Joy, as far as AIG is concerned and there ability to write the tough, hard to place risks will still hold true in the end. A number of their subsidiaries will probably need to be spun off (i.e. National Union, etc.) to maintain the company’s credibility and most have the ability to maintain a significiant book of business and assume the risks/rating needed to do so. The most unfortunate thing about this is that AIG does insure so many specific classes of business where no one else does, that the PR control will have to come from the agents who will be defending them. I wonder if Spitzer will aid the independent agency system in this position. Some of his comments have been directed in to this area.
I don’t think Spitzer thinks Hank broke the law or there would have already been a purp walk.
As for being a bad guy, you are talking about a war veteran who has given and raised millions for good causes.
As for AIG being bad for the industry, if you removed all of the insurance industry leadership that came through AIG you wouldn’t have much of a P&C industry.
I’m not enamoured by wealth, but I remain enamoured with substantial accomplishments both in business and philanthropy.
This is sweet and way past its time. AIG is generally despised by insureds and brokers alike for their business practices, especially when it comes to claims handling.
Now I see why Greenberg transferred the $2Billion in stock to his wife….to pay for his defense! These are the folks that give the rest of law abiding agents a bad name. How much more money can this guy want? Greed is a very strong Aphrodisiac.
The stuff the old man and his cronies were pulling with the offshore deals is done by every company I ever represented during the 33 years I was in the insurance business. While an independent contractor, I was one of the largesat producers of life insurance in the us for twenty years and those top guys at most the companies owned off shore reinsurance companies that siphoned off profits, they sold insurance from one subsidiary to another making sales look much larger than they were…they surrounded themselves with lawyers, over paid them and their sole job was to protect themselves, not the policyholders….I could go on and on but it was a joke and still is for those who know…i personally know a dozen people that have tried to reach the ny attorney general and can’t get thru…how does the man expect to learn anything…when congress holds hearings…people like me are never invitied but the ones that are perpatrating the fraud…..
There are miles of hard road between:
>inditement and conviction
>industry shame and rebuilding
>good people tarnished and retribution
>embaracement and holding your head up
>doubt and trust
>fraud and integrity
>greed and fair return
>character lost and found
Hank and the other US industry mogals are showing us that rich cheeters walk a different road than poor cheeters. Its a long and hard road for the rest of us to prove their crimes and overcome their mendacity.
Everybody, let’s not get bent out of shape over the Civil suit. The allegations are such that it would apear, eventually, it will be found out that they have lied to regulators on the filing of their yellow perils; lied to the SEC in their 10K’s and filed fraudulent tax returns with the IRS, which would undoubtedly justify turning this into a Justice Department matter.
What is facinating, it the potential for a dooms day scenario, which would drive their reserves under say $12 billion against a net written, if you can believe it of over $35 billion, you do the math.
Echos of Houston, TX. In that scandal, people lost their livelihood and in many cases all of their assets. The American business community took serious hit with global implications. And don’t forget how it impacted California energy consumers. Greedy executives must learn that their inflating stock prices is like taking viagra. Pretty soon it wears off you cannot disguise your size or value. Nevermind that your reputation is only as good as long as it lasts. Inappropriate analogy, yes. Action against those responsible is a civil duty and a necessary to the full power of the law. Where the interest is to protect the American economy, its citizenry and its standing in the international community we should be mama bear. The deliberate actions and their consequences, at this level, must to be reckoned with. Until these executives are criminally convicted, I’m afraid it does create the appearance of a diluted prosecution. If we rely so heavily on the international reinsurance infrastructure as we do in the U.S, this scandal may erode those ties and contracts going forward. Shaken confidence in companies like AIG with its pears and international ties does not end t here. Those ties are absolutely critical to the entire insurance community. And with dimished earning potential for U.S. domestic carriers comes stock market implications, with resulting hit to the average investor, directly and indirectly, is impossible to estimate. But we do have some clear evidence from Houston of its costs.
Sorry to say but the Evil Empire will not be taken down any time soon. All you wishful thinking axe grinders are going to be sorely disappointed. There will be fines levied & paid, and continued bad press for awhile, but eventually it will pass and all you mealy mouthed complainers will have to find some other evil doer to whine about.
It is fine to say that a corporation through its officers and directors committed criminal misconduct. However to allow only civil damages, which may be returned to customers makes violating a criminal statute meaningless.
If a bankrobber steals mere thousands of dollars from a bank, should he be able to pay back the amount stollen in only the bank robbery that was proved and not do any jail time? What about all the other banks that he robbed before he got caught?
Where is the harm to the public itself to be compensated? When the entire industry is brought into a bad light by persons committing crimes everyone has suffered, not just the customers involved. When these people use practices that are illegal and beat out legitimate enterprises by illegal means everyone in those legitimate enterprises is harmed.
I wouldn’t go overboard on comparing this to Enron. If you asked people on the street what Enron did as a business entity 99% would not really know. AIG is more about “smooth” earnings growth and not getting screwed by the various state Guaranty Funds. For example a state like California goes to open WC rating, podunk carriers write business at rates where everyone knows they are going down the tubes. Carriers like Chubb, Hartford, AIG, St. Paul etc. complain but the Ins Dept does nothing and guess who ends up paying the claims the major carriers. Why wouldn’t they want to low ball their WC or whatever other coverages are involved to cut down their assessments due to incompentent state regulators.
Like most brokers I never liked doing business with AIG but I admired their ability to be successful, which had nothing to do with the issues that are under investigation. Does anyone think they did these things without getting some high priced legal talent giving them the ok.
On another point, doesn’t it bother some of you that some “mealy mouth rich kid” politician is going after someone that fought in two wars for this country. Do you think Spitzer would have been on the beaches at Normandy or would his family have gotten him some nice job in the Pentagon so he wouldn’t have get shot at, crawl around gunfire etc.?
Gee, what have we not already learned. We do not need socialism when people such as Mr. Spitzer can devalue companies by billions due to his remarks, grand standing, suits, etc.
Seems to me he is operating by using the lever of fear, and while I hold no quarter for what AIG execs have done, there must be other less devastating (to shareholders, including pensioners) ways to handle all of this
AIG did engage in some questionable transactions. This we all agree.
However,
I wonder who they hurt?
Manipulating profits is very easy to do by changing the assumptions used in calculating loss reserves.
AIG’s actions would have strengthened its stock price, but I do not believe they increased insurance prices. A case could in fact be made that they had a negative effect on price increases.
Reading through all the allegations, I don’t get where the “civil” part comes in. Since when does an A.G. sue an alleged criminal for compensation, rather than putting them away for what they’ve done?
For all of you who are saying “Gee, what he did isn’t so bad” or “This is just Spitzer grandstanding”, you’re just demonstrating that you, personally, have surrendered your morals. Hank Greenberg broke the law. He knew he was breaking the law. He knew others would be harmed because of his breaking the law. He didn’t care, because he was getting rich. Think about what you are saying about yourself when you defend this behavior.
Arguing that “everyone else is doing it” is a.) wrong (this industry is filled mostly with highly ethical people with sound morals, and some rotters like Hank) and b.) meaningless. I don’t care if anyone else is doing it – he broke the law!
And arguing that this is “just” grandstanding by Spitzer – well, Spitzer will make political mileage out of this to be sure. And it may be his primary (or only) motive. But so what? Hank broke the law!
Please do not be so enamoured of wealth that you feel any behavior is justified in the pursuit of wealth – I like to think our country (and our industry) has not sunk so low.
I agree with you in regards to AIG bouncing back. First off the charges against them have not even been proven and it will have to go in front of a Jury who must determine guilt. AIG is huge and the implications are not about reserves or the worry of them being met. When I read the article about AIG being taken over by the Dept of Insurance, then I will worry. I’m not saying what they did is right but my main concern is that my insureds are with a financially stable company. To this point I have not seen that.
