GOP Candidates Linked to Plan Banking on Retirees' Deaths - NewsChannel5.com | Nashville News, Weather & Sports

NewsChannel 5 Investigates:

GOP Candidates Linked to Plan Banking on Retirees' Deaths

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Ira Brody, investment banker and Republican donor Ira Brody, investment banker and Republican donor
Ben Cunningham, tax watchdog Ben Cunningham, tax watchdog
Jim Tucker, Tennessee State Employees Assoc. Jim Tucker, Tennessee State Employees Assoc.

NewsChannel 5 Investigates has uncovered details of an unusual financial scheme involving two of the men whom Republican lawmakers may soon put in charge of Tennessee's money.

The $7 billion dollar plan involved -- get this -- taking life insurance out on some state retirees without their knowledge and cashing in when they died.

Our chief investigative reporter Phil Williams uncovered the documents that reveal the plan.

It was hatched five years before the big financial downturn.

But the documents reveal an investment deal that, state officials believed, could have led to the collapse of a major insurance company.

When Republicans take control of Tennessee's legislature next week, they'll also name the people who'll control your money -- $33 billion in state bank accounts and pension funds.

During interviews with GOP lawmakers, investment banker and big Republican donor Ira Brody touted his experience to be the state's treasurer.

"What we have to do is become creative while still managing risk," Brody said.

But tax watchdog Ben Cunningham was stunned by documents -- first obtained by NewsChannel 5 Investigates -- that detail an investment concept, by one estimate, approaching $7 billion dollars.

It pushed by a company in which Brody is now a partner. To sell it, that company hired Justin Wilson as its lobbyist. Wilson is the top contender for comptroller -- in essence, the state's budget cop, looking over the treasurer's shoulders.

(State records show Wilson was then registered on behalf of Blue Water Capital LLC, which later became Lilac Capital LLC, then Inscap Insurance Services LLC. Brody is a partner and chief operating officer of Inscap.)

"It is absolutely essential that we have total confidence in whoever takes these positions," Cunningham said. "For them to have proposed a scheme like this is just ... outrageous."

The documents show that Wilson, acting on behalf of Brody's company, wanted the state's retirement plan to do this: buy life insurance on certain older retirees, as much as a half million dollars each. Then when they died, the money would go back to the state.

His presentation notes that it would necessary to do it "without first obtaining the consent of each insured" person -- a concept state employees find appalling. (Read Wilson's proposal.)

"It's benefiting from death," said Jim Tucker of the Tennessee State Employees Association. "Without the knowledge and consent of the person, I just think it's just horribly wrong."

It was a complicated financial transaction that would have required the state to:

  • issue up to $7 billion in bonds (other estimates put it as low as $1.4 billion)
  • then use that money to buy a type of life insurance -- called an annuity -- that makes periodic payouts
  • then take those payouts to pay for term life policies from another insurance company.
  • When the retirees died, the money would go back into the pension fund.

At the same time, former U.S. Sen. Phil Gramm, R-Texas, was pushing a similar plan in Texas. Brody is a former aide to Gramm. (Read Wilson's update on the Texas plan.)

"It's a creepy, complex scheme that the state shouldn't be getting anywhere close to," Cunningham said.

At the time, state Treasurer Steve Adams and the financial experts in his office didn't like what they saw.

"This is a proposal that is extremely complex and could be received negatively by our retirees and the public," an analysis reads.

"Why would a company knowingly issue annuities or life insurance that will most likely result in a loss?"

They concluded that the state "could be a party to causing" an insurance company "to default or enter receivership at some point in the future." (Read the treasury analysis.)

It's a grim warning now in light of the near collapse of insurance giant AIG.

Cunningham concluded, "The very fact that people seriously wanted to get money and said, yes, I'm proposing this, I'm the one that's pushing this -- gosh, that's scary."

When we reached Ira Brody by phone late Thursday, he said he wasn't actually working at the company at the time the proposal was first made.

But NewsChannel 5 Investigates obtained a document from Brody's company that was recently given to one lawmaker touting a similar plan. (Read the Inscap document.)

Asked if he would consider it as treasurer, he told NewsChannel 5 Investigates that he is "not ruling anything out."

As for the risk to taxpayers, Wilson was proposing to use a "risk-free" type of bond in which investors knew that Tennessee government would not back it up if the scheme failed.

But treasury officials concluded it would've made Tennessee look terrible, even if taxpayers didn't have to foot the bill.

Meanwhile, on Thursday, House Speaker Jimmy Naifeh called on Wilson to come clean about what he knows about the rigging of state contracts during the Sundquist administration.

That follows questions raised by NewsChannel 5 Investigates.

Back to NewsChannel 5 Investigates

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