\’s junk bond portfolio, which created fortunes for others,\” Marr said.
    Marr and other critics of the Executive Life deal had pressed for the audit, and state Sen. Jackie Speier, who at the time was running against Garamendi for the Democratic nomination for lieutenant governor, persuaded the Legislature\’s audit committee to commission it.
    McClintock, also a state senator, has picked up where Speier left off in trying to make the case a campaign issue. One anti-Garamendi television ad features two policyholders who lost their home, condemning Garamendi for shorting policyholders. \”John Garamendi didn\’t protect us,\” the couple declare. \”How can you trust him to protect you?\”
    Although Garamendi enjoyed an early lead over McClintock, the most recent polls indicate that the two are now running neck and neck.

  • October 20, 2006 at 5:48 am
    Compman says:
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    Keep up the good work Maureen. I hadn\’t followed the EL debaccle with the fortitude that you have, but I knew Quackamendi was dirty. Now, I know how dirty.

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