| NEW YORK, Sept 29
NEW YORK, Sept 29 CNO Financial Group Inc
on Thursday said that two of its subsidiaries were
terminating agreements with reinsurer Beechwood Re, after
regulators in two states said that many assets managed by
Beechwood were not compliant with insurance company guidelines
because of exposure to troubled hedge fund manager Platinum
CNO said in a filing with the U.S. Securities and Exchange
Commission that subsidiaries Bankers Conseco Life Insurance
Company and Washington National Insurance Company were
terminating reinsurance agreements with Beechwood and
recapturing approximately $550 million of long-term care
liabilities, essentially bringing the risk of the policies back
The issue stems from Beechwood's putting CNO's money into
Platinum's hedge funds and related investments. Platinum, based
in New York and led by Mark Nordlicht, is in the process of
liquidating its main funds amid dual federal probes and the
arrest in June of a longtime associate.
Carmel, Indiana-based CNO, whose stock has already declined
more than 15 percent on news of its Platinum exposure, estimated
it would lose about $55 million, pending an audit by year-end of
hard-to-value assets, which it believes were incorrectly priced
CNO reported that state insurance departments in New York
and Indiana concluded after an investigation that many assets
managed by Beechwood for the CNO units were not compliant with
conservative investment guidelines required for insurance
companies. On Thursday, the regulators said CNO should
immediately take corrective action, a seemingly impossible task
given that some of the assets could take months or years to
Also on Thursday, the CNO subsidiaries sued three current
and former Beechwood executives in U.S. District Court for the
Southern District of New York, accusing them of breach of
fiduciary duty, fraud and violation of the Racketeer Influenced
and Corrupt Organizations Act.
The suit alleges that Platinum executives provided Beechwood
with $100 million in start-up capital and took minority
ownership stakes, and that Beechwood in turn invested CNO's
assets into Platinum's funds and related risky businesses, which
were in need of capital.
"Beechwood's massive and risky investments with Platinum ...
was the goal of the fraudulent scheme hatched by the Defendants
and others to bamboozle institutional investors like Plaintiffs
out of their money by tricking them into indirectly investing
with Platinum," the suit said.
The three people named as defendants are Beechwood Chief
Executive Moshe "Mark" Feuer, President Scott Taylor and David
Levy, who worked as an investment executive at Beechwood between
positions at Platinum. Reuters revealed in April that Levy had
returned to Platinum following an investment at Beechwood that
appeared to benefit the hedge fund firm.
Beechwood, in an emailed statement to Reuters, said: "There
have been no losses, including to CNO, and Beechwood has acted
properly at all times."
"Beechwood will take every possible step to refute these
false claims and regrets CNO's inappropriate decision to file a
meritless lawsuit filled with baseless innuendo as a method of
gaining leverage in a business negotiation," it added.
A spokesman for Platinum declined to comment.
A spokeswoman for CNO declined to comment beyond a press
release and its SEC filing.
CNO said in the release that it would contribute
approximately $200 million to its insurance subsidiaries as a
safeguard and had suspended its share repurchase program for the
rest of the year. The company added that it expected no impact
Reuters reported on Sept. 16 that another insurer, Senior
Health Insurance Company of Pennsylvania, had at least $100
million of its assets tied to Platinum thanks to Beechwood.
Losses were not expected thanks to an investment return
guarantee from Beechwood and executive buy-outs of some of the
(Reporting by Lawrence Delevingne; Editing by Leslie Adler)