EQUITABLE LIFE MEMBERS

EQUITABLE LIFE:  PENROSE AND BEYOND

- ANATOMY OF A FRAUD 

A paper by Dr. Michael Nassim

Last Updated: Friday, February 11, 2005 10:02 AM

Conclusion:

Though the constraints upon Lord Penrose may disappoint those who hoped his Report would be more positively judgemental, it is a substantial and informative work.  It adds much supportive detail to relevant lines of investigation.  Yet as we have seen, there are significant gaps in its coverage.  The most important of these stem from reluctance to examine the common factors underlying defects in the Society’s conduct of business, and the role played by its sales and marketing function. In following this up it also has also become clear that the way the Society managed its relationships with corporate/institutional scheme administrators, Trustees and their consulting actuaries has seriously disadvantaged private members.  These inequities and their regulatory implications, which relate both to prudential management and conduct of business, now require urgent investigation.

It also remains important for groups and individuals to stress why the PR has not been able directly to address issues of faith and duty, negligence, maladministration, non-disclosure, misrepresentation, deceit, mis-selling, and fraud in their correspondence with the Society, Financial Ombudsman Service, the Serious Fraud Office, FSA and regulators.  To that end, this article now includes evidence and material relevant to these categories.  Specific instances of breaches of faith and duty, misrepresentation, non-disclosure and deceit in support of an untenable overall position are given.  The evidence augments EARW sections 7 and 8 which respectively deal with fraud and mis-selling, and it reinforces the prior conclusion that the overall coherence, consistency and duration of the Society’s stance and conduct have been tantamount to fraud.  That conclusion is in any case inevitable once it is accepted that the entire WPWM fund and business paradigm is an elaborate sophistry.  And quite simply, after 1987/8 at the latest, fraud clearly did occur. Though more detailed confirmation is needed, the pivotal and deliberate nature of the events of 1987/8 categorises them as fraud of the first degree (cf. EARW Section 7).

It has also become clear that the Society’s and its officers’ relationships with corporate and institutional schemes, their trustees, actuaries and advisers is a serious but sensitive issue.  Private members without such influential representation, information and protection have been relatively disadvantaged, but it remains unclear to what extent.  This unexplored new area also has ethical, professional standards and regulatory dimensions, and the likelihood is that ongoing inquiries will not have the scope or remit to address them.  If so, further representations will be necessary.

For these and many other reasons it is correspondingly important to remain alive to the continuing harm arising from the Compromise Scheme’s failure to rescind the WPWM paradigm. And though we cannot expect direct explanations in the PR for what it could not address, there are as we have seen indications as to what the overall motives for the situation may have been.  Patently they merit further attention by the appropriate authorities. But whether these will materialise is doubtful, because the governmental and regulatory milieu was, and remains unsatisfactory.   This is indicated by the following:

• Disenfranchisement of WP annuitants in the so- called Compromise Arrangement was legally permitted.

• Prior to the Compromise the Government and Treasury deliberately ignored the case for liability-diluting general mis-selling, and its implications for legal action and solvency (EARW section 2 p 5)

• So did the FSA, and eventually Sir Howard Davies in person, who specifically acknowledged receipt of the relevant material from the writer on Nov 28^th 2001.

• As related above, the Penrose Enquiry also received, specifically acknowledged, and then ignored the same material after the Compromise.

• The Penrose Inquiry has been limited in its powers and remit.

• As explained, regulatory failure has been total.

• The Parliamentary Ombudsman’s first report on the Equitable was manifestly unsatisfactory.  It required judicial review proceedings by the Equitable Members Action Group and pressure from the Opposition to make her re-open her inquiry (For details go to www.emag.org.uk)

• As lately as 9^th July 2004 the declared aim of the Financial Ombudsman Service has been to relate redress to the terms of the Equitable’s B& W Deloitte and their own Jonathan Hirst opinions, with supplementary comments on Hirst from Christopher Carr and Gabriel Moss, who have previously provided opinions on behalf of the Equitable. Moreover, the likelihood is that most cases will be judged only in relation to the GAR issue, unless claimants have provided specific evidence or requests to the contrary.  Following the appearance of the PR the FSA has granted he Society a temporary waiver in relation to some of its findings so as to give it time to consider its reply (for details see www.fsa.gov.uk./register/pdf/A27762P.pdf). The FOS have also advised that any modification to claims will not be considered unless the Equitable have had an opportunity to respond to the new evidence first. The writer has complied with this, and urges others similarly placed to do the same promptly if they have not already done so.    