By the way why did it take Spitzer to figure this out, and now Mills is jumping on the band wagon. Maybe Mills was paid to look the other way……. Makes you wonder, huh?
New York Attorney General Eliot Spitzer and State Insurance Superintendent Howard Mills announced a lawsuit against the nation’s largest business insurance company
a younger Hank would take the law suite
& deal with it
at the same time move all employyes to Conn or NJ
sell all NY real Estate
Move all Ins Coy to Non NY states
and delist AIG from NY stock exchange
and list on NASDAQ
Then New York & it’s public Officials
can deal with the loss of jobs erc.
The young Hank was not one that you would have fussed with
Sounds like he broke the law, but how do we know for sure? As far as morals are concerned in this industry, an attorney friend of mine was representing an agency that was being purchased by one of the big four brokers. The employment contract was going to have a “morals” clause in it, which he had removed. His comment was that if they were going to apply that clause they wouldn’t have many people on their payroll.
Ladies…Gentlemen. Think ALL of you may be missing the point. First it was Marsh Mac….now AIG. How does this “play” around the world, let along here at home? It is difficult enough to work within this industry, let alone, have to fight what the “international implications” of these actions are going to be. Let the courts take appropriate action and let all of US (in this increasingly corrupt industry) do OUR best to retain and/or reGAIN the trust of our insureds AND associations with the international insurance community.
I don’t know why all the big fuss. The whole industry has been doing what AIG is accused of doing for years. Spitzer has found his sacrificial lamb to the governorship and the rest of the industry will go back to “business as usual” as soon as it all blows over.
What AIG’s most senior management people did was much, much more than just a ‘disappointment’: it was illegal.
Who was hurt? Investors who paid more for AIG stock than it was really worth at a given point in time based on jacked-up results. Who was hurt? Our insurance industry which has been sullied by AIG’s activities. Who was hurt? Consumers because the data given to regulators was misleading and the rates were inflated.
My guess is that if you dig further into AIG’s business practices (including their claims handling practices), you would find plenty of things that hurt consumers. I think AIG was a participant with Marsh and other big brokers to fix prices and limit real competition.
My further guess is that some of Mr. Greenberg’s ‘successes’ overseas came as a result of ‘greasing the palms’ of certain officials, which would be a violation of the U.S. Foreign Corrupt Practices Act.
AIG was an ‘800’ pound guerilla who ran roughshod over the competition and used unethical business practices to advance themselves. Maybe before we annoint anyone in any industry an ‘icon’ we should first really examine how they conduct their business, how they treat their employees, how they treat their customers. Maybe we need to take a closer look to see if the corporation really was a good corporate citizen or just gave it lip service and few bucks.
Yes, it is all disappointing especially because it did not need to be this way.
Do ya’ll remember weeks ago when Hank Greenberg said his sons and him didn’t talk at all and had never talked about offshore companies and the other things…that was the truth and you know why….they don’t talk at all….those three birds haven’t spoken in fifteen years and everyone knows it in the industry….i’ve eard hand greenberg referred to as the anti christ at best…he is a mean ..croolked….slimy ******* that build that business thru threats, intimidation , and on the bones of honest people who worked their hearts out only to get fired the week before vesting in their retirement….do you guys know that to this day AIG will not give a contract to anyone that has filed bankruptcy..no matter how long ago….yet they will give you a contract if you are a child molester or convicted felon..does that tell you anything about these people….Gordon Crosby the ex head of US Life was knows for years as the meanest SOB in NY in the insurance business except for Greenberg who he didn’t hold a candle too……****, I knew Crosby and if there was anyone in the world any meanter than that man, god help us.
“Suspicion is the companion of mean souls, and the bane of all good society”
Thomas Paine
I LOVE the viagra analogy!
What is sad, is the mistrust this will cause for our clients and AIG insureds, even though in this country, everyone is innocent until proven guilty.
AIG holds an important place in our industry, and I’ve been relieved (and delighted) when they’ve written something that no one else would. However, I’m certain this kind of bad publicity will make it harder for me to sell them. No matter how good the product might be, I know I’m going to have a tough time making my clients understand that they are still a viable marketplace. Confidence, once lost, takes much time to recover.
Joy is right…do you in the business remember the days of executive life and the other companies that were supposedly ok and the rumors were for crap…well, here we go again….what am i going to tell my three hundred thjousand clients with them….that’s right…three hundred thousnad….Randy Murray….former head of Standard Marketing…the Murray brochure
Hank is on the mark!!! Everyone, Spitzer, Mills, those with their hands held out will take shots at AIG but they will keep on rolling right through it all. It wont kill them it will just make them stronger. We are all looking at the beginning of Tobacco II.
Years ago, I always marveled at how-regardless of what the rest of the industry was doing, AIG Corp. always seemed to post a 99% Loss Ratio. Nobody can do that consistently year after year, even playing with reserves, so I just figured they had so many co.’s it was just a giant ‘shell game’ for them. Appears I was right!! Bad for the industry, bad for the Independent Agent/Broker, bad for AIG clients. Ultimate power, ultimately corrupts !!!
I’m so proud of you Randy. This is the perfect place to pat yourself on the back for being such a success. Maybe you can go to one of the other forums. I am sure one of your 300,000 clients will be reading.
Is there a charge for the brochure? I want to go out and get it today.
Crandal, you are right. The point is no one has shown that he “stole”. We haven’t seen any criminal prosecutions yet, all we have heard is that they were involved in some complex transactions which some people think they may be illegal. This issue about stock trading to boost share price to get a better deal on the purchase of company involving common stock shares seems the way things are done in business and I think it would be irresponsible not to do it (you doing what you are paid for to represent your shareholders).
People with the kind of money Greenberg has will continue to act “above the law” and will only stop when “ill gotten gains” are taken away from them and serious jail time is in the future.
Strip him and his wife of AIG stock that was probably awarded by illegal activies and watch Hank become humble. The best way to get the attention of people with money and power is to take it away!!!!!
Hank
started the AIG
starting with buying the American Home
C V Starr was the capitol behind the
early deals
Now you want to Strip him and his wife of AIG stock that was probably awarded by illegal activies and watch Hank become humble…he had his stock from the begining!
He created the largest Ins Group
that survived ….where are the
Home Ins Co
Continental Ins Co
Reliance…USF&G…Aetna…INA…etc
If he is so bad why is stock going up
also New York Needs to tread lightly
AIG doe not have to be in NY city
be a NY domicile Ins CO
have any employees in NY state
be listed on the NY stock exchange
I dont like what NY is doing for the California Marketplace
without the OLD AIG with Hank
there is no leader
now who replaces the AIG
Firemens Fund & the Germans?????????
be careful if the NY can attack Hank
then what chance do have as a small broker
in fighting for your……..
The reality of the situation goes along these lines:
1) Greenberg was able to parlay an insurance empire (SE Asian U/W) into the worlds largest group of insurance companies (AIG). It has taken Greenberg his entire life to do this feat, for which, everyone remotely related to the insurance and financial industries should be thankful.
2) The amount of monies that are the basis of Spitzer’s quest could be considered nominal or non-material to AIG’s annual premiums written (less than 3%).
3) When one considers Greenberg’s current age, financial resources and legal resources, only a nimrod would believe that Spitzer could actually have Greenberg incarcerated for anything that Spitzer is alledging Greenberg did.
4) As we all know from our insurance industry experience, five years from now, none of us will care what Greenberg did or did not do or whether Spitzer was successful or unsuccessful in his efforts to straighten out the insurance industry and its problems.
