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Sheperds and MBC latest

MUTUAL BENEFITS CORPORATION

 

The MBC Receiver is now collating and digesting the result of the poll of investors as to the destiny of the MBC policies into which they have invested.

The Receiver’s 15th Report deals with immediate and future strategy so it is relevant to all. It addresses the sale of shares in policies for which the majority of investors voted to maintain and whilst I am not happy about the method of selling unwanted shares it is perhaps, like democracy, better than any alternative.

I moved swiftly from being an enthusiast for buying in a fire sale to totally averse at the prospect of guessing a realistic value for the investment and sending a cheque into a possible void. One is assured that non-winners money will be returned which is the triumph of hope over experience. The postal problems have been a nightmare as I have discovered dealing with investors in both Spain and Mozambique.

Not surprisingly the Receiver is looking to divest himself of the services operations now provided by VSI. When the Receiver follows the viators he will probably have MBC writ large where Queen Mary had Calais.

The magnitude of the Receiver’s task is illustrated by 52,239 Option Preference forms being dispatched relating to 6,901 active policies valued at  $1.45 billion. Investors elected to maintain 3,037 policies, to sell 3,138 and to surrender 119 policies. The result of the poll should be posted on the Receiver’s web site within a couple of weeks. Investors should by now have been informed of the decision to maintain policies. A number of polices failed to achieve a majority or were a tied vote and the Receiver is applying to the court for an order to exercise a casting vote.

The reason for the unseemly haste to complete the sale and purchase of unwanted shares is that the day of reckoning approaches when investors will be obliged to start paying premiums, so 25th May is deadline day.

The Receiver wrote on 21st April to dissenting investors who opted to sell their shares in policies, which the majority voted to maintain, asking them to confirm their desire to sell to their fellow investors. The unfortunate seller of a share will have to bear the cost of sale exacerbating the agony. If such unwanted shares are not sold the Receiver will attempt to reduce the face value of the policy with the insurer and failing that will land the premium on the remaining investors pro rata. If that fails the policy will be sold so everybody would lose out.

VSI have been handling viatical policy services and administration such as premium payments and keeping track of viators, processing death benefits (there is a bone of contention) and investor relations (a bigger bone of contention). VSI’s task in dealing with investors will become more onerous after the current policy sale and they will take over policy maintenance from MBC. As administration appears to be a complete shambles now all does augur well for the future. Where are the cheques relating to matured policies?

The bad news is, of course, that investors will start bearing the responsibility for premium payments from June 2006 until the viators honour their part of the bargain. Somewhat alarmingly the Receiver is backing away from the responsibility for managing, servicing and gathering in the premiums after the first run at it. It looks like the Receiver wants to hive off this operation on a commercial basis, which means the investors will have to foot the bills. In blunt terms the Receiver may sell his responsibilities to the highest bidder who will then get his money back by way of administration charges levied on the investors. The Receiver is chewing on this one and welcomes your input. The Florida Office of Insurance Regulation will vet the candidates. Did they vet MBC?

VSI itself might be sold and it is an asset of the Receivership. The Receiver is contemplating the problem of balancing the commercial interest of the party who takes over policy administration and service motivated by profit and the interests of the investors who may not relish the prospect of paying for it. The plus side is that the proceeds of any such sale accrue to the Receivership so indirectly you get your own money back or money’s worth. The downside is the conflict of interest between those who pay to maintain policies and those who do not and whoever takes over the servicing and administration will want a return on their investment, so you end up paying anyway. Economists call it wealth redistribution. Do not even mention Bernie Cornfeld, IOS and Robert Vesco.

The Receiver will in due course hand over the reins of ownership of the policies to a Court-appointed trustee until such time as the last policy matures. The Receiver’s stated intention is to make each investor a named beneficiary of the policy in which he/she has invested, but that is not as simple as it might sound. This proposal would be unacceptable to many insurance companies on the basis of fractional beneficial interests. There are all sorts of problems relating to assignments of investor’s shares now as well as future problems when investors fail to pay their share of premiums. The Receiver will apply to the Court for the appointment of nominee beneficiaries to facilitate this process.

Investors have opted to sell 3,138 policies with a total face value of $383,850,782.72 and the Receiver is working on the sale of these policies talking to various interested parties.

 

The court Order of 8th May does not pull its punches on the Steinger brothers alleging Leslie and Joel ‘unjustly enriched themselves by extracting tens of millions of dollars in consulting fees from MBC and VBLLC and by converting millions of dollars from MBC and VBLLC for their personal benefit’. The Steingers are still ducking and diving and refusing to come out with their hands up. The court allowed them to wriggle out of two counts of fraudulent transfer, but they are firmly in the frame on the main allegations against them, which are sufficient for investors’ purposes and ends. This order makes interesting reading on American and Florida law.

Gwilym Rhys-Jones

E-mail: gwilymr-js"MsoNormal" style="MARGIN: 0cm 0cm 0pt">Tel: +(34) 951 31 82 77

Mobile: +(34) 699 840 606

Skype address: gwilymrj

20.V.2006

 

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