More twists, turns in CNO's surreal hedge fund odyssey
The
It was a rare moment of validation for CNO, whose executives must feel as though they have been entangled in some sort of alternate universe since a deal the company struck in 2013 to reduce risk blew up in spectacular fashion three years later.
The saga began when CNO off-loaded to a startup firm called
CNO executives say they didn't know it at the time, but
According to a lawsuit CNO filed in 2016, the company was unaware that Platinum principals
CNO is among a litany of
As part of its so-called reinsurance agreement, CNO had shifted
Platinum's receiver,
"Contrary to their portrayal as unwitting victims of the scheme," she wrote, CNO and its affiliates "were willing participants, turning a blind eye from multiple red flags of fraud to transact with Beechwood in the hope Beechwood would rescue them from being detrimentally burdened by the long term care insurance portfolios that were albatrosses around their necks."
Financial trickery?
A CNO spokeswoman declined to discuss Beechwood and Platinum litigation, but in court papers company attorneys vehemently dispute that characterization.
In one filing, the company cited internal correspondence in which Beechwood executives expressed concern that
CNO contends it had every reason to believe Beechwood was on the up and up, given that its purported founders were reputable industry veterans-former Marsh
In court papers, CNO says that only later did it learn that Beechwood was conspiring with Platinum executives on a secret scheme that used Beechwood as a "piggybank" to prop up and fund the teetering Platinum hedge fund.
The filings say that, while Platinum claimed to rack up outsized returns averaging 17% a year from 2003 to 2015, those figures were inflated. In reality, by 2014, Platinum was relying almost entirely on new investments and loans to scrape together the cash needed to pay off investors who redeemed their holdings, CNO says.
The insurer said it began noticing Platinum-related investments in reports it was getting from Beechwood that year. But when it raised concerns that they were unsuitably risky for an insurer, Beechwood reassured the company that they were appropriate and were accurately valued- assertions CNO says proved to be false.
CNO's worry turned to alarm in the summer of 2016, after prosecutors charged Platinum's Huberfeld with bribing a union official into investing
CNO contends that Beechwood insiders went to great lengths to conceal the connection with Platinum. When CNO asked about the source of the funds used to capitalize Beechwood, Beechwood refused to say, citing "confidentiality agreements."
In addition, CNO says it now knows that four of five employees identified as Beechwood employees at a
CNO sued Beechwood principals in 2016, arguing that "Beechwood's massive and risky investments with Platinum ... was the goal of the fraudulent scheme hatched by defendants to bamboozle institutional investors like [CNO] out of their money by tricking them into indirectly investing with Platinum."
CNO last November settled the suit, with terms undisclosed.
Twists and turns
If CNO executives were seeking validation when federal prosecutors took their fraud case against three former Platinum principals to a jury, they didn't get it. Not even close.
Last July, the jury failed to convict any of them on the headline-grabbing charge that they had run Platinum like a Ponzi scheme.
The jury did find Nordlicht and former Chief Investment Officer
It got worse from there. In a move that legal observers called highly unusual, Judge
A
"I'm possibly having some issues with the government's case," Cogan said six days into the trial.
At the outset, according to Institutional Investor, "he forbade any mention of
Platinum being a
It also didn't help that representing Nordlicht was prominent
In this case, what prosecutors cast as a Ponzi scheme Baez compared with the run on the bank that sympathetic banker
Fighting it out
The legal wrangling likely will continue for months, if not years.
In
CNO also is appealing the dismissal of a suit it filed against
In addition, CNO is trying to fend off a
By then, CNO already had suffered
That was just a taste of the financial hit to come.
The long-term-care policies continued to cast a cloud over CNO until
Shedding the policies wasn't cheap. CNO took a
Yet
"We have materially reduced the risk profile of the company," CEO
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