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Whistleblower thought he would get a big payout, but got nothing and went broke
- oefrha 5y agohttps://archive.is/KAY41 https://archive.is/KAY41
- oefrha 5y ago> The company sold more than 20,000 individual investors fractional shares in life settlements—the right to collect on a stranger’s life insurance policy when the insured person dies. Mr. McPherson suspected the company was overcharging clients by providing misleading estimates of how quickly the insured person was likely to die. Not directly related to the whistleblowing case, but this life settlement investment concept is new to me, and apparently it’s a well-established market: https://www.forbes.com/sites/forbesfinancecouncil/2021/03/09/how-life-settlements-can-offer-returns-and-diversification/?sh=71a12c5b884b https://www.forbes.com/sites/forbesfinancecouncil/2021/03/09... Honestly, I find this concept rather disturbing.
- jedberg 5y agoIt's disturbing but makes sense in a lot of business contexts. Imagine I own a business and I have a key employee who has a unique skill. And if they were to die, my business would have serious problems. It makes sense to take out a life insurance policy on that person to protect my lost revenue. Or let's say I have a business partner, we own the business 50/50. It makes a lot of sense for each of us to have a life insurance policy on the other person to make up for the fact that the business might likely die if the person does. Where it's kind of screwed up is when Walmart takes out policies on their front line retail employees and doesn't tell them as a way of diversifying revenue.
- gruez 5y ago>Where it's kind of screwed up is when Walmart takes out policies on their front line retail employees and doesn't tell them Why is that screwed up? It doesn't affect them in any way.
- jessaustin 5y agoIt allows Walmart to care less about safe working conditions for its employees.
- gruez 5y agoIs there any evidence they're doing that? Moreover, if they would do that, wouldn't that be already be priced in by the insurance company, wiping out any potential gains?
- jessaustin 5y agoThere may be evidence but I don't know about it. If we were talking about insurance for property damage, I could almost agree with the "priced-in" idea, [EDIT:] although that assumes a very efficient torts system for the third parties who suffer damage to their property. There is an inherent asymmetry when we're talking about the health and lives of third parties, however. If anything firms should be encouraged to care more about not killing their employees.
- ineptech 5y agoWalmart isn't some disinterested third party; they enact policies that directly affect their employees' health and longevity. It's a pretty perverse incentive for the party responsible for negotiating and administering your health insurance to have a financial interest in you dying younger than expected.
- oefrha 5y agoLife insurance makes total sense and is a good thing in general for the family and possibly the business involved. The part I find disturbing is investing in the life insurance policies of complete strangers where the return on investment depends on the demise of said strangers.
- gruez 5y agoThis is baffling. Is this supposed to provide above market returns (after adjusting for risk)? If not, what's the point? If yes, how's the counterparty to this (insurance companies) coming up with the returns? After all, they're just investing the money so they can pay out a few decades later; it's not like they can print money to do the payouts. Are they just betting on the insurance companies mispricing their insurance products?
- oefrha 5y agoAccording to the Forbes article I linked, they selectively invest in policies that will likely see a payout (old people with health issues) and ignore the rest. They then pay the premiums to keep the policies alive until they can cash out.
- hogFeast 5y agoEither the person who bought the policy wants to sell or the insurer who wrote the policy wants to sell. The person selling wants cash today, and the person buying wants cash tomorrow. Same as anything else. EDIT: I will add, there is a lot of this kind of thing going on in insurance now because no-one expected rates to stay this low for so long. This drives cash out of insurers who, often, have a massive stream of liabilities and no way to generate cash to pay them. And this specific market is driven more by individuals who took out huge life insurance policies, lived longer than they expected, and are now stuck paying huge premiums they can't afford (so they sell the policy to someone else, who pays the premiums, and collects the final value). Again, this is basically how financial markets work. Risk is shifted towards those who are most able to bear it. The alternative here is a bunch of old people having to declare bankruptcy and being stripped of all their assets because there is no-one who will cash their policy.
- jcheng 5y ago> Are they just betting on the insurance companies mispricing their insurance products? Sort of. First, the investors are betting that the information they have now (when the insured wants to sell) is better than what the insurance company had then (when the insured purchased the policy). Second, life insurance policies have a “cash surrender” value, basically an amount of money that the insurance company will pay to the insured to give up the policy. These days those cash surrender values are extremely low, as the insurance companies rely on the difference to boost profits; they can do this because many policyholders don’t know there are alternatives to surrendering the policy if they can’t make the payments. What’s attractive about this from an investor’s perspective is not outsized returns, but returns that are uncorrelated with the market. I was pretty grossed out when I first heard of this kind of investment but then learned that it first became popular during the AIDS epidemic. Selling their life insurance policies was a way for the terminally ill to benefit from an asset that was not going to have any value to them after death (if they had no family to benefit from the payout). Without investors providing a market for these policies, they’d have to settle for the cash surrender value.
- mcguire 5y agoMy understanding is that they became common during the AIDS epidemic, with people selling their life insurance proceeds early in order to get money for their current living expenses. It's a little disturbing, but it makes sense.
- deleted 5y ago[deleted]
- shadilay 5y agoSo if you are going to blow the whistle it ought to be a large company unlikely to declare bankruptcy. Not sure how that helps the investors.
- drewcoo 5y agoWSJ prints scare piece to dissuade future SEC whistle blowers. Who expected that?
- jtbayly 5y agoWSJ advocates changing SEC rules to better support whistleblowers.