• The Chancellor of the Exchequer, who became Architect General of the current pensions crisis when he withdrew tax relief from pension fund earnings in 1997, and whose ministry is responsible for all the relevant regulation, has remained obdurately silent on the Equitable.  He did not attend the March 24^th 2004 House of Commons Debate, for which he was chastised by Shadow Chancellor Oliver Letwin.  He has delegated the issue to Treasury Minister Ruth Kelly, whose stance on the matter is well known.

• As related above, the FSA has come to the wrong conclusion too late in the day with regard to prudential regulation, conduct of business and general mis-selling.

• Despite representations from Lord Penrose and action group members the Serious Fraud Office has not acted decisively, but has waited on the sidelines.

These are also the main reasons why the E7 group have faced an uphill struggle in getting attention or gaining redress for the consequences of Governmental and regulatory failure.  Hence also their need to continue to make the case against the Society with regard to breaches of faith and duty, misrepresentation, concealment, duplicity, deceit, mis-selling and fraud in their negotiations with the New Board of Directors, and in their various law suits.  They should also note that the Penrose report effectively ends at March 31^st 2001, and continue to press their views on events after this without reference to the Report.  Readers may now wish to return to the Finale of the Level 2 narrative, which essays a more wide ranging perspective.

Dr Michael Nassim.  December 30th 2004.

* Opinions continue to differ on the overall effect of the GIR. Some take it at face value, and view it as a continuing if unfair advantage.  Others, and most notably ELTA committee member Bill Davies, maintain that the way it is charged for and operated have been detrimental to GIR policyholders.  For an explanation of his position see EARW section 10 p 17-18.  Given the number of degrees of freedom the Society enjoyed in these circumstances, the matter may not be resolved decisively until there has been a suitably comprehensive investigation and explanation of the Society’s practical operation of the GIR.

Acknowledgements:

The author remains indebted to his various collaborators, who are mostly in the E7 movement.  He is especially grateful for pioneering work and data supplied by Nicolas Bellord on matters of good faith in relation to PRE, and collaboration with Michael Josephs on submissions to the Parliamentary Ombudsman and graphical presentation. He also wishes to acknowledge the latter’s constant attention to the underlying importance of power and influence, which has continued to inspire and inform his thinking.  Accordingly he wishes to dedicate the sections on PRE to Nicolas and the “Fat Cats and Poor Mice” chapter of the narrative to Michael.  He is grateful to Andrew Tyrie for sending him a copy of his letter to Ann Abraham, and to those MP’s who are continuing to press for a more appropriate and satisfactory resolution of the Equitable victims’ predicament.  The main action groups have been supportive throughout, and he wishes specifically to acknowledge Paul Braithwaite’s and EMAG’s contribution to the Parliamentary Ombudsman debate.  But on this occasion his greatest debt must be to Lord Penrose for the latter’s manifest integrity and the scrupulously robust nature of his deliberations, such as they are.

Dr Michael Nassim.   December 30^th, 2004.

References:

REPORT OF THE EQUITABLE LIFE INQUIRY.  THE RIGHT HONOURABLE LORD PENROSE.  ORDERED BY THE HOUSE OF COMMONS TO BE PRINTED ON 8 MARCH 2004.

LONDON:  THE STATIONARY OFFICE.

http://www.hm_treasury.gov.uk/independent_reviews/penrose_report/indrev_pen_index.cfm

Ogborn, ME:  Equitable Assurances (The Story of Life Assurance in the Experience of the Equitable Life Assurance Society 1762-1962).  George Allen and Unwin Ltd, London 1962.