On a more personal note, I hate to see Greenberg’s insurance career ended in this manner. Greenberg and his companies have always paid every claim they owed (that was insured according to the insurance policies’ terms and conditions) for this I would like to personally thank Hank Greenberg and his companies. May God’s speed be with you, Mr. Greenberg
Big Jim got it right. I doubt many of us liked doing business with AIG, but they were a mkt even though it may have been the last mkt we wanted to place business with. If you had a “covered claim” it would be paid (“but not before its time”). I haven’t heard anyone say their Surplus was over stated by $90 bill, they are talking now in the area of $2.5 bill or so. Maybe it is $10 bill, that certainly ain’t an Enron.
The way things are going, first it is the big brokers, next the smaller brokers, than may be the individual brokers and agents. The various State AG’s will go after anyone where the publicity will help them get votes.
I’m amazed at all the “well, who really got hurt” and “you have to admire his accomplishments” comments I’m seeing. Let me make this clear as I can. Hank didn’t grow AIG by providing a superior product. He did it by making his costs less than the competition by breaking laws. In other words, he cheated.
He avoided paying into WC state pools, leaving the burden to his competitiors. He underreserved his business, and then browbeat regulators to keep them that way. This lowered his relative costs and surplus needs. He routinely engaged in blatant stock manipulation. Did he grow his business? Of course he did – but it was not by some feat of brilliance.
He was so good at it and intimidating others that he got away with it for many years. Many of his ideas and opinions on things were right, I won’t argue that. But the secret sauce that led to his sucess was in lagrge part his willingness to cheat.
For example, how can you defend AIG’s actions in hiring a private eye to dig into the Delaware Insurance Department head’s background to try to get dirt on him when the Del auditors were being difficult for AIG? This is not shrewd business practices – this is intimidation of a regulatory official.
Is his ability to grow his company 100% due to cheating? Probably not. But I am very confident that if he had been forced to live by the same rules as the rest of the industry, and competed on a truly level playing field, AIG would have no where near the success it has had.
Face the facts, he cheated to get what he got. Personally, I don’t find cheating admirable.
Michael sounds like he is in the AIG claims dept.. I never heard any agent or customer commend AIG on claims handling. The most successful individual insurance broker in NY always used to say “I’m waiting for Lex to pay their first claim”. Let’s be frank that as brokers/agents we want the claims to be paid right away whether they are covered or not so that our customer doesn’t call us except to say they are sending us a check for the renewal premium.
I suspect Hank should go to jail. However, I take issue with people saying AIG does not pay claims. They have done it promptly on several accounts for our agency. Conversly, our agency is involved in an E&O because another major carrier tried to avoid paying a claim.
I’m an outsider to ya’ll, but I know exactly what you are going through.
You once had a member of management by the name of “Bill Smith”. He left your fine company and came over to ours at Kemper in 1996. He was named company president by our CEO, Mathis. The exact same M O was used by those two and now Kemper is being buried, as you may already know.
My question is, does anyone know of any relationship between any of your management folks and Bill Smith since 1996? Thanks for your courtesy.
In my opinion, his nationality or ethnic origin has nothing to do with the bully that he is. He ran his company with methodical intimidation. (Ask any of his employees who were required to attend national meetings via TV conferencing when he would single out one person and demean them in front of the entire company.) He is a man who would step on anyone for another couple of bucks in his pocket.
Calm down, Linda. It was a joke. If you have watched Seinfeld, you’ll know that Uncle Leo always accuses people of being Anti-Semites whenever anything he does is questioned, or he doesn’t get his way. Hank is out of excuses, and his bullying is now limited to his family. Oh, that’s right . . . his family hates him, too. By the way, I’m Jewish.
” Oh Greenberg he’s mean, he’s a bad man, he doesn’t play fair,” Bunch of mealy mouthed, axe grinding, morons. Why don’t you all call Dr. Phil so he can help you deal with all the grief that Greenberg caused you and then you can all get together for a group hug and sing Michael Row the Boat Ashore. Morons!
Actually, I think the Greivance Counselors are in their SUVs and on their way to help us with our sorrow. But, don’t forget . . . Hank is a War Veteran.
State of Maine
Office of Securities_
21 State House Station
Augusta, Maine 04333-0121
IN RE: NOTICE OF INTENT
06-073
JAMES L. CLIFFORD
ALLEGATIONS
1. James L. Clifford (“Clifford”) (CRD # 1419478) is an individual who has been licensed in Maine as a sales representative or agent since at least 1985. His last known address is 955 Eastern Avenue, Holden, Maine 04429.
2. From December 4, 1997, to the present, Clifford has worked as a sales representative or agent at the Brewer, Maine, branch office of Investors Capital Corp. (“ICC”).
3. Pearl P. Schoppe (“Ms. Schoppe”) was a life-long resident of Orono, Maine, and the valedictorian of the 1936 graduating class of Husson College in Bangor, Maine.
4. In May of 1996 Ms. Schoppe established a living trust (the “Schoppe Trust”) with herself as trustee and with two of her relatives designated as trustees upon her death. The original trust document directed that upon Ms. Schoppe’s death, after payment of any of Ms. Schoppe’s debts, expenses and taxes, and certain distributions, the remainder of the trust property was to be held in trust for Husson College with income distributions to fund a scholarship program.
5. Ms. Schoppe was conservative with her investments. She essentially bought only certificates of deposits and fixed annuities.
6. In October of 1998, Ms. Schoppe, then age 80, amended the trust document to, among other things, change the trustee upon her death to Clifford. The amendment also changed the provision regarding the distribution of the remainder of her trust property. As amended, instead of the property being held in trust for Husson, the trust instrument dictated that the property was to be “distributed to the National Heritage Foundation F.B.O. Pearl P. Schoppe Foundation.”
7. The charitable purpose stated by Ms. Schoppe on the National Heritage Foundation application was “Assist students of the Greater Bangor/Brewer, Orono/Old Town, ME area who need financial aid to attend Husson College. To be paid out interest only 80% of interest to go to students, 20% of the interest to go back into the Foundation so foundation will continue to grow.”
8. Ms. Schoppe died on January 19, 2000.
9. On March 7, 2000, in Singer Island, Florida, Clifford and John T.”Dock” Houck, II, CEO of National Heritage Foundation, (“NHF”) completed the paperwork for “National Heritage Foundation Inc. FBO Pearl Schoppe FNDTN” to purchase a $150,000 variable annuity from Conseco Variable Annuity Insurance Company through ICC, using funds from the Schoppe Trust.
10. On May 11, 2000, Clifford sent an additional $50,000 from the Schoppe Trust’s checking account to Conseco to add to the variable annuity.
11. The subaccounts chosen by Clifford and Houck were largely more-risky growth funds, when Ms. Schoppe’s stated intent and investment history dictated the use of more conservative income-producing investments.
12. The variable annuity sold by Clifford to the foundation was unsuitable for the charitable purposes expressed by Ms. Schoppe. There was no tax benefit and no value to having a death benefit on the life of Mr. Houck to offset the higher costs and reduced liquidity of the investment.
13. Clifford received $12,600 in commissions on these transactions. In addition, Clifford has paid himself trustee fees exceeding $42,000.00 from the trust assets despite the fact that he appears to have provided little if any valuable services to the trust.
14. Since the purchase of the variable annuity in March of 2000, Husson College has received no scholarship money from the Pearl P. Schoppe Foundation.
15. Under federal law, variable annuities are securities and the offer and sale of variable annuities is regulated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933 and Securities Exchange Act of 1934.
16. The NASD is a national securities association registered with the SEC under §15A and in accordance with the provision of §19(a) of the Securities Exchange Act of 1934.
