Wednesday, February 20, 2008
MetLife Committed Securities Fraud in its Demutualization
In April of year 2000, MetLife changed from a mutual life insurance company to a stock insurance company via a process called demutualization.
In the demutualization process MetLife committed securities fraud against participating policyholders who were members of the mutual association.
In July 2005, a federal judge certified a class in a class action law suit against MetLife filed in year 2001. We encourage you to read the complaint and the judge's class certification decision.
The purposes of this web site are: 1. To inform MetLife policyholders about this subject and 2. To advocate the interests of ALL MetLife participating policyholders who were damaged by the MetLife securities fraud.
The litigation is complex but the concepts behind it are not. MetLife omitted material information and made material misrepresentations in its prospectus sent to policyholders to solicit votes for their plan of demutualization. The complaint sets forth how policyholders suffered financial damages due to implementation of the demutualization plan.
As a participating policyholder in a mutual insurance company, class members were entitled to "insurance at cost" from MetLife. The participating policyholders were the sole owners of the insurance company. For a century, MetLife used its mutual form of ownership as a selling point in selling life insurance. It makes logical sense, they argued, that the mutual form of ownership should result in the lowest cost for insurance since the policyholders own the company. There were no other owners with whom earnings had to be divided.
What fundamentally changed as year 2000 approached, that made MetLife abandon this century long business strategy? What convinced 93% of MetLife policyholders who voted, to vote in favor of such a fundamental change?
"Greater access to capital" was offered by MetLife as an important reason. However, MetLife was not capital constrained. In fact, in 2001 MetLife repurchased several million of its own shares at twice the price per share that it sold the shares one year earlier at the demutualization/initial public offering.
Like many other mutual insurance companies, MetLife insiders choose to disregard the original objective in the company's charter i.e. seeking to be a cost efficient provider of life insurance for members of the mutual association. In defending its conduct MetLife's lawyers described the ownership interests of members as "ephemeral". That must have been the attitude that lead to the securities fraud. In any event, MetLife is now a stock company and rescission of the transition from the mutual form of ownership is not going to happen.
As a class member, what is your cost of life insurance likely to be now compared to what it would have been if MetLife had not demutualized? We think that is an important question in determining any damages sustained by class members. Participating policyholders were allocated shares in the demutualization and that mitigates any loss. However, the adequacy of such distributions is at issue in the law suit. The law suit alleges that only 54 cents on the dollar was distributed to policyholders in cash or shares.
The funding of the "closed block" is also at issue in the law suit. "Closed block" is the term used to describe the block of insurance contracts that were matched with certain MetLife assets in the demutualization process to result in a targeted financial result or financial performance. Your life insurance contract and mine are in such a closed block now. Were you provided with any information as to the adequacy of the funding of this closed block?
Meanwhile, since the demutualization in 2000, MetLife has performed well reflected by the fact that the shares of MetLife which were priced at the initial public offering at $14.25 per share are now near $50 per share.
Even if you chose to receive shares rather than cash in the demutualization, your ownership of MetLife has been diluted by shares sold to others at the public offering.
In a separate class action case in New York State Court, a class has been certified against MetLife. The complaint in this case calls into question whether MetLife's internal actuarial accounting is reliable for the purpose of determining persons to be included and excluded form the class in the demutualization securities class action. See Surplus Diversion Complaint
We believe that all members of the mutual association that was MetLife before demutualization were defrauded and suffered financial damages...not just, as the definition of the class sets forth "...those policyholders form whom MetLife calculated a positive actuarial equity share..."
If you owned a MetLife participating policy at the time of the demutualization and were allocated only 10 MetLife shares, presumably you are not a member of the class. Yet your life insurance policy is in the under funded closed block. Funding for future dividends on your life insurance policy should be enhanced as well as for class members.
In total damages, the MetLife securities fraud should rank at the top with Enron and Worldcom. The fact that the story gets no publicity might be due to the complexity of the litigation and the fact that members of the mutual association, that was MetLife, did not think of themselves as owners of MetLife. It was almost the perfect crime for the insiders.
For a case summary of the MetLife demutualization case as included in the Stanford Law School Securities Class Action Clearinghouse see the summary.
In the demutualization process MetLife committed securities fraud against participating policyholders who were members of the mutual association.
In July 2005, a federal judge certified a class in a class action law suit against MetLife filed in year 2001. We encourage you to read the complaint and the judge's class certification decision.
The purposes of this web site are: 1. To inform MetLife policyholders about this subject and 2. To advocate the interests of ALL MetLife participating policyholders who were damaged by the MetLife securities fraud.
The litigation is complex but the concepts behind it are not. MetLife omitted material information and made material misrepresentations in its prospectus sent to policyholders to solicit votes for their plan of demutualization. The complaint sets forth how policyholders suffered financial damages due to implementation of the demutualization plan.
