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STATE OF CALIFORNIA County of Los Angeles, 88:
Russell J. Lasher, being duly sworn, deposes and says:
First, that I make this Affidavit at the request of Robert Dunne, Assistant Counsel of the United States Senate Committee on Government Operations, Permanent Subcommittee on Investigations. Harry 0. Miller, Esq., General Counsel of First Executive Corporation, Executive Life Insurance Company and Executive Life Insurance Company of New York, has been given the opportunity of reviewing this Affidavit prior to my signature of it. I understand that this Affidavit may be used in lieu of my testimony in an executive session or public hearing of the Subcommittee. I have been given a copy of the current rules and resolutions, I understand that the Subcommittee's inquiry is concerned with the propriety of the insurance aspects of labor/management severance plans involving Louis Ostrer.
Second, I am Financial Vice President and Treasurer of First Executive Corporation, a Delaware corporation, which is a holding company for several companies, two of which are Executive Life Insurance Company and Executive Life Insurance Company of New York. As Financial Vice President and Treasurer, I am responsible for accounting functions for Executive Life Insurance Company and Executive Life Insurance Company of New York.
Third, I have reviewed the attached photostatic copies of checks and the attached accountings, and state that to the best of my knowledge and belief the accountings contain all transactions involving the disbursement of funds to agents involved in writing insurance in connection with Local 295 severance programs of Executive Life Insurance Company and Executive Life Insurance Company of New York, and that the copies of checks attached hereto and described as follows are all of the checks by either company in connection with payments or loans to such agents.
Payee: Dina Gelman.- All checks drawn on Executive Life Insurance Company of New York Account Number 00132556, First National City Bank, New York, N.Y.
Payee. Cy Reeves Snyder.—All checks drawn on Executive Life Insurance Company of New York Account Number 005–75540–9, Marine Midland Grace Trust Company, New York, N.Y.
Russell J. LASHER. On August 30, 1972, before me, the undersigned, a Notary Public in and for said State, personally appeared Russell J. Lasher, known to me to be the person whose name is subscribed to the within Affidavit, and acknowledged to me that he executed the same. Witness my hand and official seal.
Notary Public California My Commission Expires February 3, 1973.
I, Joseph J. Warren, President of The Trans World Life Insurance Company of New York (Trans World) 511 Fifth Avenue, New York, N. Y., having been advised of my rights, make the following statements voluntarily and freely to John Tschirhart and Michael Cesario who have identified themselves to me as investigators for the Permanent Subcommittee on Investigations of the United States Senate Government Operations Committee. I have not been coerced or intimidated in any way.
In September 1971, Mr. Seymour Greenfield, principal of Viscount Agency Inc. (Viscount) a general agent of Trans World, called for an appointment to see Mr. William Kaelin, a director of Trans World, and myself. The meeting was subsequently held, at which time Greenfield discussed the Local #295 Severance Fund. He explained that the first tier of the plan, beginning December 1, 1970, had been written by Executive Life Insurance Company of New York (Executive). He asked us whether we would be willing to write insurance for the second tier of the plan beginning December 1, 1971. This business was contingent on a series of advances totalling $100,000 to Viscount, against first-year commissions, prior to bringing in the case.
Greenfield estimated that 1,200-1,500 people would be included in the plan. He explained that Executive was not handling the second tier of the plan since it was preferable to spread the risk of the severance plan over several insurance companies, rather than have the entire risk borne by only one, and that the Trustees felt they would get better service if more than one company was involved.
We ascertained that the claim experience of Executive for the first year was higher than normal (approximately $100,000 for the January-September 1971 period as against $65,000 expected from mortality tables). However, this claim experience was not so high as to materially affect our decision on this matter. A much larger concern of ours was advancing the $100,000 against first-year commissions since this was an appreciable amount for a relatively small insurance company like Trans World.
Management felt that resolution of the problem basically was an operating decision and, consequently, approval of the Board of Directors was not required. Nevertheless, because of the size of the advance requested by Viscount and the uncertainty as to whether the fringe benefit program itself would be permissible under forthcoming Phase II guidelines, we kept the Directors fully informed on this matter at informal meetings on September 15, 16 and 17, 1971.
