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Legal Affairs: REGULATORS
HIS NAME IS MUD TO LLOYD'S U.S. `NAMES'
Many of the investors see Phil Feigin's deal as a betrayal
To many Americans facing financial ruin in the wake of the Lloyd's of London meltdown, Philip A. Feigin is a traitor.
This is a far cry from last month, when the little-known Colorado securities commissioner was their hero. A veteran defender of ripped-off investors, Feigin led a team of state regulators who had rushed to the aid of the Americans embroiled in the Lloyd's debacle. Their strategy, as local law enforcers, was to sue the London institution in their home states for securities fraud.
The suits alleged that Lloyd's--which was trying to collect about $275 million from 2,700 U.S. investors after a string of earthquakes, hurricanes, and other disasters--had broken state laws by failing to disclose the extent of its losses when it recruited them. To these American "names," who had pledged their personal assets to back Lloyd's insurance policies, the local authorities, who had set up an advisory commission headed by Feigin, were their best hope of avoiding the crushing bill.
But Feigin's settlement fell far short of their expectations. He persuaded Lloyd's to reduce the Americans' liability by 23%, but in exchange dropped the state securities fraud suits. The names insisted that Feigin had assured them they wouldn't have to spend another penny. Attacking him as a grandstanding bureaucrat, they claimed he had gotten in over his head. "He was hoodwinked. He must not have understood the meaning of the agreement he reached with them," says Richard Rosenblatt, chairman of the American Names Assn.
For the most part, however, the charges aren't sticking. While the idealistic fraud cop may be guilty of overinflating the names' expectations, his proposed settlement is winning widespread acceptance. In spite of intense lobbying by the powerful names, whose ranks include Supreme Court Justice Stephen G. Breyer and Charles R. Schwab, regulators from 37 states representing more than 80% of U.S. investors have accepted the deal--enough to make it binding. As a result, the odds of the 308-year-old institution's survival have improved and a possible crisis in the global insurance market has been averted. "There are some types of insurance that Lloyd's provides that aren't available elsewhere," says Richard Wiebe, California's deputy insurance commissioner. "If the securities regulators hadn't reached a settlement, it could have been chaotic."
CHANGE OF HEART. The accusations of selling out fraud victims have stung Feigin, 47, who has devoted much of his career to prosecuting scam artists. After joining the Colorado securities commission in 1982, Feigin built his reputation by breaking up penny-stock operations--and then led two state regulator task forces attacking the problem. "If you want to look at somebody with a track record for protecting investors, Phil has the best one of any of us," says Stephen Diamond, Maine's securities administrator.
Indeed, securities fraud disturbs Feigin so much that he sings about it. An accomplished guitarist who is a devotee of folk artists such as Peter, Paul, and Mary, Feigin has written nearly "an albumful" of ballads about subjects such as the Orange County bankruptcy and the savings and loan crisis. His ode to Ivan F. Boesky, entitled Stealing, is sung to the tune of Feelings. ("Stealing, nothing more than stealing/Inside information; oh, they'll never know.")
When U.S. names first appealed for help, Feigin concluded that Lloyd's representatives had behaved as badly as some of the other characters he croons about. But the more he learned about the case, the more he questioned whether pursuing the state fraud suits made sense. While suing Lloyd's might save American investors some money, it threatened to torpedo the exchange's rescue plan, harming thousands of innocent companies and individuals who had purchased policies from Lloyd's. And, as a state official, he was obligated to take their interests into account, too.
At a critical meeting with state insurance regulators in New York in June, Feigin learned just how devastating the collapse of Lloyd's would be to the entire reinsurance market, perhaps rendering it impossible to obtain some types of high-risk coverage. Because the state suits hinged on the untested legal notion that becoming a name was like purchasing a security, Feigin questioned whether they would succeed. And he believed that, with its survival at stake, Lloyd's would litigate the cases aggressively. Given the budgets of state officials and the range of investors they are obliged to protect, he was certain many commissioners would rather settle than risk a "nuclear war" with Lloyd's.
Unaware of Feigin's change of heart, American names were shocked to discover that his deal calls for them to pony up more than $200 million to Lloyd's--potentially pushing many into personal bankruptcy. Now, they're mounting a last-ditch campaign to persuade states to back out of the deal. In an embarrassing setback for Feigin in his own backyard, Colorado Attorney General (and GOP U.S. Senate hopeful) Gale A. Norton says she is considering an attempt to undo the state's acceptance of the deal.
Feigin says Norton has no power to overrule his authorization of the accord. He has lost 14 pounds since taking the Lloyd's assignment, and he knows his deal is costing others sleep. "Sometimes the best solution is not the most popular one," he says. That could be the chorus to the whole unhappy ballad.By Mike France in New York, with Sandra Dallas in Denver and Julia Flynn in LondonReturn to top