PAY DAY AT LAST

Finally, the checks have been mailed. After more than five and one half years, MBC Investors are receiving their share of the recovered assets. Distribution of this money had been promised for months, but was apparently held up until a settlement of legal fees was reached. I have no problem with THESE receivership fees. I am quite satisfied that the receivership recovered over $117 million dollars and the fees to do so were less than 10 percent. Another very good thing about this distribution is its timing and the fact that it will not be reported to the IRS. I’m not a tax professional, but if you have not filed for a tax loss and have a right to claim one. You may want to consider filing for the loss in the 2009 tax year under Section 165 of the tax code. If you are not familiar with this section, check the IRS web site or call one of the 165 tax services that have responded to my blog at http://scartz.blogspot.com.

GETTING TO KNOW THE RECEIVERSHIP

It took me a long time to develop any trust in the receivership. My primary problem was that I didn’t understand and wasn’t willing to accept that the receiver answered to the court first and the investor last. I felt that without me and the other investors, the receivership wouldn’t have the opportunity to earn a $10 million dollar fee and that the investors were not given enough information or consideration. Quite possibly, everything that the investors needed to know were in the court documents on the web site. But many investors didn’t have access to computers and documents prepared by lawyers for court use tend to be hard for the average person to understand. Another problem is that the receiver has never provided enough documentation to allow verification of any financial information provided. In my opinion, the lack of verifiable financial information continues with this distribution. For example, why didn’t the receivership show a summary of the monies that comprised the recovery pool? Was the recovery fund held in an interest bearing account, and if so, was the earned interest income added to the recovery account? Also, why didn’t the receiver state the actual return percentage? My parents received 18 checks so I was able to compute the return to be 13.51574%. If you had only one policy, would you have been able to verify your check amount? Hopefully, there will be an audit of this receivership in the future and some of these questions will be answered.

WHAT’S NEW WITH MY PARENTS ACCOUNT

Since, I haven’t posted anything for almost two years I will bring you up to date. My parents had 22 policies when the receivership took control in May 2004. All of our policies were voted upon “to keep” and we have made all premium payments so far. We have had three policies “mature”, one in 2007, 2008, and 2009. I will provide information on each of these policies, so that you can see how it was reported and what you may want to question.

1. As I had stated in my last posting, one of our policies “matured” July 21, 2007. I received a letter from VSI notifying the date of death on July 24th and was reminded that it may be several months before the death benefit would be paid. After reviewing the policy records, I noticed that the payment due date of the last payment cycle was July 20, 2007. I was more than a little curious about how the receiver would deal with investors who decided not to pay their premiums. In late October 2007, I received a Notice of Premium Shortfall on this policy. I immediately sent a check to VSI by overnight mail to make up the total shortfall amount needed. I received my check back in few days with an explanation that the Shortfall Notice was sent out in error and that the death benefit would be paid to all investors having policy interest whether they had paid their last premium invoice or not. The death benefit was paid in mid February 2008. The death benefit correctly matched our shown percentage interest, but we weren’t able to confirm the amount of premium returned or the interest.


2. In November 2008, I received notice that another policy had “matured” and received payment two weeks later. I checked with VSI and was told that the date of death was 8/31/2008. Since the death occurred before the policy premium was due, I received a full return of our premium payment but not the administration fee. The death benefit was correct, but again no means of verifying the amount of interest paid or any explanation as to why the administration fee wasn’t returned.


3. On December 11, 2009, I received a check for another “matured” policy. This time I had no other notice other than the check. Again, I contacted VSI and learned that the date of death was May 30, 2009. Since the death again occurred before the policy premium was due, I received the full premium back and again without the administration fee. While I didn’t have any way to verify the interest received , I noticed that this death benefit was about 10% larger than our first one, the waiting period was the same, but the interest received was only 1/3 of our first policy. Also, there was a brand new processing fee of $200.00.

This is a summary of the account:

Total Administration Fees Paid
Total Policy Premiums Paid
Total Money Paid to VSI
Total Money Received from VSI
Short Fall Money Paid

$13,343.60
$155,480.00
$168,823.60
$182,044.15
$34,544.82

Please note that the Administration Fees for this account is 8.58%. In my opinion, I believe that this is extremely high for what is provided. I would appreciate your comments.

WHAT WILL THE FUTURE BE??????

Forecasting anything is difficult, but if an indicator of things to come is based on the present direction. It indicates to me that there’s a good possibility that the treatment of investors will get worse. My first example of this is Administration fees. First of all, the basing of the fee as a fixed cost to each investor is unfair in many cases. I have several policies that show this. I have one policy where last year’s annual premium was $16.48, another policy has not had to make any premium payment to date but the 12 investors have to pay the management company $2880.00 per year just to receive the letter, and finally I am a partner on a policy that has 578 investors. Management receives $138,720 for handling that account. Another thing is that the Administration Fees keep changing. At first, they averaged around $170 to $190 per account. Then the receiver combined the Admin Fee with the Premium payment. This made sense to me also, why send out two invoices on the same account. But instead of reducing the Admin fees, they raised them to $240 dollars per account even though they were doing less work. Then they reduced the fees to $180 dollars for investors that had more than 10 accounts, but never could get that straight in their billing. I had to constantly remind them of their rule and now they “fixed” me by raising them back to $240 dollars again for this year. Now in this year’s billing, they have invented a new thing called the “trust fee subsidy”. The new Admin Fee is listed as $300 with a ($60 credit) from the Trust Fee Subsidy Account. From what I understand, the Trust Fee Subsidy Account is funded by proceeds from the sale of fractional interest of investors who have forfeited their investment. I have asked to try and bid on these policies, but was told these fractional interests are bundled and sold to insurance professionals. Remember the days when investors were allowed to acquire forfeited interest by paying defaulting investor’s premium fees? To me, paying the shortfall premiums allowed the remaining investors a chance to offset future premium expenses. Apparently, management also sees the value in this and with their “trust fee subsidy fund” has decided to take it and charge it back to us in fee discounts. Later this week, I have to send in seven premium payments. The amount I have to send is around $25,000. The total amount of premium money collected for these accounts is $1,271,260.00 and is held by management for 90 plus days before it is paid to the insurance companies. If this money is held in an interest bearing money market account at 2.0% this would generate about $6400 dollars income. I would have to assume that all financial enterprises would use interest accounts to hold monies for periods of time, especially when the amounts are so large (like $117.5 million) and for so long (several years). Hopefully, some of my concerns will be yours also and perhaps together we can get some answers.

Thanks for listening,

Larry N. Scartz (703) 494-4181 or larry.scartz@scartz.com