The management of Trans World finally decided to accept Mr. Greenfield's offer regarding Local 295 in late September 1971. As additional security for the loan, Trans World had Seymour and Bertha Greenfield personally guarantee payment of the promissory notes of Viscount for the $100,000 in advances Mr. Greenfield had requested, and also had them pledge all the issued and outstanding stock of Viscount as collateral security. On September 22, 1971, the first advance check was given to Viscount.
As another condition to Trans World making the advances was some assurance that we actually would be selected by the Local as the insurance carrier of record for the second tier of the plan beginning December 1, 1971, if permitted by Phase II. On October 6, 1971, we received from Local 295 Severance Fund a $10,000 deposit premium and a letter evidencing the Local's intention of insuring with us. On November 29, 1971, we received an additional $30,000 which, together with the $10,000, represented approximately one month's premiums and would effectively put in force the second tier of the Local 295 Severance Fund on December 1, 1971. Compensation to Viscount Agency
Trans World first began in June 1968 to write insurance for Severance Plans with Viscount, which was one of our general agents. We compensated Viscount at the same rate for this Severance Plan business as we had previously compensated it for other business. The first plan was The Severance Bonus Plan of Automotive Mechanics—Local 447 IAMAW District 15. Additional plans were brought to us by Viscount after 1968, including Local #320, Production Sales and Service Employees Union; Local #110, Warehouse and Novelty Union; and the Industrial Production Employees Union. However, we foresaw that our surplus could be eroded it we continued to pay the high first-year commissions and allowances on large amounts of such business in the future. We sought an alternative that would allow us to continue writing new union severance business, while lessening the drain on surplus.
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The result was an agreement signed with Viscount on February 27, 1970, covering Severance Funds of Local 447 IAMAW District 15, Production Sales & Service Severance Fund, Local 110 Severance Fund, Industrial Production Employees Severance Fund, and any other severance programs of similar design. This agreement reduced the first year's compensation to 60% of premium which was approximately one half of what had formerly been paid. However, it increased compensation to the general agent from the second through the tenth years through the means of a persistency bonus of 15% of premiums in the second through fifth years, and 5% of premiums in the sixth through tenth years. Another advantage of this persistency bonus agreement would be that no compensation would have to be paid on terminations, some of which are inevitable under severance plans. Taking all things into consideration, the total payout was approximately the same as under the old agreement. However, the drain on current surplus was not nearly as heavy as where it was all paid out the first year. Change to Dina Gelman Agency
About the middle of November 1971, Mr. Greenfield requested that we appoint Dina Gelman as general agent for the Local 295 business in lieu of his Viscount Agency. There had been no mention of such a possibility at any prior meeting. However, he explained that Dina Gelman was general agent for the first tier of the Local 295 Severance Plan for Executive and that it would be consistent to keep her as general agent on the second tier with Trans World. I was initially reluctant about switching general agents on the Local 295 business, as this was against our general policy. However, Dina Gelman was a duly licensed agent for Viscount with Trans World. She had also been a general agent since December 1, 1970 with Executive, and we had also received a favorable Retail Credit report. In view of the above and since Viscount itself made the request and Local 295 approved, we agreed to the change in general agents. Compensation to Dina Gelman
A general agents agreement with Dina Gelman Agency now became necessary. We would have preferred to write it in the same form as the persistency bonus agreement signed with Viscount on February 27, 1970. However, on November 26, 1971, the State of New York Insurance Department expressed its view that persistency bonus agreements were contrary to the insurance law. We took issue with the Department's view; but, until the matter was resolved, we necessarily could not write a persistency bonus agreement with the Dina Gelman Agency. Instead, the agreement, signed on and effective as of December 1, 1971, provides for 55% of first year's premiums as commissions, along with an additional 63.5% of the 55% commissions as an agency development allowance, for a total compensation of about 90% of premiums in the first year. Agency development allowances are customarily given in cases where the general agency has been in business less than five years.
The total compensation of_90% to Dina Gelman is less than that normally given in the first year under Trans World's usual practice with its general agents for comparable whole life insurance. Moreover, Dina Gelman felt that since negotiations on the Local 295 business had begun in September 1971, prior to the Department's taking its position on persistency bonus agreements on November 26, 1971, she should not be affected by that decision and should receive compensation similar to and equal to that received by Viscount under the February 27, 1970 agreement. She has expressed her unhappiness with the current agreement to Trans World in writing, and we have forwarded a copy of her letter to the State of New York Insurance Department. Advances
We have advanced Dina Gelman Agency a total of $481,724.25 as per the attached schedule (Attachment #1). Those advances through January 1972, totalling $460,000 represent annualization of the commissions on estimated first year premiums. These premiums were anticipated to be about $43,000 per month, or $516,000 per year, which would mean that the general agent would receive 90% or $464,400. However, it was not advanced all at once, but in several payments to match the availability of funds at Trans World. The first $140,000, was originally paid to Viscount. Subsequently, when Dina Gelman became the general agent, she assumed liability for this $140,000. After January 1972, we advanced a further $21,724.25 in two payments in May, 1972, for the annualization of commissions due on new employee members of Local 295, making a grand total of $481,724.25.