17. NASD Rules are filed with the SEC and promulgated under §19(b) of the Securities Exchange Act of 1934. NASD rules apply to “all members and persons associated with a member. Persons associated with a member shall have the same duties and obligations as a member” under the association’s rules. NASD Rule 0115.
18. ICC is a member of NASD and Clifford is a person associated with ICC.
19. NASD Rule 2310 requires that a member have reasonable grounds for believing that a recommended purchase is suitable for a customer based on the facts disclosed by the customer including the customer’s investment objectives.
20. By virtue of his training and experience, Clifford knew the requirements of NASD Rule 2310. Through his customer relationship with Ms. Schoppe, Clifford knew her investment objectives and the charitable purpose for which she established the Pearl P. Schoppe Foundation. Thus, Clifford intentionally or knowingly failed to comply with NASD Rule 2310. 32 M.R.S.A. §10313(1)(B).
21. By using funds of the Schoppe Trust to purchase an unsuitable investment, Clifford engaged in unlawful or unethical conduct in the securities business. 32 M.R.S.A. §10313(1)(G).
22. Pursuant to 32 M.R.S.A. §§10313 and 16702, the Securities Administrator may, after notice and opportunity for hearing, issue an order to revoke the license of a licensee or impose a bar on a licensee if the Securities Administrator finds that the order is in the public interest and that the licensee: (1) has engaged in unlawful, unethical or dishonest conduct in the securities business; or (2) has intentionally or knowingly violated or failed to comply with a rule under the Securities Exchange Act of 1934.
NOTICE
Notice is hereby given that the Securities Administrator intends to issue an Order to Revoke Clifford’s Agent License and Censure Him or Bar Him from Association under 32 M.R.S.A. §§10313(1) and 16702(1).
If Clifford wants to request a hearing in this matter, he must do so in writing within thirty (30) calendar days of the date of this Notice of Intent. 32 M.R.S.A. §§10708, 16702(1).
Date: November 28, 2006 /s/ Michael J. Colleran
‘ Michael J. Collera
Securities Administrator
Date: November 28, 2006 /s/ Bonnie E. Russell
Bonnie E. Russell
Assistant Securities Administrator
Date: November 28, 2006 /s/ Willis P. Smedberg
Willis P. Smedberg
Investigator/Examiner
Last Updated: December 20, 2006 4:42 PM
Press Release
September 11, 2008
Yesterday, a Cameron County jury awarded $9 million in damages to Dr. Juan and Sylvia Mancillas in their lawsuit against the National Heritage Foundation (“NHF”). Dr. and Mrs. Mancillas sued NHF in 2005 because NHF changed the beneficiaries of three multi-million dollar life insurance policies from the Mancillas children to itself.
NHF is a 501(c)(3) organization headquartered in Falls Church, Virginia that manages thousands of accounts called “donor advised accounts” created by individuals who engage in various charitable projects. NHF acts as the bookkeeper for the hundreds of millions of dollars kept in these donor advised accounts.
The lawsuit involved what the IRS called an abusive tax shelter known as a charitable split dollar life insurance plan. Between 1997 and 1999, NHF peddled this tax scheme to people across the country. The typical arrangement worked like this—a donor made a charitable “donation” to NHF and took a tax deduction. NHF used those donations to pay premiums on large life insurance policies. The beneficiaries of the life insurance policies were primarily the donor’s heirs, but a smaller portion of the death benefit would go to a charity chosen by the donor. NHF made money by charging a 4.5% fee on the full amount of the death benefit.
In December 1997, NHF sold Dr. and Mrs. Mancillas a charitable split dollar life insurance plan with annual premiums of about $85,000 on $7 million in life insurance. The Mancillases two sons were the beneficiaries of $5 million of the life insurance, and the Sisters of the Incarnate Word, a organization of Catholic nuns in Brownsville, were the beneficiaries of the other $2 million. The large amount of life insurance was necessary because the Mancillases youngest son suffered a severe brain injury at the age of 6 that has left him unable to speak, walk or care for himself.
In 1999, the IRS determined that donations made in connection with these plans were not tax deductible. At that time, NHF had about 600 of these plans nationwide, with potential life insurance death benefits aggregating between $600 million and $2 billion. If these deals went away, NHF stood to lose between $25 and $90 million in fees.
NHF did not inform the Mancillases that the tax deduction was not allowed or that it could have just paid the premiums themselves to insure that their sons still got the life insurance benefits. Had they done that, NHF would be out of the picture and would lose out on their substantial fees. NHF instead modified the plan—without telling Dr. or Mrs. Mancillas—so that it was the sole beneficiary of millions of dollars in life insurance policies and the Mancillases children would get nothing. Believing that their sons were still the beneficiaries, Dr. and Mrs. Mancillas continued paying the premiums. They paid a total of $548,000 in premiums over seven years with no knowledge that NHF had changed the beneficiary to itself.
“I can’t help but wonder how many of the other 600 families with charitable split dollar life insurance plans with NHF have also had their children removed as beneficiaries just so that NHF could be the sole beneficiary”, said the Mancillases attorney, Albert Garcia. “Hundreds of families may still be sending NHF millions of dollars each year for life insurance premiums, thinking that their kids will receive the death benefits when they die,” warned Mr. Garcia. He added, “NHF said nothing to the Mancillases so why wouldn’t they pull the same stunt with these 600 other families.”
NHF is no stranger to controversy. Its founder, J.T. “Dock” Houk started the original NHF in 1968. In 1982, the IRS filed suit to revoke NHF’s charitable status for violations of the federal tax laws. Mr. Houk was then ousted as NHF’s CEO and the organization changed its name to the National Foundation. In 1993, he started the current NHF and installed himself as the CEO, his son, J.T. “Tick” Houk as President, his wife as the chief operating officer, and his daughter and daughter-in-law as vice presidents. In 1999, the IRS disallowed tax deductions for NHF’s charitable split dollar life insurance plans, effectively ending that tax avoidance scheme. In 2006, the Congress also outlawed another NHF scheme—charitable employment. Under that program, one would “donate” money to his foundation that was managed by NHF, and take a tax deduction on his tax return. The donor would then “work” for his foundation as a director and pay himself a salary with the very money he donated and took a tax deduction for. Very little, if any, of the donated money would go to charity because it would come back to the donor as a salary.
Dr. and Mrs. Mancillas were represented by Albert Garcia and Adrian Martinez of the McAllen, Texas law firm of Garcia & Martinez, L.L.P. They specialize in complex commercial and personal injury litigation.
P.S. If you want to contact the Law Firm mentioned in the press release please contact them directly at:
April P. Adrian, Paralegal
GARCIA & MARTINEZ, L.L.P.
10113 N. 10th Street, Suite H
McAllen, Texas 78504
(956) 380-3700 – office
(956) 380-3703 – fax april@garmtzlaw.com
Joy, as far as AIG is concerned and there ability to write the tough, hard to place risks will still hold true in the end. A number of their subsidiaries will probably need to be spun off (i.e. National Union, etc.) to maintain the company’s credibility and most have the ability to maintain a significiant book of business and assume the risks/rating needed to do so. The most unfortunate thing about this is that AIG does insure so many specific classes of business where no one else does, that the PR control will have to come from the agents who will be defending them. I wonder if Spitzer will aid the independent agency system in this position. Some of his comments have been directed in to this area.
Not if you want to get elected Gov of NY
They sue for civil penalties when they realize they can’t get a conviction on criminal charges, withoiut taking half the industry down with AIG.
It won’t be long before Spitzer wishes he had stopped at bid rigging, or perhaps he already does.
I don’t think Spitzer thinks Hank broke the law or there would have already been a purp walk.
As for being a bad guy, you are talking about a war veteran who has given and raised millions for good causes.
