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Why the Fargo Forum's Editorial Board is Wrong (Again)

The Fargo Forum, this morning, went after North Dakota Insurance Commissioner Jim Poolman's partisan "critics" for not gushing about all the supposedly great things Poolman has done for North Dakota's insurance consumers.  From time-to-time the Forum's editorial board shows hints of sanity, logic and rationality, but not this time.  The Forum hasn't ever asked itself why Poolman is really dishonoring his commitment to serve the people of North Dakota for 4 years.  Poolman says it's "for his family," the Forum parrots that, end of story.  Period.  But there's more to the story.  You can always count on NorthDecoder to tell you the rest of the story.

Jim Poolman and North Dakota's Republican Party started a relationship with the big-money interests in one small but wealthy pocket of the viatical settlements industry several years ago.  "What's a 'viatical settlement," you ask?  Good question.  I didn't know until recently, either.

A viatical settlement is an investment in which insurance policies from terminally ill people are purchased at a discounted rate. The terminally ill person is then able to receive an immediate cash payment, and the purchaser, who continues to pay the insurance premium, eventually receives the death benefit.

Law.com 

Despite the fact you and I had never even heard of it, the viatical settlement industry is a billion dollar industry [or some would say "fast-growing, multi-billion dollar industry"] in America:

In 2005, the aggregate face amount settled in the form of viatical or life settlements was estimated to be in the $10 - $15 billion range, up from an estimated $2 billion face amount settled in 2002."

LISA.org

But it's not all good. 

In 2006, Poolman was the chairman of the National Association of Insurance Commissioners' "Life Insurance and Annuities (A) Committee" and a member of the NAIC executive committee.  The Life Insurance committee had been tasked with drafting what's called a "uniform act" relating to viatical insurance.  Uniform acts are laws drafted by respected national organizations and proposed for adoption in most or all states.  The "Uniform Commercial Code," for example, is a relatively well-known uniform act, but there are lots and lots of uniform acts.

Part of the viatical settlement uniform act debate has involved something called "Stranger Owned Life Insurance."  In December of 2006, the NAIC released the model law Poolman's committee had worked on behind closed doors.  

The original intention of the committee and its chairman, North Dakota insurance commissioner Jim Poolman, was to prohibit the sale of Stranger-Initiated Life Insurance (SILI), also referred to as Stranger-Owned Life Insurance (STOLI). SILI and STOLI-type transactions have raised serious concerns throughout the insurance industry in that they are often designed to manufacture life-insurance sales for the sole purpose of placing that insurance and its death benefits in the hands of disinterested third-party investors, in violation of most, if not all, insurable-interest laws throughout the country.

AllBusiness.com

During the process of drafting the uniform viatical settlements act, Poolman had taken a 180 degree turn and basically went to bat for one company in the the viatical settlements industry.  Poolman proposed amendments to the uniform law that

"did not stop STOLI because they did not prohibit "finance programs permitting investor participation prior to or at issuance" of a policy where the consumer only "derives some modest percentage of the death benefit." Commissioner Poolman, according to the minutes, defended the very company whose practices triggered his committee's June 2005 NAIC resolution condemning that company's business practices as against public policy. The minutes indicate that, to back up his new support for this company and its practices, he indicated that he would be the only author of amendments. He then threatened the ACLI that they should not alert other members of the committee that his draft contained a loophole benefiting the program that the committee had previously condemned."

MarketWire.com  

[H]e intended to be the architect of whatever the final product of the Committee might be -- if any -- and that he disapproved of industry efforts to identify leadership on the committee beyond his own.' He backed this up with a warning that he would kill the bill: 'the only choice for the industry was to agree to address STOLI settlement schemes now or risk receiving any useful NAIC guidance on STOLI this year.'"

MarketWire.com 

Poolman claimed he -- as architect of the model law -- was going to solve the STOLI problem by extending the two year ban on the transfer of life insurance policies to a five year ban.  The Life Insurance Finance Association (LIFA) took this position:

While there are a number of troublesome provisions in the proposed Model Act, the most blatantly offensive to consumer rights is the provision which prohibits the sale of a life-insurance policy in the secondary market for five years from the date of its issuance. The committee, ignoring testimony from consumer advocates, banking and premium finance professionals, has been misled into believing that by extending the current two-year ban on sales, somehow the abusive transactions represented by the SILI and STOLI deals will be undermined and eliminated. LIFA, whose point of view was echoed by legal experts and economists, believes that the five-year prohibition will do nothing to prevent abusive practices, but will have the detrimental effect of preventing certain consumers from selling their life-insurance policies and their personal property, even in the event of severe financial distress. A consumer that sought a certain type of premium financing will find himself or herself forced to lapse the policy or retire it for its minimal cash surrender value if he or she is unable to pay the premiums prior to the five year date. He or she will be prohibited from realizing its market value in the secondary market. This is antithetical to consumer protection, and at the same time fails to accomplish its intended purpose.