In addition, two payments totalling $75,000 ($50,000 on January 14, 1972 and $25,000 on January 27, 1972) were given as advances on the third tier of the Severance Plan beginning on December 31, 1972. However, in checking with the Local 295 Severance Fund, we learned that the Local 295 Severance Fund had not yet decided which insurance company would write the insurance for the third tier of the plan. Accordingly, we requested Dina Gelman Agency to refund this $75,000; and they repaid it in two checks dated April 26, 1972, of $50,000 and $25,000.
As I have previously stated, Seymour and Bertha Greenfield, as principals of Viscount Agency, signed promissory notes for the $140,000 advanced to them, personally guaranteed the loans and pledged all the issued and outstanding stock of Viscount. It is now our intention to return the notes and stock to Viscount since Dina Gelman assumed this liability when she became general agent of record. Her assumption of liability is evidenced by her signing a confirmation request from our auditors, Peat, Marwick, Mitchell & Company, for a sum which included the $140,000 as an advance to her. Although she signed promissory notes for the $100,000 advance on December 1, 1971, and the $60,000 advance on December 3, 1971, our counsel feels that further notes for the additional $181,724,25 are unnecessary in view of paragraph 10 of the general agents agreement which permits offsets against commissions earned by general agents.
After Mr. O'Brien and I signed the first advance check payable to Dina Gelman, drawn on Bank of Commerce ($100,000 on December 1, 1971) she picked it up at Trans World offices. She went to the Bank of Commerce; and Mr. Hertrick of the Bank called me and said that she was there and had requested to take some of this money out in cash immediately. He asked me to verify the signature of Dina Gelman on the check. She returned with the check and I affixed "Signature O.K.J.J. Warren" on the back of the check,
In order to preclude a similar occurrence from happening in the future, either Mr. O'Brien or I, as a matter of routine, affixed the “Signature-0.K." on the back of several later advance checks. I have no knowledge as to what Dina Gelman did with any of these later checks, nor do I remember any other facts concerning them. She merely picked the checks up here at Trans World, usually alone, although I do remember her being accompanied once by Mr. William Kilroy, who is an agent of Viscount Agency and licensed with Trans World. The most recent check of $6,724.25, dated May 11, 1972, was picked up by Dina Gelman's son, William.
At present, our procedure is to make up the monthly invoice which we turn over to Dina Gelman for transmittal to the Local 295 Severance Fund. At a later date, Dina Gelman remits the premiums invoiced to Trans World. In addition, Dina Gelman handles the routine billing and administrative procedures in connection with the Local 295 Severance Fund and Trans World.
The only contact Trans World has with Mr. Louis Ostrer is when administrative matters assumed larger significance. He appears to act as a spokesman for the Fund in such situations.
So far, gross claims have been about $50,000 for Local 295 Severance Fund of which Trans World has paid $40,000. The remainder has been paid by Security Benefit Life Insurance Company of Topeka, Kansas under a reinsurance treaty.
A. Dina Gelman Agency
This Agency has not as yet written any additional business with Trans World aside from Local 295. Since we are paying the Agency a development allowance, we expect it to develop not only additional severance fund business, but to expand in all fields of general insurance. To that end, the Dina Gelman Agency has recently licensed a new writing agent, and we are pressing for additional agents. B. Viscount
We have recently begun writing insurance for the International Production Sales and Service Employees Union Severance Fund with Viscount as our general agent. Mr. Greenfield has informed us this Union has a potential of 12,000~18,000 lives within a period of three years. At present, we have advanced $216,000 to Viscount against first year commissions and allowances for the following locals of this union: Locals 222, 719, 517, 422, 815, and 106. This severance fund is based on contributions of $.05 per hour. The above statements are true and correct to the best of my knowledge.
JOSEPH J. WARREN.