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CNO Financial Group this month beat back a lawsuit accusing it of being in cahoots with New York hedge fund managers prosecutors once described as perpetrating perhaps the biggest fraud since Bernie Madoff's.
The Carmel-based insurer will pay nothing under a settlement with the court-appointed receiver for the hedge fund, according to a filing in federal court in New York City. In her December 2018 lawsuit, the receiver had accused CNO affiliates of being "willing participants" in wrongdoing.
It was a rare moment of validation for CNO, whose executives must feel as though they have been entangled in some sort of alternate universe since a deal the company struck in 2013 to reduce risk blew up in spectacular fashion three years later.
The saga began when CNO off-loaded to a startup firm called Beechwood Re Ltd. long-term-care insurance policies that had the potential to saddle CNO with huge losses down the road.
CNO executives say they didn't know it at the time, but Beechwood Re Ltd. turned out to be affiliated with the $1 billion New York-based hedge fund Platinum Partners, which was teetering and desperately needed capital.
According to a lawsuit CNO filed in 2016, the company was unaware that Platinum principals Mark Nordlicht and Murray Huberfeld were instrumental in starting Beechwood until a July 2016 Wall Street Journal story exposed the connection and noted that Beechwood had plowed hundreds of millions of dollars from CNO and other clients into Platinum's otherwise-hard-to-sell assets.
CNO is among a litany of U.S. insurers zinged by an aggressive push into long-term-care insurance, which covers nursing home and prescription costs, after the policies became popular in the 1980s. Industrywide, insurers found payouts far exceeded projections.
As part of its so-called reinsurance agreement, CNO had shifted $550 million into a Beechwood-managed trust, with Beechwood poised to pocket the upside if investments outperformed or claims proved smaller than expected. On the other hand, Beechwood would have to pump in capital if reserves fell below required levels.
Platinum's receiver, Melanie Cyganowski, had argued in her lawsuit against...