Philanthropist and insurance tycoon Barry Kaye is bringing unwanted attention to a university that has benefited from his largess and to the life settlement industry.
WASHINGTON — Philanthropist and insurance tycoon Barry Kaye is bringing unwanted attention to a university that has benefited from his largess and to the life settlement industry.
Two weeks ago, Mr. Kaye, his son, Howard, and their firm were named in a complaint issued by the Florida Office of Insurance Regulation in Tallahassee against Coventry First LLC for “engaging in fraudulent or dishonest practices” involving life settlement transactions.
In a life settlement transaction, an insurance broker buys an existing life insurance policy from a policyholder — usually at a fraction of the policy’s face value — becomes the policy’s beneficiary and agrees to pay the premiums associated with that policy until the insured dies. The life settlement provider often sells all or part of the policy to other investors.
The 20-page complaint states that both Mr. Kaye and his son were paid $400,000 each by Fort Washington, Pa.-based Coventry, a life settlement company, in connection with a transaction in which a 73-year-old woman was paid $968,832 for two life insurance policies with face value totaling $19.4 million.
According to the complaint, Coventry records indicate that the Kayes were paid despite “having apparently nothing to do with the transaction” and that Coventry should have paid the original policyholder “substantially more than $968,832” if it were acting in good faith.
“The allegations in the complaint are unfounded and without merit,” said Jeff Lloyd, a spokesman for Coventry, which last year was sued by former New York Attorney General Eliot L. Spitzer for allegedly making secret payments to suppress competitive bids. “Beyond that, we have no further comment at this time.” Calls to Mr. Kaye at his Boca Raton, Fla.-based firm, Barry Kaye Associates, were not returned.
The Florida Department of Financial Services also is looking into the actions of all brokers and agents associated with Coventry, including Mr. Kaye, said spokeswoman Nina Banister.
Industry concerns
The complaint hasn’t gone unnoticed by the life insurance industry.
“I’m very concerned about Mr. Kaye,” said Julie McPeak, executive director of the Kentucky Office of Insurance in Frankfort and chairman of the Kansas City, Mo.-based National Association of Insurance Commissioners’ life insurance and annuities committee. “I believe he sees the state of Florida as a virtual gold mine because of the high-income elderly population.”
Mr. Kaye’s dealings are sure to come up next month when the NAIC meets to discuss, among other things, the need for model life-settlement legislation.
“All of these actions are going to make our discussion much more lively at the national level,” Ms. McPeak said.
In April, North Dakota became the first state to adopt a more stringent statute regulating life settlements, with special emphasis on stranger-originated life insurance (InvestmentNews, April 23). The statute is based on a revised model law developed by the NAIC and includes a requirement that a life insurance policy can’t be sold to investors within five years of issuance.
At least nine other states are considering similar statutes.
Although life insurance companies are concerned about the potential for abuse in life settlements, they also have a financial interest in tighter controls: They profit when longtime policyholders stop making premium payments and let a policy lapse, rather than sell it to a third party.
The Florida complaint also puts the spotlight on Florida Atlantic University in Boca Raton, which has received more than $20 million in donations from Mr. Kaye.
In return for the former TV personality’s generosity, FAU has named its college of business after Mr. Kaye, who reportedly dropped out of high school. It also has named an auditorium after its benefactor. Mr. Kaye also conducts seminars promoting his investor-owned life insurance plans on school grounds according to published reports, and glowing accounts of Mr. Kaye’s presentations, as well as his biography, are included on FAU’s web site.
School ties
Recently, Mr. Kaye was appointed to the FAU Foundation Inc., the school’s fund-raising arm. And this month, he offered to help it raise $100 million through investments in investor-owned life insurance policies sold by his company.
Mr. Kaye’s close ties to FAU raise questions.
“If you’re using your position on the board to benefit yourself, that becomes a problem,” said Vaughn Henry, owner of Henry & Associates, a charity and estate planning consulting firm in Springfield, Ill. “There’s probably enough smoke that they’re going to take a good hard look.”
Predictably, FAU wants to distance itself from Mr. Kaye’s legal problems.
“It’s probably best that the university not comment on these issues surrounding any of this,” said FAU spokeswoman Kristine McGrath.
So far, no decision has been made on whether FAU will take Mr. Kaye’s offer to help bring in $100 million through life settlement transactions.
Other trouble
“There’s been only one conversation that I know of” between Mr. Kaye and university president Frank Brogan, Ms. McGrath said.
This isn’t the first time Mr. Kaye has been in trouble with regulators.
In 2004, he was cited by state regulators for failing to have the ads he used to entice consumers to his free insurance seminars approved by the companies with which he does business. One ad that particularly concerned regulators suggested borrowing against a home or liquidating assets to buy life insurance policies as an investment.
Two years earlier, Mr. Kaye was fined $2,500 and had to pay another $2,500 in investigation costs for a probe that found he was working under a non-resident license, although his home and business were in Florida.
In addition to his donations to FAU, he states on his website that he has contributed “the largest endowment to the CLU college of $3 million,” a reference to The American College in Bryn Mawr, Pa.
American College spokesman Eric Gordon said he did not know if Mr. Kaye is the school’s largest benefactor. But the school has a “Barry Kaye Media Center” that Mr. Kaye funded “back in the 1990s,” he said. “We haven’t received a gift from him in a number of years.”
Concerning the Florida allegations, Mr. Gordon said, “I don’t know the specifics of the incident. It’s really between Mr. Kaye and the state of Florida at this point.”
