FINANCIAL ENTROPY, THE THERMODYNAMICS OF PLATINUM PARTNERS’ MONEY AND ZEROTH’S LAW AS IT APPLIES TO THE DIFFERENT STRATEGIES
[To be updated]
The notion of entropy in thermodynamics is chaos. The same is true, in very simplified terms, of financial entropy. Investors who manage to understand the chaos of a given set of financial principles are generally the ones who fare the best. Investors who can manipulate the entropy and maneuver it are magicians. Platinum Partners chief strategists were and have always been that, financial magicians. We give them credit.
Understanding how the pieces fit together is key to understanding the magnitude and complexity of the slight of hand of Platinums’ partners. It is like they were counting multiple decks in a casino and doing so flawlessly, until they weren’t.
Platinum Parterns’ connections to Beechwood Re and to CNO were integrally intertwined. Each one was intended to provide Platinum with a more diverse portfolio of investments, though CNO claims there was some distance between itself and Platinum, that Beechwood was an intermediary and they did not know the involvement. It is our contention that Beechwood Re was Platinum’s alter-ego. As to CNO, that is a bit less clear.
Beechwood Re was an extremely clever and somewhat macabre strategy for making money. It required that nursing home patients take out insurance policies written to the benefit of the nursing homes and then to die quickly. The key, as we saw it at the time, was in knowing who would die and when. Sadly, the success of that strategy required the Platinum/Beechwood guys to get that information from someone in the nursing home business willing to either or both of convince the patients to sign over policies and to then share that information outside of the privacy considerations of the patients. We have a idea who it was, an odd connection to President Trump and someone he met in the 80’s and who had an integral understanding of long term care and the associated insurance. As to that story, that’s for another day.
In 2014, Beechwood Re had obtained significant funding from CNO, a “reinsurer” who was providing insurance on the insurance policies held by Beechwood. The policies being written for CNO were “backstopping” the Beechwood policies. And the CNO policies, it would appear to have been long-term care policies and not necessarily life insurance.
CNO’s problem at the time was that it had underwritten numerous “long-term-care insurance” policies in the 1980’s and the payouts 25-30 years later were far higher than anticipated. In the best of circumstances, they would have made enough money with their own investment strategies on those policies over the 25-30 intervening years that they would not have been struggling. The calculations for an underwriter for long-term care insurance is based in part on actuarial tables and the health of the population. For CNO to have been a lucrative endeavor, they would have had to invest well and people would have needed to drop dead long before they utilized the policies. For the few who manage to live long enough to use the underlying policy for which they have paid a lifetime, the hope of the insurer is that the care required would be less than the money made during the intervening years. What policy underwriters at the time did not consider was the rising costs of healthcare, that people would live longer and spend more time in long term care.
For Beechwood, the relationship with CNO initially provided it with a reputable firm, the sharing of capital and resources and an underlying “good-will”. In addition, CNO had relationships with other banks and other underwriters, as did Beechwood (through the Platinum guys) and as such, the two entities could name drop for the purposes of working together and as a cost-benefit to one another. The two insurance strategies were slightly different. Whether or not CNO knew Beechwood was an arm of Platinum is unclear and in retrospect, they likely would have stuck with Beechwood regardless so long as the money was flowing.
Beechwood has argued that they were not and alter-ego of Platinum and actually they, too were the victims of a the fraud. That is not even a rational argument, particularly given the familial relationships involved. Beechwood was, to simplify the story, a feeder fund for Platinum and one of its many investment vehicles or arbitrage funds, just an altogether different strategy.
CNO on the other hand, may have been a victim of Platinum; but we believe it was also a victim of its own poor planning and greed. We also believed that even when they realized they were dealing with Platinum they made a choice to stay in the game. Platinum at the time was coining money.
But then there’s “Black Elk”. The Black Elk investment strategy was oil. Black Elk had discovered a clever way to drill the remnants of other wells and obtain the smaller amounts of oil at the bottom of old wells. It is akin to trying to get the last drop of cola from a can. If you can figure out how to get all of the drops out of all of the cans and resell the cola bottled differently, you can make money. That was the theory behind Black Elk. But no matter which way you play it, once the CEO was removed from his position, Black Elk was, in simple terms, another of Platinum’s feeder funds.
The people involved were ultimately the same: Moshe Mark Nordlicht, David Levy, Moshe “Mark” Feuer, Jeffrey Shulse (who has argued his innocence) [https://casetext.com/case/united-states-v-nordlicht-2] Josephe SanFilippo, Scott Taylor [https://dockets.justia.com/docket/new-york/nysdce/1:2018cv12018/507059], Murray Huberfeld and a number of other Platinum Partners’ partners.