As for AIG being bad for the industry, if you removed all of the insurance industry leadership that came through AIG you wouldn’t have much of a P&C industry.
I’m not enamoured by wealth, but I remain enamoured with substantial accomplishments both in business and philanthropy.
How can Spitzer – an AG – file a civil suit alleging criminal acts? He should file a criminal suit.
Of course that has a higher burden of proof. Spitzer’s goal is not a conviction but the nice warm spotlight & cash.
It’s kind of hard for a reputable insurer to compete when there’s not a level playing field.
Too bad this give our whole industry a black eye.
Where are the indictments? Will Greenberg get a jail cell with butler service?
Unfortunately the poor public will end up paying for his accomodations.
This is sweet and way past its time. AIG is generally despised by insureds and brokers alike for their business practices, especially when it comes to claims handling.
Who’s going to go after the oil companies?
Great comment about oil companies, but it seems not even Superman……..I mean Spitzer can tame that animal!
Now I see why Greenberg transferred the $2Billion in stock to his wife….to pay for his defense! These are the folks that give the rest of law abiding agents a bad name. How much more money can this guy want? Greed is a very strong Aphrodisiac.
Wonder if they completed their SOX certification…
The stuff the old man and his cronies were pulling with the offshore deals is done by every company I ever represented during the 33 years I was in the insurance business. While an independent contractor, I was one of the largesat producers of life insurance in the us for twenty years and those top guys at most the companies owned off shore reinsurance companies that siphoned off profits, they sold insurance from one subsidiary to another making sales look much larger than they were…they surrounded themselves with lawyers, over paid them and their sole job was to protect themselves, not the policyholders….I could go on and on but it was a joke and still is for those who know…i personally know a dozen people that have tried to reach the ny attorney general and can’t get thru…how does the man expect to learn anything…when congress holds hearings…people like me are never invitied but the ones that are perpatrating the fraud…..
There are miles of hard road between:
>inditement and conviction
>industry shame and rebuilding
>good people tarnished and retribution
>embaracement and holding your head up
>doubt and trust
>fraud and integrity
>greed and fair return
>character lost and found
Hank and the other US industry mogals are showing us that rich cheeters walk a different road than poor cheeters. Its a long and hard road for the rest of us to prove their crimes and overcome their mendacity.
Jim Howse
Everybody, let’s not get bent out of shape over the Civil suit. The allegations are such that it would apear, eventually, it will be found out that they have lied to regulators on the filing of their yellow perils; lied to the SEC in their 10K’s and filed fraudulent tax returns with the IRS, which would undoubtedly justify turning this into a Justice Department matter.
What is facinating, it the potential for a dooms day scenario, which would drive their reserves under say $12 billion against a net written, if you can believe it of over $35 billion, you do the math.
Echos of Houston, TX. In that scandal, people lost their livelihood and in many cases all of their assets. The American business community took serious hit with global implications. And don’t forget how it impacted California energy consumers. Greedy executives must learn that their inflating stock prices is like taking viagra. Pretty soon it wears off you cannot disguise your size or value. Nevermind that your reputation is only as good as long as it lasts. Inappropriate analogy, yes. Action against those responsible is a civil duty and a necessary to the full power of the law. Where the interest is to protect the American economy, its citizenry and its standing in the international community we should be mama bear. The deliberate actions and their consequences, at this level, must to be reckoned with. Until these executives are criminally convicted, I’m afraid it does create the appearance of a diluted prosecution. If we rely so heavily on the international reinsurance infrastructure as we do in the U.S, this scandal may erode those ties and contracts going forward. Shaken confidence in companies like AIG with its pears and international ties does not end t here. Those ties are absolutely critical to the entire insurance community. And with dimished earning potential for U.S. domestic carriers comes stock market implications, with resulting hit to the average investor, directly and indirectly, is impossible to estimate. But we do have some clear evidence from Houston of its costs.
Sorry to say but the Evil Empire will not be taken down any time soon. All you wishful thinking axe grinders are going to be sorely disappointed. There will be fines levied & paid, and continued bad press for awhile, but eventually it will pass and all you mealy mouthed complainers will have to find some other evil doer to whine about.
It is fine to say that a corporation through its officers and directors committed criminal misconduct. However to allow only civil damages, which may be returned to customers makes violating a criminal statute meaningless.
If a bankrobber steals mere thousands of dollars from a bank, should he be able to pay back the amount stollen in only the bank robbery that was proved and not do any jail time? What about all the other banks that he robbed before he got caught?
Where is the harm to the public itself to be compensated? When the entire industry is brought into a bad light by persons committing crimes everyone has suffered, not just the customers involved. When these people use practices that are illegal and beat out legitimate enterprises by illegal means everyone in those legitimate enterprises is harmed.
I wouldn’t go overboard on comparing this to Enron. If you asked people on the street what Enron did as a business entity 99% would not really know. AIG is more about “smooth” earnings growth and not getting screwed by the various state Guaranty Funds. For example a state like California goes to open WC rating, podunk carriers write business at rates where everyone knows they are going down the tubes. Carriers like Chubb, Hartford, AIG, St. Paul etc. complain but the Ins Dept does nothing and guess who ends up paying the claims the major carriers. Why wouldn’t they want to low ball their WC or whatever other coverages are involved to cut down their assessments due to incompentent state regulators.
Like most brokers I never liked doing business with AIG but I admired their ability to be successful, which had nothing to do with the issues that are under investigation. Does anyone think they did these things without getting some high priced legal talent giving them the ok.
On another point, doesn’t it bother some of you that some “mealy mouth rich kid” politician is going after someone that fought in two wars for this country. Do you think Spitzer would have been on the beaches at Normandy or would his family have gotten him some nice job in the Pentagon so he wouldn’t have get shot at, crawl around gunfire etc.?
Gee, what have we not already learned. We do not need socialism when people such as Mr. Spitzer can devalue companies by billions due to his remarks, grand standing, suits, etc.
Seems to me he is operating by using the lever of fear, and while I hold no quarter for what AIG execs have done, there must be other less devastating (to shareholders, including pensioners) ways to handle all of this
AIG did engage in some questionable transactions. This we all agree.
However,
I wonder who they hurt?
Manipulating profits is very easy to do by changing the assumptions used in calculating loss reserves.
AIG’s actions would have strengthened its stock price, but I do not believe they increased insurance prices. A case could in fact be made that they had a negative effect on price increases.
Reading through all the allegations, I don’t get where the “civil” part comes in. Since when does an A.G. sue an alleged criminal for compensation, rather than putting them away for what they’ve done?
For all of you who are saying “Gee, what he did isn’t so bad” or “This is just Spitzer grandstanding”, you’re just demonstrating that you, personally, have surrendered your morals. Hank Greenberg broke the law. He knew he was breaking the law. He knew others would be harmed because of his breaking the law. He didn’t care, because he was getting rich. Think about what you are saying about yourself when you defend this behavior.
Arguing that “everyone else is doing it” is a.) wrong (this industry is filled mostly with highly ethical people with sound morals, and some rotters like Hank) and b.) meaningless. I don’t care if anyone else is doing it – he broke the law!
And arguing that this is “just” grandstanding by Spitzer – well, Spitzer will make political mileage out of this to be sure. And it may be his primary (or only) motive. But so what? Hank broke the law!
Please do not be so enamoured of wealth that you feel any behavior is justified in the pursuit of wealth – I like to think our country (and our industry) has not sunk so low.
I agree with you in regards to AIG bouncing back. First off the charges against them have not even been proven and it will have to go in front of a Jury who must determine guilt. AIG is huge and the implications are not about reserves or the worry of them being met. When I read the article about AIG being taken over by the Dept of Insurance, then I will worry. I’m not saying what they did is right but my main concern is that my insureds are with a financially stable company. To this point I have not seen that.