As a participating policyholder in a mutual insurance company, class members were entitled to "insurance at cost" from MetLife. The participating policyholders were the sole owners of the insurance company. For a century, MetLife used its mutual form of ownership as a selling point in selling life insurance. It makes logical sense, they argued, that the mutual form of ownership should result in the lowest cost for insurance since the policyholders own the company. There were no other owners with whom earnings had to be divided.
What fundamentally changed as year 2000 approached, that made MetLife abandon this century long business strategy? What convinced 93% of MetLife policyholders who voted, to vote in favor of such a fundamental change?
"Greater access to capital" was offered by MetLife as an important reason. However, MetLife was not capital constrained. In fact, in 2001 MetLife repurchased several million of its own shares at twice the price per share that it sold the shares one year earlier at the demutualization/initial public offering.
Like many other mutual insurance companies, MetLife insiders choose to disregard the original objective in the company's charter i.e. seeking to be a cost efficient provider of life insurance for members of the mutual association. In defending its conduct MetLife's lawyers described the ownership interests of members as "ephemeral". That must have been the attitude that lead to the securities fraud. In any event, MetLife is now a stock company and rescission of the transition from the mutual form of ownership is not going to happen.
As a class member, what is your cost of life insurance likely to be now compared to what it would have been if MetLife had not demutualized? We think that is an important question in determining any damages sustained by class members. Participating policyholders were allocated shares in the demutualization and that mitigates any loss. However, the adequacy of such distributions is at issue in the law suit. The law suit alleges that only 54 cents on the dollar was distributed to policyholders in cash or shares.
The funding of the "closed block" is also at issue in the law suit. "Closed block" is the term used to describe the block of insurance contracts that were matched with certain MetLife assets in the demutualization process to result in a targeted financial result or financial performance. Your life insurance contract and mine are in such a closed block now. Were you provided with any information as to the adequacy of the funding of this closed block?
Meanwhile, since the demutualization in 2000, MetLife has performed well reflected by the fact that the shares of MetLife which were priced at the initial public offering at $14.25 per share are now near $50 per share.
Even if you chose to receive shares rather than cash in the demutualization, your ownership of MetLife has been diluted by shares sold to others at the public offering.
In a separate class action case in New York State Court, a class has been certified against MetLife. The complaint in this case calls into question whether MetLife's internal actuarial accounting is reliable for the purpose of determining persons to be included and excluded form the class in the demutualization securities class action. See Surplus Diversion Complaint
We believe that all members of the mutual association that was MetLife before demutualization were defrauded and suffered financial damages...not just, as the definition of the class sets forth "...those policyholders form whom MetLife calculated a positive actuarial equity share..."
If you owned a MetLife participating policy at the time of the demutualization and were allocated only 10 MetLife shares, presumably you are not a member of the class. Yet your life insurance policy is in the under funded closed block. Funding for future dividends on your life insurance policy should be enhanced as well as for class members.
In total damages, the MetLife securities fraud should rank at the top with Enron and Worldcom. The fact that the story gets no publicity might be due to the complexity of the litigation and the fact that members of the mutual association, that was MetLife, did not think of themselves as owners of MetLife. It was almost the perfect crime for the insiders.
For a case summary of the MetLife demutualization case as included in the Stanford Law School Securities Class Action Clearinghouse see the summary.
Saturday, February 16, 2008
A prediction of a settlement...
It is very predictable that several months from now, there will be a settlement of the MetLife securities fraud case described below in the August 22, 2005 posting.
In that settlement, MetLife will not admit any wrongdoing. There will be no punitive damages. Some small fraction of the economic loss that the MetLife participating policyholders suffered due to the fraud will be put into a settlement fund. This amount will be tax deductible by MetLife...so on a before tax basis but even more so...on a after tax basis...this form of white collar crime pays and pays well.
Naturally, the next mutual insurer to demutualize will fine tune their demutualization plan based upon lessons learned from the MetLife settlement.
Some advice to the next mutual insurer seeking to victimize it owners: It is still highly profitable to defraud participating policyholders and divert equity to unjustly enrich investment bankers and insiders. However, experience says...tweak the disclosure documents and defer the buy back of treasury stock so it is not so obvious that capital was not needed.
It should go without saying that the class action attorneys will make out like bandits.
In that settlement, MetLife will not admit any wrongdoing. There will be no punitive damages. Some small fraction of the economic loss that the MetLife participating policyholders suffered due to the fraud will be put into a settlement fund. This amount will be tax deductible by MetLife...so on a before tax basis but even more so...on a after tax basis...this form of white collar crime pays and pays well.
Naturally, the next mutual insurer to demutualize will fine tune their demutualization plan based upon lessons learned from the MetLife settlement.
Some advice to the next mutual insurer seeking to victimize it owners: It is still highly profitable to defraud participating policyholders and divert equity to unjustly enrich investment bankers and insiders. However, experience says...tweak the disclosure documents and defer the buy back of treasury stock so it is not so obvious that capital was not needed.
It should go without saying that the class action attorneys will make out like bandits.
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