by John Darer CLU ChFC CSSC RSP
If you were running a business and a customer, who represented 20% of last year's sales, decided to no longer do business with you, do you think there would be any impact on your business?
In August 1984, E.F. Hutton & Co., then a major financial services company based in New York, decided to stop selling a tax advantaged insurance annuity marketed by a unit of First Executive Corp., which was based in Beverly Hills, California. E.F.Hutton also dropped certain other insurance concerns' annuities. E.F. Hutton's sales of the insurance product, known as a single-premium deferred annuity, accounted for about 20% of First Executive's total annuity sales in 1983. When E.F. Hutton's decision was announced, one Wall Street analyst estimated that First Executive would lose $100 million a year in new sales. News of Hutton's decision was first reported in the Wall Street Journal's Heard on the Street column.
According to the Journal, the tip came from short seller Jim Chanos (who later called the Enron collapse and previously had called the Baldwin United collapse in 1982) "less than 18 hours after a surprised First Executive was informed by Hutton. In an interview for the column, Hutton's general counsel confirmed the details and termed the action a"marketing decision" by Hutton's insurance company. The price of First Executive stock, which traded over the counter as high as $14.75 a share in January 1984, hit a 52-week low of $7.875 the day the column ran.
What neither Mr. Chanos nor E.F.Hutton said at the time, however, was that the decision was prompted partly by a critical evaluation of First Executive and its annuity by Mr. Chanos
Only in a recent (1985) series of interviews did Mr. Chanos and Hutton officials disclose that several weeks prior to Hutton's action, Mr.Chanos spent two days meeting with Hutton about First Executive. At the time, he was recommending selling short First Executive stock". Source: Wall Street Journal
A question nags at me as I research ELNY and find this, a simple yet obvious question that I must ask at the expense of ruffling the feathers of some senior members of my industry or any other advisers who may have recommended, participated in, or agreed to the placement of all of an annuitant's structure into a First Executive qualified assignment funded with ELNY. Didn't ANYONE advising these folks read the frickin' Wall Street Journal, or observe any of the many other signals?
First Executive, which later went bankrupt, was used as the qualified assignment company for a number of structured settlements funded in the 1980s with annuities issued by Executive Life Insurance Company of New York ("ELNY").
ELNY is due to be liquidated.
A number of claimants are due to suffer shortfalls under the current liquidation Plan. An appeal is in progress as well as a class action lawsuit against the New York Liquidation Bureau and others.
....1982 Baldwin United, 1983 Charter Security 1984 Storm Warnings on First Executive... How many structured settlement annuities were recommended or placed with the First Executive assignee/ ELNY annuity issuer combination after 1984?