By the way why did it take Spitzer to figure this out, and now Mills is jumping on the band wagon. Maybe Mills was paid to look the other way……. Makes you wonder, huh?
New York Attorney General Eliot Spitzer and State Insurance Superintendent Howard Mills announced a lawsuit against the nation’s largest business insurance company
a younger Hank would take the law suite
& deal with it
at the same time move all employyes to Conn or NJ
sell all NY real Estate
Move all Ins Coy to Non NY states
and delist AIG from NY stock exchange
and list on NASDAQ
Then New York & it’s public Officials
can deal with the loss of jobs erc.
The young Hank was not one that you would have fussed with
Sounds like he broke the law, but how do we know for sure? As far as morals are concerned in this industry, an attorney friend of mine was representing an agency that was being purchased by one of the big four brokers. The employment contract was going to have a “morals” clause in it, which he had removed. His comment was that if they were going to apply that clause they wouldn’t have many people on their payroll.
Ladies…Gentlemen. Think ALL of you may be missing the point. First it was Marsh Mac….now AIG. How does this “play” around the world, let along here at home? It is difficult enough to work within this industry, let alone, have to fight what the “international implications” of these actions are going to be. Let the courts take appropriate action and let all of US (in this increasingly corrupt industry) do OUR best to retain and/or reGAIN the trust of our insureds AND associations with the international insurance community.
I don’t know why all the big fuss. The whole industry has been doing what AIG is accused of doing for years. Spitzer has found his sacrificial lamb to the governorship and the rest of the industry will go back to “business as usual” as soon as it all blows over.
What AIG’s most senior management people did was much, much more than just a ‘disappointment’: it was illegal.
Who was hurt? Investors who paid more for AIG stock than it was really worth at a given point in time based on jacked-up results. Who was hurt? Our insurance industry which has been sullied by AIG’s activities. Who was hurt? Consumers because the data given to regulators was misleading and the rates were inflated.
My guess is that if you dig further into AIG’s business practices (including their claims handling practices), you would find plenty of things that hurt consumers. I think AIG was a participant with Marsh and other big brokers to fix prices and limit real competition.
My further guess is that some of Mr. Greenberg’s ‘successes’ overseas came as a result of ‘greasing the palms’ of certain officials, which would be a violation of the U.S. Foreign Corrupt Practices Act.
AIG was an ‘800’ pound guerilla who ran roughshod over the competition and used unethical business practices to advance themselves. Maybe before we annoint anyone in any industry an ‘icon’ we should first really examine how they conduct their business, how they treat their employees, how they treat their customers. Maybe we need to take a closer look to see if the corporation really was a good corporate citizen or just gave it lip service and few bucks.
Yes, it is all disappointing especially because it did not need to be this way.
Do ya’ll remember weeks ago when Hank Greenberg said his sons and him didn’t talk at all and had never talked about offshore companies and the other things…that was the truth and you know why….they don’t talk at all….those three birds haven’t spoken in fifteen years and everyone knows it in the industry….i’ve eard hand greenberg referred to as the anti christ at best…he is a mean ..croolked….slimy ******* that build that business thru threats, intimidation , and on the bones of honest people who worked their hearts out only to get fired the week before vesting in their retirement….do you guys know that to this day AIG will not give a contract to anyone that has filed bankruptcy..no matter how long ago….yet they will give you a contract if you are a child molester or convicted felon..does that tell you anything about these people….Gordon Crosby the ex head of US Life was knows for years as the meanest SOB in NY in the insurance business except for Greenberg who he didn’t hold a candle too……****, I knew Crosby and if there was anyone in the world any meanter than that man, god help us.
“Suspicion is the companion of mean souls, and the bane of all good society”
Thomas Paine
I LOVE the viagra analogy!
What is sad, is the mistrust this will cause for our clients and AIG insureds, even though in this country, everyone is innocent until proven guilty.
AIG holds an important place in our industry, and I’ve been relieved (and delighted) when they’ve written something that no one else would. However, I’m certain this kind of bad publicity will make it harder for me to sell them. No matter how good the product might be, I know I’m going to have a tough time making my clients understand that they are still a viable marketplace. Confidence, once lost, takes much time to recover.
*joy*
I certainly agree with you Joy. From my perspective (claims) i’ve had an excellent relationship with AIG, and still do.
I cannot say the same for a number of other carriers, who are increasingly becoming very difficult to deal with (Zurich is at the top of that list).
Joy is right…do you in the business remember the days of executive life and the other companies that were supposedly ok and the rumors were for crap…well, here we go again….what am i going to tell my three hundred thjousand clients with them….that’s right…three hundred thousnad….Randy Murray….former head of Standard Marketing…the Murray brochure
Hank is on the mark!!! Everyone, Spitzer, Mills, those with their hands held out will take shots at AIG but they will keep on rolling right through it all. It wont kill them it will just make them stronger. We are all looking at the beginning of Tobacco II.
Years ago, I always marveled at how-regardless of what the rest of the industry was doing, AIG Corp. always seemed to post a 99% Loss Ratio. Nobody can do that consistently year after year, even playing with reserves, so I just figured they had so many co.’s it was just a giant ‘shell game’ for them. Appears I was right!! Bad for the industry, bad for the Independent Agent/Broker, bad for AIG clients. Ultimate power, ultimately corrupts !!!
I’m so proud of you Randy. This is the perfect place to pat yourself on the back for being such a success. Maybe you can go to one of the other forums. I am sure one of your 300,000 clients will be reading.
Is there a charge for the brochure? I want to go out and get it today.
JP is right.
I keep hearing “War Veteran” in this forum. I’m a War Veteran, but they didn’t hand me a badge to steal along with my discharge.
Crandal, you are right. The point is no one has shown that he “stole”. We haven’t seen any criminal prosecutions yet, all we have heard is that they were involved in some complex transactions which some people think they may be illegal. This issue about stock trading to boost share price to get a better deal on the purchase of company involving common stock shares seems the way things are done in business and I think it would be irresponsible not to do it (you doing what you are paid for to represent your shareholders).
People with the kind of money Greenberg has will continue to act “above the law” and will only stop when “ill gotten gains” are taken away from them and serious jail time is in the future.
Strip him and his wife of AIG stock that was probably awarded by illegal activies and watch Hank become humble. The best way to get the attention of people with money and power is to take it away!!!!!
Hank
started the AIG
starting with buying the American Home
C V Starr was the capitol behind the
early deals
Now you want to Strip him and his wife of AIG stock that was probably awarded by illegal activies and watch Hank become humble…he had his stock from the begining!
He created the largest Ins Group
that survived ….where are the
Home Ins Co
Continental Ins Co
Reliance…USF&G…Aetna…INA…etc
If he is so bad why is stock going up
also New York Needs to tread lightly
AIG doe not have to be in NY city
be a NY domicile Ins CO
have any employees in NY state
be listed on the NY stock exchange
I dont like what NY is doing for the California Marketplace
without the OLD AIG with Hank
there is no leader
now who replaces the AIG
Firemens Fund & the Germans?????????
be careful if the NY can attack Hank
then what chance do have as a small broker
in fighting for your……..
The reality of the situation goes along these lines:
1) Greenberg was able to parlay an insurance empire (SE Asian U/W) into the worlds largest group of insurance companies (AIG). It has taken Greenberg his entire life to do this feat, for which, everyone remotely related to the insurance and financial industries should be thankful.
2) The amount of monies that are the basis of Spitzer’s quest could be considered nominal or non-material to AIG’s annual premiums written (less than 3%).
3) When one considers Greenberg’s current age, financial resources and legal resources, only a nimrod would believe that Spitzer could actually have Greenberg incarcerated for anything that Spitzer is alledging Greenberg did.