AllBusiness.com 

This may or may not be a good analysis of the situation.  Kentucky state Representative Robert Damron seems to agree with LIFA on at least some of its analysis.  Damron had obtained a disturbing American Council of Life Insurers ("ACLI") memo that talked about what had happened behind closed doors.  Damron issued a memorandum that seems to agree, at least in part, with the LIFA position (above), and shed some sunshine on Poolman's smoke-filled-room antics.  The LIFA people argue that Poolman's change either (a) doesn't address the STOLI problem, or (b) makes the STOLI problem worse because it gives a false sense of security.  Here's the problem

[ ] SILI and STOLI marketers, having closely followed [Poolman's] proposed changes, have already adapted their practices such that these amendments will have no impact on their improper transactions. Since the marketers are prohibited from selling the policies, they have designed transactions that transfer ownership of trusts that hold policies, rather than the policies themselves. Not even a twenty-year ban on life-settlement sales would prevent these transactions

AllBusiness.com

People have been bilked out of hundreds of millions of dollars through viatical settlement industry scams.  If you Google the words "viatical" and "scam" or "viatical" and "fraud," you'll eventually come upon stories about Florida Democrat Bill Nelson, who found himself embroiled in the middle of a viatical settlement scandal (read this, for example).  In 2006, Oklahoma's former Insurance Commissioner, Carroll Fisher, was sentenced to 3 years in prison and a $20,000 fine for his involvement in a number of issues, some of which appear to have involved, on some level, the viatical settlement industry.  It looks like before his criminal conviction, Fisher apparently played ball with some in the viatical industry , too.  This industry is not a universally clean industry by any stretch of the imagination.   

Over the past 3 or 4 years, North Dakota's Republican Party and Jim Poolman have been cozying up to one little corner of the viatical settlement industry.  From all appearances, they specifically have been cozying up to the folks at one company:  InsCap.  The publicly accessible money trail between the viatical people and North Dakota's Republicans appears to start in 2004, when Norm and Jay Taplin, two lawyers in Florida whose office does work for the viatical settlement industry, started making contributions to the NDGOP.  The West Palm Beach duo -- with no other obvious connection to North Dakota -- contributed $4,500 to the NDGOP in 2004 and another $1,500 in 2005.  If you do a little digging online about the Taplins, you'll find that Norm Taplin was sued for his alleged involvement in an alleged viatical-related Ponzi scheme in Florida.  It is reported that Taplin personally paid out $125,000 to get out of the lawsuit.  [His law firms malpractice carrier paid out another $6 million, according to the Law.com story.]

Then, in 2005, the "Agents Insurance Association," (AIA) a New York organization, contributed $5,000 to the NDGOP.  AIA shares an address with a "InsCap," the major player in the viatical settlement industry.  (Google the AIA and see if you find anything more about them than I did about them.  I found next to nothing.)

In 2006 -- a year when Jim Poolman wasn't even running for office -- a "Sara Bachrach" contributed $25,000 to Jim Poolman's political campaign.  The same year, an "Ira Brody" made a $15,000 contribution to the NDGOP.  Bachrach and Brody shared the same street address.  Brody is an executive at InsCap, the big company that does viatical settlement work of the type most benefitted by Poolman's back-room handywork.  That's $40,000 from one New York household.

This stuff is somewhat complicated and, to some, is probably incredibly boring, but it's not impossible to understand.  The bottom line is this:  Poolman proposed what many in the industry perceive as being a big favor for one corner of the viatical industry, namely this InsCap company that has had its people pump money into Poolman's campaign committee and the North Dakota Republican Party.

But the story doesn't end there. 

During the 2007 legislative session, Poolman ushered his new pro-InsCap viatical settlement legislation through the North Dakota legislature.  (I don't remember hearing anything about it during the session.)  InsCap got what it wanted from North Dakota.  It got a law that pretends to protect investors from STOLI viatical scams, but that -- according to many -- doesn't because it leaves open the InsCap loophole.  

This is the issue Republican legislator George Keiser appears to be upset about.  Keiser apparently agrees with Kentucky Democratic Representative Robert Damron (D-Kentucky) (and me) that the closed-door sessions Poolman conducted at the NAIC while drafting this model legislation were inappropriate.  Keiser asked North Dakota Attorney General Wayne Stenehjem for an opinion on whether Poolman's secret meetings were a violation of North Dakota's open meetings law.  Stenehjem, being the good GOP party faithful guy that he is, said Poolman's closed meetings are not a violation.  

