The ELNY debacle — perhaps one of the most egregiously botched insurance rehabilitations in modern history — is not just a black eye for the state of New York, supposedly one of the United States’ gold standard insurance regimes. It is a black eye for state regulation itself, yet another argument to be used by those who favor a federal system to gradually replace the patchwork quilt of regulatory systems that has, time and again, managed to fail the public which it is charged to serve. But these are just bureaucratic failures. The real import of ELNY is the very real and debilitating financial damage the company’s liquidation plan will have on some 1,500 families whose source of income is being cut by as much as 60% under ELNY’s terms of liquidation.
You can read all about the details of the ELNY liquidation in our special investigative feature, “The Complete ELNY Saga: 21 Years of Mismanagement, Corruption, Broken Promises and Shattered Dreams.” The short version is that ELNY was taken into rehabilitation, was subsequently mismanaged by the New York Liquidation Bureau — a rogue agency if ever there was one — and was given the go-ahead to be liquidated back in March of this year. As part of the liquidation, some 1,500 structured settlement annuitants still on ELNY’s books will have the values of their annuities severely reduced. Never mind that these annuities are the sole source of income for a lot of these families, or that the annuities are there because these families suffered a serious injury or loss. The people in ELNY’s book of SSAs who have already suffered the worst are being made, once again, to suffer the worst in what can only be described as a heavy-handed and clumsy effort to square ELNY’s accounts as much as possible while liquidating the company.
Here’s the rub: ELNY has 14 years of operating capital left while it runs off its book of structured settlement annuities. There are far more gentle ways of squaring the company’s accounts — by reducing the cost of living increases in the annuities, for example rather than cutting their present value — than by the draconian methods already used. But these have either been overlooked or rejected.
The New York Liquidation Bureau — which incredibly was given full legal immunity in the liquidation agreement itself — is the cause of all of this mess. It mismanaged and stole from ELNY from Day One, and now it has been given a complete pass on its 21 years of failing to live up to its fiduciary responsibility. Any other agency would have been sued into oblivion at the very least, or facing criminal charges. The NYLB answers to only one person — the superintendent of insurance. And that person is Department of Financial Services head Ben Lawsky.
Lawsky, by our accounts, is a good man with a hard job, and who inherited a pretty bad situation with the NYLB. By the time he arrived on the scene, the NYLB had pushed ELNY beyond the point of no return. And to Lawsky’s credit, he could have kicked the can down the road on ELNY like so many of his predecessors did. But he took action and tried to fix things with ELNY. His first option was to go to New York insurers and get them to all pay into ELNY’s shortfall of funds so the policyholders could be made whole and still get 100 cents to the dollar on their policies once ELNY was liquidated.
The industry refused, and Lawsky accepted their refusal. And in so doing, the public was failed yet again.
Lawsky, in the meantime, levied a $330 million fine against Standard Chartered bank earlier this year for laundering money for Iran. When I asked where that money was going, the DFS told me the money was going into the state’s general fund. Not long ago, Ivy Asset Management was fined some $200 million for failing to blow the whistle on Bernard Madoff’s Ponzi scheme. Those funds are going back to Madoff’s victims. But to see half a billion dollars levied in fines in less than a year, and to know that ELNY could have been made much more whole off of those fines, and to know that none of that money will be allocated to help ELNY, is disgusting.
Lawsky answers to one person: New York Governor Andrew Cuomo. So really, the management of ELNY is a pretty thin line of accountability: from the head of the NYLB, to Lawsky, to Cuomo. Cuomo has yet to show a public interest in ELNY, perhaps because so many of ELNY’s annuitant payees are not residents of the state. But ELNY is darkening his doorstep, and as governor, he has a duty to the public, both to the people of New York, and to those with whom the government does business. And in this case, that means the ELNY payees.
The simple truth is this: Cuomo could fix ELNY if he wanted to. If he thought fixing ELNY would help his chances for a Presidential run in 2016, ELNY would already be fixed. But so far, it remains the subject of an unfair and brutal liquidation scheme that takes advantage of people who have been denied any opportunity to hold accountable those who have ruined their finances. Somewhere, ELNY needs about $1 billion to be made whole. The insurance industry in the state could simply be ordered to pay that amount; Lawsky certainly believed so. So why will Cuomo not take action?
Is it because Cuomo cannot stomach the notion of making the rest of the industry in the state pay for the actions of an irresponsible few? Perhaps. But if that is the case, then there is always the possibility of paying for ELNY with other general fund monies. And if making the people of New York pay for ELNY seems more unfair than making the ELNY payees shoulder the burden of a failure they did not commit, then at the very least, Cuomo could ensure that any and all fines levied by the Department of Financial Services (Ben Lawsky) go first to ELNY before going anywhere else.
So why won’t Governor Cuomo call a press conference and say that he has found funding to make ELNY whole? The ELNY liquidation plan is currently being appealed. It has not yet taken effect. There is still time to fix this unholy mess New York has allowed to fester for the past two decades, and is now trying to wash its hands of. New York is supposed to be better than this. Ben Lawsky is supposed to be better than this. Andrew Cuomo is supposed to be better than this. And yet, somehow, none of them are, when ELNY is concerned. And that is a grave disappointment.
Governor Cuomo, make this right. Fix ELNY before its payees must endure their harsh payment cuts. There is a difference between doing the easy thing and doing the right thing. Show your constituents that you know the difference, or be called out as being just as much a part of this long-running failure as everybody else who has had a chance to fix ELNY and come up short.