There are dozens of people whom we would argue should have been indicted, who were also original owners and/or initial investors in some of these strategies and were either family members or had previous relationships with the main funds’ players. How they have so far managed to remain outside the numerous indictments perplexes us.
Unfortunately for Platinums’ partners, we believe that the partners knew everything. There were no blind, deaf and dumb people playing in this game. There were no secrets amongst the men involved, just as there are no secrets the neighborhood where many of these men lived only blocks from one another. Many of these men were also related to one another, uncles, cousins, brothers. These were people who in large part had worked together before like Oceans 11 and were going to work together again like in Oceans 12 and 13. And, just like in the movies, they were extremely clever.
The strategies were hedged against one another. They could have gone on for years had a perfect storm of evens not occurred: Black Elk has an explosion on one of its rigs killing some of it’s employees, Beechwood being compelled to payout more than anticipated, and outside investors not deciding the funds’ returns were simply too high.
Had Platinum Partners’ top brass not been so greedy, they would have succeeded in defrauding the financial systems. But, like Zeroth’s law of thermodynamics: “If two systems are each in thermal equilibrium with a third system, they are in thermal equilibrium with each other.” Similarly, Black Elk was an alter-ego of Platinum Partners as was Beechwood Re. They were also an alter ego of one another. How CNO fits into this, it remains to be seen. We can’t discount he possibility that they were also in thermal equilibrium with Platinum.
29th November 2018
The Grand Court of the Cayman Islands has approved a petition for the winding up of Beechwood Re, a locally domiciled reinsurer that is being sued for fraud in the U.S and has ties to the hedge fund Platinum Partners, which collapsed after a federal investigation last year. Grand Court Justice … Read the full article
3rd August 2017
Beechwood, a group of reinsurance and asset management companies, has been sold in a last ditch attempt to salvage the firm instead of shutting it down after it suffered reputation loss when hedge fund Platinum Partners collapsed after a federal investigation, Reuters reported. Platinum’s top executives and founder were arrested … Read the full article
W YORK, Feb. 12, 2014 /PRNewswire/ — Beechwood Re, Ltd., a life reinsurer, announced today that it had executed definitive documents to complete a reinsurance transaction with subsidiaries of CNO Financial Group, Inc. (CNO).
The deal will have CNO’s subsidiaries cede $550 million of statutory reserves and approximately $40 million of other capital associated with closed blocks of long-term care insurance underwritten by Bankers Conseco Life Insurance Company and Washington National Insurance Company. The reinsurance transaction and associated structures have obtained all required regulatory approvals necessary to proceed.
“We are very pleased to have entered into this agreement with CNO,” said Beechwood Re CEO Mark Feuer. “These transactions exemplify the creative reinsurance solutions that Beechwood Re has to offer. We look forward to working with our new partner through a smooth transition and providing them with ongoing reinsurance support.”
Ed Bonach, CEO of CNO said, “Our reinsurance agreements represent a meaningful step forward in addressing our run-off business. We are pleased to have Beechwood Re as our partner in this transaction and look forward to a successful relationship moving forward.”
As a part of the transaction, Bankers Conseco and Washington National will transfer to Beechwood the in-force reserves and liabilities associated with the blocks of business. The transactions are to be completed on a 100% coinsurance basis, with Beechwood holding reserves and required over-collateralization in trusts, with investment guidelines and periodic true-up provisions.
Fuzion Analytics, of Carmel, Indiana, will provide data analytics and coordination of Third Party Administration services on behalf of Beechwood Re to ensure best-in-class policyholder services following the transition. Willis Re, a global reinsurance intermediary, was instrumental in the deal, led by Michael Kaster of their Life Solutions Group.
The transaction is expected to be fully consummated by the end of February.
About Beechwood Re, Ltd and Beechwood Bermuda International Ltd.
The Beechwood family of companies includes Beechwood Re, a reinsurer domiciled in Grand Cayman and regulated by the Cayman Islands Monetary Authority (CIMA), and Beechwood Bermuda International Ltd., a licensed long-term insurer located in Hamilton, Bermuda and regulated by the Bermuda Monetary Authority (BMA). The companies were formed with the belief that there is a shortage in attractive capacity for the life markets, driven by a need for flexibility and creativity in underwriting the life and annuity reinsurance market associated with asset risk. The Beechwood companies provide life and annuity reinsurance to primary insurance companies in the United States and Internationally. Beechwood seeks to provide flexibility for companies to manage their balance sheets and risk profiles through a variety of solutions. Target markets include reinsuring in-force blocks and ongoing quota-shares of fixed and indexed annuities, in addition to in-force, closed blocks of long-term care and long-term disability policies for primary writers.
More information is available by contacting Susan Sweetin, Media Relations at email@example.com (212) 260-5050 ext. 204
SOURCE Beechwood Re, Ltd.