With Profits Without Mystery.  Roy Ranson and Christopher Headdon.  J.I.A. 116, 301-345 (1989).  This includes the London discussion.  See also: T.F.A. 42, 139-186 (1990), which records the Edinburgh discussion.  .pdf files available via the Resource Centre button on the Faculty of and Institute of Actuaries website  http://www.actuaries.org.uk

The House of Commons March 24^th 2004 Equitable Life Debate.

An Equitable Assessment of Rights and Wrongs.   Dr. Michael Nassim.  Jan 12th 2004.  http://www.Elta.org.uk

The Equitable Life Assurance Society. The alternative Penrose report (22^nd Dec 2003), and other papers.  Colin Slater (Burgess Hodgson Chartered Accountants).  In: the Vital Documents listing on the EMAG website: http://www.emag.org.uk

The Equitable Life Disaster- Does it compare with the Lloyd’s asbestosis scandal of the 1980’s?   Dr Michael Nassim, Nov 14th 2001. 

 http://www.cookham.com/community/equitable/michaelnassim1.htm

The Corley Report.  28^th Sept 2001.

 http://www.actuaries.org.uk/Display_Pagecgik?url_/life_insurance/corley.xml

(or: Vital Documents Section of EMAG website.)

The Baird Report.  16^th Oct 2001.

http://www.hm_treasury.gov.uk/newsroom_and_speeches/press/2001/press_113_01.cfm 

Equitable Life:  An Evaluation of the Financial Position of Equitable Life for the Equitable Members Action Group.  Cazalet Consulting.   In:  Vital Papers section of the EMAG website: http://www.emag.ork.uk

Mr. Justice Langley’s Strike Out Judgment of October 17^th 2003, paragraphs 49–58.

http://www.cookham.com/community/equitable/langleyletter:htm

Parliamentary Commissioner Act 1967.

Terms of reference and Statement of  Complaint for the Equitable Life Investigation.

http://www.ombudsman.org.uk/pca/document/equitableSOC04.htm

The Actuary: August 2004, page 10.

POSTSCRIPT.

Extract from 1825 report from the Court of Directors in rebuttal of some members’ requests for a further distribution of surplus (M.E.Ogborn: « Equitable Assurances » pages 182-3).

“The great and leading principle of this Society has ever been its Equity; it has persevered for sixty years in a “regular course”, by which its security and stability have been confirmed: it has answered all its engagements, and afforded greater benefit than any other Institution of a similar nature; and it will continue so to do, if the same prudent and beneficial course is pursued.  Why then should any doubts be suggested, any wavering in principle be excited, or any new plans of management be proposed, which cannot offer such experience, and which may require to be altered as speedily as they might be adopted?  Let us not then lower the dignity or reduce the benefits of this Society, by a surrender of its mature and venerable character, for any charms which a more modern garb may display.

The general utility of the Society, the advantages it realizes, and the good faith with which its engagements have been performed, and which have induced and still induce new Members to join and support it, might be destroyed if any essential principle were to be altered, without considering the risk of legal, or perhaps of parliamentary interference…

Before the Directors proceed to state their opinion upon specific suggestions brought under this consideration, they earnestly entreat the attention of every Member of the General Court; and they wish to impress on their minds what was the origin of this Society, what its distinguishing feature from almost every other Society, and what has been their inducement for joining it; and, they believe, that of the majority at least, if not all its Members.  It has been an anxious desire to provide for the comfort of others, to extend blessings and protection to the widow and orphan, and to assist, as far as pecuniary relief would afford it, to lighten affliction and relieve distress, and to procure support for those who may have lost their natural guardians and protectors.  It never could have been the intention, as it never has been the practice, to make it a subject of speculation, or an object of personal and selfish advantage; and if any have joined it in that expectation, it is the duty of those who are actuated by superior motives, to rally round their standard, and to support and protect its proper principle, and its most important object”

Given the eventual disastrous plundering of the estate and its consequences, this text reads both as epitaph for the Old Equitable and prophesy for the New. The final irony is that the New became the antithesis of the Old over a mere 20 years, while continuing to exploit the latter’s unrivalled reputation.  And whereas formerly the Society’s stewards had vigorously protected it from the rapacious excesses of its owners, latterly the owners have needed (and may indeed further require) protection from their stewards.  Any failure to appreciate this is a sign of our times.   M.A.N.