Invoices come rolling in.

In the fall of 2006, investors started receiving invoices to pay VSI’s administration fees on all policies. The information provided on this payment notice was both simple and threatening. Investors were told with underlined certainly that if these payments were not made, their policy interest would be forfeited and reallocated among the remaining investors pro-rata. My parents sent in all of their administration fees (a total of $3,983.60). In fact, they even sent an extra payment on one policy because they did not receive a cancelled check back before the time deadline. They later received both cancelled checks, but no refund of the extra money was ever paid! Also, seven of our policies have not been billed beyond the administration round. I have not taken the time to check the percentage of policies where it appears that the only administrative service done on these policies was to collect an administration fee, but when I scan through the thirty-three pages of policies I would estimate that around 15% of them fall into this category.

The next round of billing was the premium payments. The investors had no clue of what to expect. While they may have been able to estimate what their percentage of the premium would be, they had no information (and of course none could be obtained) of the amount of money owed to the receivership for back premium payments.

The premium invoice form itself was very similar to the one used for administrative fees. The investor could determine the total amount the receiver was billing on each policy by multiplying their percentage interest in the policy by 0.01 and dividing the payment due by that number. The receiver did not disclose what part of the payment was applied to premiums due and what part was reimbursing the receiver. While I am not an accountant, I feel that combining two separate accounting items into one tends to create accounting problems and gives at least the appearance of incomplete disclosure.

The shortfall premium notice was the best source of information the investor ever received from the receiver. The investor’s general policy information was completely updated with the type of insurance and the current number of remaining partners listed. The numerical information shown in the remittance tables allowed investors to re-check the amounts previously given in the premium notices. The shortfall amounts allowed investors to measure both the staying power and opinions of their partners. The information also allowed the investors to compute a relationship of present expenses to future earnings and to choose their course of action without any penalty. During this time period, communication with VSI personnel improved significantly. The VSI personnel I contacted were very polite and helpful on general information. On matters pertaining to accounting, disbursements, and refunds of monies not used, their standard answer was that it was being worked on and that we needed to be patient.

In 2007, my parents paid $46,307.71 first round premium payments on 15 policies. They paid $14,329.62 of pro-rata shortfall payments on 11 policies. They also paid an additional $31,596.78 on 6 policies of Option B shortfall funds. In total, my parents have paid a total of $96,217.71 into VSI.

What do you receive for administration fees?

Over 4% of my parents funds were paid for administration fees. What did they receive in return? First, they have not received an acknowledgement receipt of any monies paid. Second, on Option B shortfall funds, we have not received any notification of what amount of shortfall funds were used, revised interest percentages in policies, or return of unused funds. Third, one of our policies “matured” in July 2007. While we were notified of this maturity very promptly, we also received a shortfall premium payment notice in October 2007. I have checked with the insurance company that the insured did die in July and that the death benefit was paid to VSI. VSI also acknowledges that they have received the funds. There are 5 investors in the policy and disbursement of the death benefit has still not been paid as of February 6, 2008. In early January 2008, I wrote a letter to Judge Moreno that can be read at this link.

pdf document.

Emails with VSI

To date, I have not received a reply from Judge Moreno, nor do I expect one. I believe that as he said, he reads every letter and I can understand that he cannot reply to every individual investor. I would however like to share some email exchanges I had with VSI on the subject.

click to view pdf document.

So what are the answers to my questions?

Question #1, I do not believe that the receivership has stated that it has any real financial accountability to the investor. The receiver is after all the “nominal” owner of all the policies. Also, I do not believe that the (5-04-2004) document referred in VSI’s email is where “the answer” could lie. If it is anywhere, I believe that it can be found on the receiver’s website under status of the receivership subtitle policy maintenance within the duty of customer service. To me, this page of listed duties is very revealing. Seeing the distribution of death benefits and customer service listed last clearly explains the negligent services investors have been getting. I believe that most investors paying what they consider a very high fee (at least twice that of mutual funds) expect that customer service and distribution of investor benefits should be among the first duties of the administration, not the last.

Question #2, the answer is as the VSI email states. The court has not made the decision. I, for one, cannot understand why at least the term “all investors” cannot be defined after nearly four years, unless the court and the receivership plan to disburse what is left of these funds as the receiverships last act. Of course, that means that all of insured still being maintained by the receivership needs to die. Also by that time most of investors and their beneficiaries would have done so too.

Time to join together

After being involved with this matter for almost a year, I am convinced that individual contact with the receivership through VSI or the courts is unworkable. Therefore, I am going to construct a website for interested MBC Investors: to act as a forum location, to locate investor partners (I have already found three), to assist investors in tracking payments, and to provide a more powerful voice. I also think that as a group, we may be able to improve our working relationship with VSI and the receivership. It should be obvious to everyone that the term of this receivership will be many years. The duty of the receivership has been defined by law. The duty of our group is to hold them accountable.

If anyone has any interest, questions, or suggestions, please do not hesitate to contact me.

Larry N. Scartz
13621 Jefferson Davis Hwy
Woodbridge, VA 22191
703-494-4181
Larry.scartz@scartz.com