Philip Falcone’s Second Act in Long-Term-Care Insurance Turns Ugly

The difficult situation in long-time period treatment presented an opening 5 years ago for Philip Falcone, a previous hedge-fund supervisor seeking for redemption. Mr. Falcone had admitted wrongdoing in 2013 for borrowing $113 million from his hedge fund to spend his taxes, even as investors weren’t permitted to withdraw their dollars. He agreed to an $18 million civil settlement with the Securities and Trade Commission that bundled a five-calendar year ban from the securities industry.

In 2015, Mr. Falcone started out his prolonged-term-care system.

Around the subsequent few of many years, the diversified conglomerate he was functioning attained regulatory approvals to purchase two modest coverage carriers that had been no longer promoting the insurance policy but experienced insurance policies staying wound down. Tied to the acquisitions, insurance policies departments in at least a few states—Florida, Ohio and South Carolina—restricted Mr. Falcone from involvement in day-to-working day operations.

Right now, Mr. Falcone has left the conglomerate. A former regulator he employed to run the conglomerate’s insurance coverage operation was fired and has submitted a federal whistleblower grievance towards the enterprise. And the conglomerate is in talks to market the insurance coverage procedure, identified as Continental Insurance policies Team Ltd.

Mr. Falcone declined to remark for this article.

Condition regulators, in the meantime, are continue to seeking to determine out how to stabilize the having difficulties long-expression-treatment coverage field.

Mr. Falcone, then chairman and chief government of HC2 Holdings Inc., was nicely known when he entered the extended-time period-care insurance policies industry. A Harvard University ice-hockey standout from Minnesota, he had shot from relative obscurity managing Harbinger Funds Associates to riches and stardom immediately after thriving bets in 2007 towards the U.S. housing market.

In turning to insurance plan in the wake of the SEC settlement, he aimed to transform the recently acquired carriers into a price tag-economical platform for getting more shut blocks of prolonged-expression-care insurance policies to operate off. Alongside the way, HC2 would earn investment decision-administration expenses for the conglomerate, he informed HC2 shareholders.

Mr. Falcone employed James Corcoran, New York state’s best insurance plan regulator in the 1980s, to run Continental.

Above time, Mr. Corcoran became involved by what he explained in a 2019 memo to the insurer’s unbiased board customers as Mr. Falcone’s “continuing interjections into [Continental’s] working day-to-day transactions, affairs and functions that consist of what glance like threats and intimidation” in regards to investments. He wrote that all those steps potentially violated the disorders put on Mr. Falcone in the insurance-section deal approvals.

Some of Mr. Corcoran’s problems are laid out in the publicly readily available whistleblower grievance. Extra depth is contained in a lawsuit filed in a Texas condition court last May by Continental in opposition to Mr. Corcoran accusing him of breach of deal and other employment-linked wrongdoing. Mr. Corcoran says in his legal reaction that the lawsuit is frivolous and was filed in retaliation for his whistleblowing about Mr. Falcone.

Continental withdrew the go well with late past year. By then, Mr. Falcone had remaining HC2, as activist shareholders pressured the conglomerate about its flagging share price tag, and the conglomerate experienced new administration.

Specially, in the authorized filings, Mr. Corcoran explained Mr. Falcone pushed Continental to spend in HC2 affiliate marketers as properly as make at least two other specific investments. One of all those took the sort of extra than $10 million in financial loans to an upstart gem and jewellery business named Arcot Finance LLC. Continental’s regulatory filings for 2019 indicated the financial commitment experienced lost revenue.

According to a letter in the courtroom filings quoting an HC2 law firm, Mr. Falcone considered he was providing beneficial expenditure suggestions primarily based on his practical experience and awareness, and was acting in regulatory boundaries.

In an job interview, Mr. Corcoran states he spoke up about Mr. Falcone’s actions “to guard the coverage organization and its policyholders.”

The investments at issue signify a compact slice of Continental’s $4.4 billion portfolio. In standard, point out insurance policy departments allow modest quantities of affiliated investments supplied terms are truthful to the insurer.

Mr. Corcoran, together with an independent Continental director, lifted worries about Mr. Falcone to the Texas Office of Insurance coverage in 2019. In early 2020, the division was analyzing the insurer’s similar-party pursuits, affiliated agreements, investments and corporate governance, according to Continental’s regulatory filings.

A spokesman for the division stated it could not remark simply because of confidentiality rules.

In a letter to shareholders ahead of his June 2020 departure, Mr. Falcone wrote that “recent regulatory headwinds have produced it more and more hard for the insurance business enterprise to satisfy [HC2’s] return hurdles, so we have decided to go after its sale.”

Past spring, businessman Avram Glazer became HC2’s new chairman. In December, HC2 reported it was in offer talks with an entity controlled by Michael Gorzynski, an HC2 director who led the activism against the corporation and joined its board. Mr. Gorzynski subsequently was named Continental’s executive chairman.

In a Feb. 12 emailed remark, Mr. Gorzynski declined to comment on the deal talks, but stated a new management group at the insurance company is “addressing legacy issues head-on,” which include minimizing exposure to affiliated investments. It has employed an unaffiliated investment decision supervisor for a portion of the portfolio.

Publish to Leslie Scism at [email protected]

Corrections & Amplifications
HC2 Holdings Inc.’s coverage unit invested in gem and jewellery firm Arcot Finance LLC. An previously model of this short article misspelled the company’s identify as Arcot Financing. (Corrected on March 2)