4) As we all know from our insurance industry experience, five years from now, none of us will care what Greenberg did or did not do or whether Spitzer was successful or unsuccessful in his efforts to straighten out the insurance industry and its problems.
On a more personal note, I hate to see Greenberg’s insurance career ended in this manner. Greenberg and his companies have always paid every claim they owed (that was insured according to the insurance policies’ terms and conditions) for this I would like to personally thank Hank Greenberg and his companies. May God’s speed be with you, Mr. Greenberg
Big Jim got it right. I doubt many of us liked doing business with AIG, but they were a mkt even though it may have been the last mkt we wanted to place business with. If you had a “covered claim” it would be paid (“but not before its time”). I haven’t heard anyone say their Surplus was over stated by $90 bill, they are talking now in the area of $2.5 bill or so. Maybe it is $10 bill, that certainly ain’t an Enron.
The way things are going, first it is the big brokers, next the smaller brokers, than may be the individual brokers and agents. The various State AG’s will go after anyone where the publicity will help them get votes.
Michael, Congratulations! your the only one that has ever got every AIG claim paid.
I’m amazed at all the “well, who really got hurt” and “you have to admire his accomplishments” comments I’m seeing. Let me make this clear as I can. Hank didn’t grow AIG by providing a superior product. He did it by making his costs less than the competition by breaking laws. In other words, he cheated.
He avoided paying into WC state pools, leaving the burden to his competitiors. He underreserved his business, and then browbeat regulators to keep them that way. This lowered his relative costs and surplus needs. He routinely engaged in blatant stock manipulation. Did he grow his business? Of course he did – but it was not by some feat of brilliance.
He was so good at it and intimidating others that he got away with it for many years. Many of his ideas and opinions on things were right, I won’t argue that. But the secret sauce that led to his sucess was in lagrge part his willingness to cheat.
For example, how can you defend AIG’s actions in hiring a private eye to dig into the Delaware Insurance Department head’s background to try to get dirt on him when the Del auditors were being difficult for AIG? This is not shrewd business practices – this is intimidation of a regulatory official.
Is his ability to grow his company 100% due to cheating? Probably not. But I am very confident that if he had been forced to live by the same rules as the rest of the industry, and competed on a truly level playing field, AIG would have no where near the success it has had.
Face the facts, he cheated to get what he got. Personally, I don’t find cheating admirable.
Michael sounds like he is in the AIG claims dept.. I never heard any agent or customer commend AIG on claims handling. The most successful individual insurance broker in NY always used to say “I’m waiting for Lex to pay their first claim”. Let’s be frank that as brokers/agents we want the claims to be paid right away whether they are covered or not so that our customer doesn’t call us except to say they are sending us a check for the renewal premium.
I suspect Hank should go to jail. However, I take issue with people saying AIG does not pay claims. They have done it promptly on several accounts for our agency. Conversly, our agency is involved in an E&O because another major carrier tried to avoid paying a claim.
Don’t you people get it? Spitzer is an Anti-Semite.
Uncle Leo
Actually, Eliot Spitzer happens to be Jewish.
I’m an outsider to ya’ll, but I know exactly what you are going through.
You once had a member of management by the name of “Bill Smith”. He left your fine company and came over to ours at Kemper in 1996. He was named company president by our CEO, Mathis. The exact same M O was used by those two and now Kemper is being buried, as you may already know.
My question is, does anyone know of any relationship between any of your management folks and Bill Smith since 1996? Thanks for your courtesy.
In my opinion, his nationality or ethnic origin has nothing to do with the bully that he is. He ran his company with methodical intimidation. (Ask any of his employees who were required to attend national meetings via TV conferencing when he would single out one person and demean them in front of the entire company.) He is a man who would step on anyone for another couple of bucks in his pocket.
Calm down, Linda. It was a joke. If you have watched Seinfeld, you’ll know that Uncle Leo always accuses people of being Anti-Semites whenever anything he does is questioned, or he doesn’t get his way. Hank is out of excuses, and his bullying is now limited to his family. Oh, that’s right . . . his family hates him, too. By the way, I’m Jewish.
” Oh Greenberg he’s mean, he’s a bad man, he doesn’t play fair,” Bunch of mealy mouthed, axe grinding, morons. Why don’t you all call Dr. Phil so he can help you deal with all the grief that Greenberg caused you and then you can all get together for a group hug and sing Michael Row the Boat Ashore. Morons!
Actually, I think the Greivance Counselors are in their SUVs and on their way to help us with our sorrow. But, don’t forget . . . Hank is a War Veteran.
Actually, Hank is NOT Jewish…he was born a Jew, but converted years ago to become Protestant.
Just another selfish move. He’ll dishonor his ancestors as long as it gets him something in return. What a scum.
No, Hank. We put family first…..Why work for a guy who puts money first. When was the last time you hugged your kid?
State of Maine
Office of Securities_
21 State House Station
Augusta, Maine 04333-0121
IN RE: NOTICE OF INTENT
06-073
JAMES L. CLIFFORD
ALLEGATIONS
1. James L. Clifford (“Clifford”) (CRD # 1419478) is an individual who has been licensed in Maine as a sales representative or agent since at least 1985. His last known address is 955 Eastern Avenue, Holden, Maine 04429.
2. From December 4, 1997, to the present, Clifford has worked as a sales representative or agent at the Brewer, Maine, branch office of Investors Capital Corp. (“ICC”).
3. Pearl P. Schoppe (“Ms. Schoppe”) was a life-long resident of Orono, Maine, and the valedictorian of the 1936 graduating class of Husson College in Bangor, Maine.
4. In May of 1996 Ms. Schoppe established a living trust (the “Schoppe Trust”) with herself as trustee and with two of her relatives designated as trustees upon her death. The original trust document directed that upon Ms. Schoppe’s death, after payment of any of Ms. Schoppe’s debts, expenses and taxes, and certain distributions, the remainder of the trust property was to be held in trust for Husson College with income distributions to fund a scholarship program.
5. Ms. Schoppe was conservative with her investments. She essentially bought only certificates of deposits and fixed annuities.
6. In October of 1998, Ms. Schoppe, then age 80, amended the trust document to, among other things, change the trustee upon her death to Clifford. The amendment also changed the provision regarding the distribution of the remainder of her trust property. As amended, instead of the property being held in trust for Husson, the trust instrument dictated that the property was to be “distributed to the National Heritage Foundation F.B.O. Pearl P. Schoppe Foundation.”
7. The charitable purpose stated by Ms. Schoppe on the National Heritage Foundation application was “Assist students of the Greater Bangor/Brewer, Orono/Old Town, ME area who need financial aid to attend Husson College. To be paid out interest only 80% of interest to go to students, 20% of the interest to go back into the Foundation so foundation will continue to grow.”
8. Ms. Schoppe died on January 19, 2000.
9. On March 7, 2000, in Singer Island, Florida, Clifford and John T.”Dock” Houck, II, CEO of National Heritage Foundation, (“NHF”) completed the paperwork for “National Heritage Foundation Inc. FBO Pearl Schoppe FNDTN” to purchase a $150,000 variable annuity from Conseco Variable Annuity Insurance Company through ICC, using funds from the Schoppe Trust.
10. On May 11, 2000, Clifford sent an additional $50,000 from the Schoppe Trust’s checking account to Conseco to add to the variable annuity.
11. The subaccounts chosen by Clifford and Houck were largely more-risky growth funds, when Ms. Schoppe’s stated intent and investment history dictated the use of more conservative income-producing investments.
12. The variable annuity sold by Clifford to the foundation was unsuitable for the charitable purposes expressed by Ms. Schoppe. There was no tax benefit and no value to having a death benefit on the life of Mr. Houck to offset the higher costs and reduced liquidity of the investment.
