Friday, August 6, 2010

Honest Services Hypo

“[I expect] to see future litigation surrounding efforts by prosecutors to wedge their cases into the ‘bribe or kickback’ paradigm to which the Court has now limited this statute.”

NACDL President Cynthia Hujar Orr commenting upon the Supreme Court's decision in Skilling v. United States. 

Consider the following hypothetical:


X is a well-known insurance industry executive who has had affiliations with many different insurance and reinsurance companies over the years. X has a relationship with ACME Credit Life Reinsurance, a company that re-insures the credit life insurance offered to purchasers of new and used boats. The policies are typically marketed through retail boat dealerships. Dealerships keep a portion of each premium and send a portion to the primary insurer. The primary insurer in turn sends a portion of the premium to ACME. Although X is not listed as an officer of ACME, he has a hidden interest in the company and receives a commission on every policy re-insured through ACME.


X accepts a job as President of Sterling Insurance. Sterling is a primary insurer, offering credit life insurance through high-end retail boat dealerships located in the northeastern United StatesSterling has a Conflict of Interest policy that X agrees to sign upon being hired. The Conflict of Interest policy prevents X from personally profiting in any way (outside of salary and bonuses) from his relationship with Sterling, unless he first notifies the Board of Directors and obtains the Board’s approval.


The Sterling Board is unaware of X's relationship with ACME when it hires X. Sterling re-insures its credit life policies through ACME and other companies. Under X's direction and control, Sterling continues to obtain reinsurance through ACME and increases ACME's share of that business. X also continues to receive a commission on each policy re-insured by ACME, including the policies written by Sterling, but does not inform anyone at Sterling of this fact. ACME's owners and managers are fully aware that X is not disclosing his special ACME relationship, or his ACME commissions, to Sterling.


Reinsurance obtained through ACME is a quality product that is competitively priced. Payments made by Sterling to ACME are wired in interstate commerce. X sends his Sterling Insurance Annual Conflict of Interest Acknowledgment and Disclosure Form, which never reveals the ACME commissions, through interstate wires to Sterling’s Compliance Department. A copy of each year’s form is mailed to the Connecticut Department of Insurance, which requires, through Regulation 326.59(b), all insurance companies doing business in Connecticut to maintain and enforce a Conflict of Interest policy.


Q: Are X's ACME commissions "kickbacks" in the post-Skilling world?



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Wow a Freed mind into the realm of quagmire hypotheticals.


Posted by: Laser Haas | Aug 6, 2010 9:17:16 AM

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