The Hall of Shame: Illinois Director of Insurance Michael T. McRaith
We represent funeral directors across the State of Illinois in regard to what is known as the Illinois preneed trust.
The idea behind the trust was that people could prepay for their funerals. Instead of using the money right away, funeral directors were to deposit the money into the trust, where it would be safe and, it was hoped, earn a small rate of return sufficient to cover the cost of inflation. When the person died, the money, including interest, would be paid directly to the funeral director to pay for the service and merchandise the deceased had contracted for.
The trust, which was a tax exempt trust, hummed along, growing from a little over $100 million to well over $300 million in value. Then, in 2007, the cat found its way out of the bag. It turned out that the money had not been safely invested after all.
Rather, Merrill Lynch, through various Merill Lynch entities and agents, recommended that the funds be used to buy illegal life insurance policies. The broker for the sale of this insurance was Merrill Lynch Life Agency, Inc. The principal issuer of the policies was Merrill Lynch Life Insurance Company. Eventually, Merrill Lynch Bank and Trust became trustee for the fund. And yes, Merrill Lynch Pierce Fenner and Smith traded the securities underlying the life insurance policies.
At the end of the day, the tax-exempt preneed trust was damaged upwards of $150 million. What this meant is that, when someone died, there wasn’t enough money coming from the trust to pay for the funeral. The funeral directors, by the terms of their contracts and their ethics, have been picking up the shortfall, paying hundreds of thousands of dollars to give their clients what they requested, while Merrill Lynch avoids responsibility through various manipulations of the legal system and the length of time it takes to obtain final relief.
Where does Michael T McRaith come in? Here’s how. He is the Illinois Director of Insurance. The policies issued pursuant to Merrill Lynch’s scheme are under his jurisdiction. McRaith and Merrill Lynch purported to settle the investigation being conducted by the Department of Insurance (“DOI”) for an $18 million fine. But McRaith got “pantsed” by Merrill Lynch when documenting the deal. He claimed to be a hero by offering to distribute the $18 million to funeral directors, but the funeral directors could not receive their share of the funds unless they released Merrill Lynch and all the Merrill Lynch entities involved in the scheme from all liability. In other words, Merrill Lynch was trying, with McRaith’s assistance, to buy its way out of a $150 million problem for $18 million.
The funeral directors, who we represented in ongoing litigation seeking to recover the full amount of their damages, resisted.
On February 24, 2010, we obtained an order from the Hon. Mary Anne Mason, sitting in the Circuit Court of Cook County, Illinois, stating that McRaith had no statutory authority to insist on a release of other litigation in exchange for funeral directors receiving their share of the $18 million in proceeds. Judge Mason did not comment on the DOI’s settling an insurance investigation, but she said that McRaith was out of bounds in imposing conditions for the receipt of the funds, conditions which released claims in private litigation.
Thereafter, McRaith and Merrill Lynch returned with a revised settlement which eliminated the release language. This time, the money was to simply be distributed to the funeral directors on a pro rata basis. McRaith ran into court on an emergency motion to distribute the funds to the funeral directors immediately. Although this motion was denied pending consideration of the new settlement terms, Judge Mason ultimately entered an order using language proposed by McRaith’s attorney and stating that there nothing preventing McRaith’s distribution of the funds.
As of today, McRaith has not distributed the funds. Funeral directors across the State continue to bear exorbitant expenses due to the wrongdoing of Merrill Lynch, and even though McRaith has publicly claimed to get them partial relief, he simply will not give them their money. Some funeral directors are on the verge of bankruptcy because of the financial drain of meeting their responsibilities. Yet the money recovered by McRaith either remains in the bank or is being used for some other purpose.
It appears that McRaith is trying to punish the funeral directors for challenging his initial unlawful settlement. This is childish behavior and McRaith should be ashamed of himself. He should keep his promise, follow through on his representations to a court of law, and distribute the money to persons he knows have been harmed. McRaith is now contributing to that harm and should be held accountable for it.
If there is a way for us to do it, we will find it.
Ken Wexler is the founding partner of Wexler Wallace, a leading firm in complex class action and multidistrict litigation.
Photo Credit: hobvias sudoneighm