Okay... so why did I write all of the above?!?  A lot of reasons.  When I called and spoke with Kentucky Rep. Robert Damron, I asked him what he thought was the biggest deal in this.  He said he had heard Poolman had gotten big contributions for himself and for the NDGOP from people at InsCap, but that he couldn't confirm that.  I've (obviously) done the confirming (see above).  Rep. Damron said that if those big contributions happened, then the language in the ACLI memo attached to his July 17, 2007, memorandum (referenced above), is very damning.  I think Rep Damron is exactly right.  Here's what the memo says:

If you're seeing in that memo what I'm seeing, this InsCap company that has had its executives funnelling tens of thousands of dollars into Poolman's campaign war-chest (that he's not going to use) and into the NDGOP, got everything they wanted both in the model act, and in the North Dakota legislature.  They even got Jim Poolman to defend this scheme that protects their business to the detriment of other parts of the viatical settlements industry.  And now, just months later, Poolman is leaving to go to work as a "consultant" in the insurance industry.  What do you think the odds are that Poolman is going to be doing consulting work for InsCap?  I think they're pretty good.

Can I prove Poolman's going to work for InsCap (or the AIA, or some other InsCap-related company) after he steps down as Insurance Commissioner?  No.  Of course not.  Not yet, anyway.  But is it reasonable for me and others to be suspicious?  Sure.  Look at all the money they've pumped into Poolman's and the NDGOP's coffers.  Look at the timing of all this.  Poolman went to bat for this particular viatical settlement business, and now he's going to become "a consultant."  It's not a huge leap to guess that he'll be working for the company whose back he's been scratching.  It's a problem when it appears that a regulator may have sold himself to a company while still acting as a regulator.

I'll bet Poolman has sewn up a "relationship" with InsCap and will be doing "consulting" work for them.  Whether there was or not, it sure looks like a quid pro quo.  It looks like Poolman took one for the team; for this one little piece of the viatical industry; both at NAIC and in the North Dakota legislature.   That's why he's neglecting his four-year commitment to the citizens of North Dakota.  I take him at his word when he said he chose to do what is best financially for his family.  But the question he needs to answer for the people of North Dakota is whether he used his political clout to line his pockets.     

And the Fargo Forum doesn't even have the guts to ask him one question on the issue.  In his interviews, Poolman practically begged the question, stating that he has received many job offers during his tenure as Commissioner. 

Poolman said in a prepared statement this morning that,"After much thought, I have decided the timing is right for me personally and for my family. This opportunity is just one I couldn't refuse"

Grand Forks Herald 

He literally wrote -- on paper -- that he had gotten an offer he "couldn't refuse."  How intrepid would the Forum Communications or other reporter have to be, to ask "Really, from whom?  What companies?"  He says he has now accepted an offer, yet even now the Forum doesn't ask him who its from? 

It's possible nobody on the editorial board at the Fargo Forum is smart enough to understand the viatical issue.  This stuff made the news wire (and this blog) in July, and the Fargo Forum just ignored it (along with all the rest of North Dakota's media).  "It's too hard," they probably thought.  "We don't understand it, so how can we expect our readers to understand it."  Now they've gone to bat for Poolman, claiming he's a golden boy and shouldn't be criticized.  I want to know why the Forum never asked Poolman the obvious questions, like what company or companies he's going to work for.  I want to know why they never asked Poolman if and when he started negotiating with InsCap or some other InsCap-related outfit.  Was it before or after he went to bat for InsCap at NAIC?  Was it before or after he took InsCap's bill to our own state legislature?  I want to know why the Fargo Forum has failed to ask even one question about the obvious appearance of impropriety.  

And what if I'm wrong?  What if it's not InsCap?  That doesn't reduce -- at all -- the media's responsibility to ask Poolman these easy questions.  And for the media to criticize others for asking easy questions makes the Forum's editorial board look like a pack of Poolman water carriers. 

This is what you get with single-party rule politics, folks.  This is the arrogance of power from the Republican party and this is your North Dakota media that lets it happen.  The Fargo Forum is wrong on this one.  If anyone has taken the low road on this issue, it's the editorial board at the Fargo Forum. 

Or Jim Poolman.

We deserve better. 

[A Thank You:  Don Morrison, a consumer representative at the NAIC, helped me gather the information to put this piece together.  Don is also executive director for NDPeople.org, statewide advocates for economic and social justice.]

[A Follow-up:  Jamie Selzler, executive director for the North Dakota Dem-NPL party, has a response letter in the August 31, 2007, Fargo Forum, and NorthDecoder has a follow-up regarding a Bismarck Tribune editorial from the same day.] 

[Another Follow-up:  To see what Poolman's been up to since going to work in the private sector, click here.]

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