13. Clifford received $12,600 in commissions on these transactions. In addition, Clifford has paid himself trustee fees exceeding $42,000.00 from the trust assets despite the fact that he appears to have provided little if any valuable services to the trust.
14. Since the purchase of the variable annuity in March of 2000, Husson College has received no scholarship money from the Pearl P. Schoppe Foundation.
15. Under federal law, variable annuities are securities and the offer and sale of variable annuities is regulated by the United States Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933 and Securities Exchange Act of 1934.
16. The NASD is a national securities association registered with the SEC under §15A and in accordance with the provision of §19(a) of the Securities Exchange Act of 1934.
17. NASD Rules are filed with the SEC and promulgated under §19(b) of the Securities Exchange Act of 1934. NASD rules apply to “all members and persons associated with a member. Persons associated with a member shall have the same duties and obligations as a member” under the association’s rules. NASD Rule 0115.
18. ICC is a member of NASD and Clifford is a person associated with ICC.
19. NASD Rule 2310 requires that a member have reasonable grounds for believing that a recommended purchase is suitable for a customer based on the facts disclosed by the customer including the customer’s investment objectives.
20. By virtue of his training and experience, Clifford knew the requirements of NASD Rule 2310. Through his customer relationship with Ms. Schoppe, Clifford knew her investment objectives and the charitable purpose for which she established the Pearl P. Schoppe Foundation. Thus, Clifford intentionally or knowingly failed to comply with NASD Rule 2310. 32 M.R.S.A. §10313(1)(B).
21. By using funds of the Schoppe Trust to purchase an unsuitable investment, Clifford engaged in unlawful or unethical conduct in the securities business. 32 M.R.S.A. §10313(1)(G).
22. Pursuant to 32 M.R.S.A. §§10313 and 16702, the Securities Administrator may, after notice and opportunity for hearing, issue an order to revoke the license of a licensee or impose a bar on a licensee if the Securities Administrator finds that the order is in the public interest and that the licensee: (1) has engaged in unlawful, unethical or dishonest conduct in the securities business; or (2) has intentionally or knowingly violated or failed to comply with a rule under the Securities Exchange Act of 1934.
NOTICE
Notice is hereby given that the Securities Administrator intends to issue an Order to Revoke Clifford’s Agent License and Censure Him or Bar Him from Association under 32 M.R.S.A. §§10313(1) and 16702(1).
If Clifford wants to request a hearing in this matter, he must do so in writing within thirty (30) calendar days of the date of this Notice of Intent. 32 M.R.S.A. §§10708, 16702(1).
Date: November 28, 2006 /s/ Michael J. Colleran
‘ Michael J. Collera
Securities Administrator
Date: November 28, 2006 /s/ Bonnie E. Russell
Bonnie E. Russell
Assistant Securities Administrator
Date: November 28, 2006 /s/ Willis P. Smedberg
Willis P. Smedberg
Investigator/Examiner
Last Updated: December 20, 2006 4:42 PM
Press Release
September 11, 2008
Yesterday, a Cameron County jury awarded $9 million in damages to Dr. Juan and Sylvia Mancillas in their lawsuit against the National Heritage Foundation (“NHF”). Dr. and Mrs. Mancillas sued NHF in 2005 because NHF changed the beneficiaries of three multi-million dollar life insurance policies from the Mancillas children to itself.
NHF is a 501(c)(3) organization headquartered in Falls Church, Virginia that manages thousands of accounts called “donor advised accounts” created by individuals who engage in various charitable projects. NHF acts as the bookkeeper for the hundreds of millions of dollars kept in these donor advised accounts.
The lawsuit involved what the IRS called an abusive tax shelter known as a charitable split dollar life insurance plan. Between 1997 and 1999, NHF peddled this tax scheme to people across the country. The typical arrangement worked like this—a donor made a charitable “donation” to NHF and took a tax deduction. NHF used those donations to pay premiums on large life insurance policies. The beneficiaries of the life insurance policies were primarily the donor’s heirs, but a smaller portion of the death benefit would go to a charity chosen by the donor. NHF made money by charging a 4.5% fee on the full amount of the death benefit.
In December 1997, NHF sold Dr. and Mrs. Mancillas a charitable split dollar life insurance plan with annual premiums of about $85,000 on $7 million in life insurance. The Mancillases two sons were the beneficiaries of $5 million of the life insurance, and the Sisters of the Incarnate Word, a organization of Catholic nuns in Brownsville, were the beneficiaries of the other $2 million. The large amount of life insurance was necessary because the Mancillases youngest son suffered a severe brain injury at the age of 6 that has left him unable to speak, walk or care for himself.
In 1999, the IRS determined that donations made in connection with these plans were not tax deductible. At that time, NHF had about 600 of these plans nationwide, with potential life insurance death benefits aggregating between $600 million and $2 billion. If these deals went away, NHF stood to lose between $25 and $90 million in fees.
NHF did not inform the Mancillases that the tax deduction was not allowed or that it could have just paid the premiums themselves to insure that their sons still got the life insurance benefits. Had they done that, NHF would be out of the picture and would lose out on their substantial fees. NHF instead modified the plan—without telling Dr. or Mrs. Mancillas—so that it was the sole beneficiary of millions of dollars in life insurance policies and the Mancillases children would get nothing. Believing that their sons were still the beneficiaries, Dr. and Mrs. Mancillas continued paying the premiums. They paid a total of $548,000 in premiums over seven years with no knowledge that NHF had changed the beneficiary to itself.
“I can’t help but wonder how many of the other 600 families with charitable split dollar life insurance plans with NHF have also had their children removed as beneficiaries just so that NHF could be the sole beneficiary”, said the Mancillases attorney, Albert Garcia. “Hundreds of families may still be sending NHF millions of dollars each year for life insurance premiums, thinking that their kids will receive the death benefits when they die,” warned Mr. Garcia. He added, “NHF said nothing to the Mancillases so why wouldn’t they pull the same stunt with these 600 other families.”
NHF is no stranger to controversy. Its founder, J.T. “Dock” Houk started the original NHF in 1968. In 1982, the IRS filed suit to revoke NHF’s charitable status for violations of the federal tax laws. Mr. Houk was then ousted as NHF’s CEO and the organization changed its name to the National Foundation. In 1993, he started the current NHF and installed himself as the CEO, his son, J.T. “Tick” Houk as President, his wife as the chief operating officer, and his daughter and daughter-in-law as vice presidents. In 1999, the IRS disallowed tax deductions for NHF’s charitable split dollar life insurance plans, effectively ending that tax avoidance scheme. In 2006, the Congress also outlawed another NHF scheme—charitable employment. Under that program, one would “donate” money to his foundation that was managed by NHF, and take a tax deduction on his tax return. The donor would then “work” for his foundation as a director and pay himself a salary with the very money he donated and took a tax deduction for. Very little, if any, of the donated money would go to charity because it would come back to the donor as a salary.
Dr. and Mrs. Mancillas were represented by Albert Garcia and Adrian Martinez of the McAllen, Texas law firm of Garcia & Martinez, L.L.P. They specialize in complex commercial and personal injury litigation.
Posted By Eduardo Alarcon
19319 Inverness Dr.
Spicewood, TX 78669
(512) 217-6655
Eduardo.alarcon@sbcglobal.net
P.S. If you want to contact the Law Firm mentioned in the press release please contact them directly at:
April P. Adrian, Paralegal
GARCIA & MARTINEZ, L.L.P.
10113 N. 10th Street, Suite H
McAllen, Texas 78504
(956) 380-3700 – office
(956) 380-3703 – fax
april@garmtzlaw.com