Reinsurer Said to Assist in Hedge Fund Fraud

     (CN) — Two insurers claim that reinsurer Beechwood Re Ltd. “bamboozled” them into turning over the keys to a $550 million trust, without disclosing that it was a front for high-risk hedge fund Platinum Partners.
     Platinum Partners was a highly successful hedge fund — on paper — posting double digit returns until its activities became the subject of a federal fraud investigation.
     The firm’s manager Murray Huberfeld was charged in June with bribing a former prison guard union official with $60,000, delivered in an $800 Salvatore Ferragamo bag, to steer $20 million in union funds to Platinum Partners.
     The firm’s mid-Manhattan offices were raided weeks later. Its funds have suspended redemptions and are currently undergoing liquidation.
     In a complaint filed Thursday, Bankers Conseco Life Insurance Company and Washington National Life Insurance Company claim Platinum Partners’ fraud extended far beyond the union deal.
     Finding it difficult to secure institutional investor funds due to the highly risky nature of its investments, Huberfeld and other Platinum Partners executives conspired to form a reinsurance company, called Beechwood Re Ltd, to serve as a frontman to direct reinsurance trust money to Platinum Partners.
     When it was founded, Beechwood Re was 40 percent owned by family-member trusts of Platinum’s co-founders. The Platinum-linked trusts have since been bought out, and Beechwood is now owned by its principals. Huberfeld’s nephew David Levy originally served as Beechwood’s chief investment officer, but he later returned to work for Platinum.
     The complaint names Beechwood principals Moshe Feuer, Scott Taylor, and David Levy as defendants.
     However, Beechwood did not disclose its close relationship with Platinum Partners to clients. Beechwood has asserted that such disclosure was unnecessary because the owners were not involved in management of the company.
     “But the real reason that Feuer did not reveal Beechwood’s ties to Platinum is that no insurance company would invest in Platinum or enter into a reinsurance agreement with a reinsurer tied to Platinum, and Feuer and Taylor were in cahoots with Platinum to bring institutional investor money to Platinum without the institutional investors’ knowledge of Beechwood’s Platinum ties,” the complaint says.
     The insurers say defendants induced them to turn over “the keys to a $550 million reinsurance trust, without ever suspecting that they were in reality doing business with Platinum.”
     Beechwood allegedly used $150 million of the trust to invest directly in Platinum funds, meet Platinum investor redemption demands, and loan money to other Platinum-controlled entities.
     According to a September 17, 2016, Wall Street Journal article heavily cited in the complaint, Beechwood’s founders notified Huberfeld “less than 10 minutes after Beechwood received word that money for its first transaction had arrived.”
     At the insurers’ request, Beechwood promised it would unwind its investments in Platinum funds, but instead made massive additional investments in Platinum’s highly risky investments, the complaint states.
     The insurers say, “Throughout the life of the reinsurance relationship, defendants and their paid advisors and consultants submitted false valuation reports to plaintiffs purporting to show that the trusts’ Platinum-related investments were performing well and that the reinsurance trusts were adequately funded.”
     With millions of other investment opportunities available, the insurers say it was no “grand coincidence” the trusts’ money was invested in Platinum funds.
     “Beechwood’s massive and risky investments with Platinum and Platinum-related entities was the goal of the fraudulent scheme hatched by defendants and others to bamboozle institutional investors like plaintiffs out of their money by tricking them into indirectly investing with Platinum,” they claim.
     Beechwood asserted in an August press release that the vast majority of its $2.4 billion portfolio consists of highly rated U.S. Treasuries, municipal bonds, and corporate bonds. It claimed that an outstanding loan to a Platinum fund represented only 2 percent of its portfolio.
     The insurers are represented by Adam J. Kaiser with Winston & Strawn LLP.
     Beechwood spokesman John Eddy told Courthouse News by email that “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,” Eddy said.

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