- LanceH 5y agoAnd if they don't print it, they are covering up the ineffectiveness of the SEC's whistleblowing program. What exactly should they print?
- bidirectional 5y agoIndividual goes bankrupt and implodes his career due to little known fact, and somehow it's bad practice to report on that? The SEC are a big organisation, they can take a knock.
- teddyh 5y ago“Undank ist der Welten Lohn”.
- SilasX 5y agoI couldn't find a common translation or appearance of this saying's equivalent in English. Ungratefulness is the world's wage?
- ggsp 5y agoI‘d say “reward” instead of “wage.”
- stickfigure 5y agoAh, the English equivalent would be something like "No good need goes unpunished."
- jfk13 5y ago"no good deed", not need
- SilasX 5y agoAlthough I like to do a deliberate pun, no good heed goes unpunished. (The consequences of following well intentioned but naive advice.)
- stickfigure 5y agoThe HN version is apparently "No good typo goes unpunished." :-)
- bigwavedave 5y ago>> “Undank ist der Welten Lohn”. > I couldn't find a common translation or appearance of this saying's equivalent in English. Ungratefulness is the world's wage? I believe it means something akin to "nothing is so hard as man's ingratitude." It's an expression that's not dissimilar to "no good deed goes unpunished." They're not quite the same, but they're tandem in the general principle of ingratitude.
- londons_explore 5y agoOr... to look at it another way, when there isn't enough money left in a company, harmed investors are paid first, then whistleblowers/government fines. That seems right to me...
- sombremesa 5y agoIt's not right, because now it's in the whistleblowers' best interest to get in on the scam and enrich themselves instead of reporting anything, since the act of whistleblowing is equivalent to shooting yourself in the foot while biting the hand that's feeding you. I suppose it is right depending on who's side you're on.
- OGforces 5y agoIt’s not in the best interest of a whistleblower to get in on the scam. The trope of “incentives” is overblown. People don’t directly respond only to a single incentive. It’s in the best interest of the whistleblower to keep his head low instead of report.
- milesvp 5y agoI think you are in agreement with the parent post. There was an implied /s in the tone. Systemically it’s a huge problem to favor investors over whistleblowers and fines. You want incentives to be aligned wherever possible, and being able to declare bankruptcy in order to protect the very people benefiting from unscrupulous acts just leads to more unscrupulous behavior.
- sombremesa 5y ago> There was an implied /s in the tone. I strongly disagree with this, because the GP has used the term "harmed investors". I think it's a dangerous practice to go around claiming other people's posts are tongue in cheek. That's how we come to allow 'locker room talk'.
- milesvp 5y ago
- engineer_22 5y agoWas he doing the right thing for the sake of it? Or was he snitching so he could make money?
- ivalm 5y agoWho cares? I strongly prefer that people snitch to make money rather than keep quiet.
- mabbo 5y agoThat's the entire point. If you rely only on people doing the right thing, turns out that most of Wall Street won't help you. If you offer financial payouts, then suddenly you have a lineup of people ready to spill the dirt. Now, you can take the moral high ground of 'Well we don't want the help of greedy people', but it seems that when you do that, you don't get a lot of convictions, and the financial crimes continue to happen.
- sokoloff 5y agoWhy can’t it be do the right thing and make money doing it? It seems like such a structure would give us broadly/consistently better results than relying only on one factor or the other.
- xwdv 5y agoRelying on people to do the right thing isn't really scalable or efficient.
- hyperbovine 5y agoThe number of people in this world doing the right thing for the sake of it is laughably small.
- ARandomerDude 5y agoWhy did you go to work today?
- wccrawford 5y agoIf we could rely on people doing the right thing, we wouldn't be in this position in the first place.
- clipradiowallet 5y agoThis sends a bad message to would-be whistleblowers. I read it as... "next time, take your evidence, make contingency plans, and finally blackmail the criminals - you're more likely to get paid".
- mariogintili 5y agoit is literally how the world works these days
- explorigin 5y agoIf you take this route, have a life-insurance policy.
- navierstokes 5y agoA lesson they teach in $IVY_LEAGUE, "you all know whistle blowers don't end up well." Direct quote from $INFLUENTIAL_DUDE in response to $PUBLIC_THING. Trust your gut. When it says leave, leave. Even if others encourage the opposite. Even if your extended family depends on your income. Make the effort to build and maintain a strong social circle. Filter for integrity. Assiduously avoid those who distort truth for personal advantage.
- navierstokes 5y agoWhen you know you're going to be alone and homeless, it's really hard to find the strength to keep on living. What's the point?
- duxup 5y agoI don't think this guy is just some rando whistleblower. He tried to make it a full time job, it's not clear why but he took out loans to do it ... it just was a bad "business" choice.
- wsc981 5y agoIn The Netherlands and the EU there are quite a few well-known whistleblowers who received the short-end of the stick. One example would be Paul van Buitenen [0]. It's really risky to become a whistleblower and if you do, you better be able to live the rest of your life on your finances, because it might become very hard after becoming a whistleblower to receive another well-paying job. Also be prepared to deal with a lot of stress that might impact your health and mental wellbeing. --- [0]: https://en.wikipedia.org/wiki/Paul_van_Buitenen https://en.wikipedia.org/wiki/Paul_van_Buitenen
- WheelsAtLarge 5y agoI get that there is no money from the penalty so he can't get paid from that but he should at least get paid for his expenses and time. After all, his help was invaluable to the case. There needs to be a minimum payout. I bet all the lawyers got paid from the recovered funds so he should get his share from that.
- fastball 5y agoI guess the problem is that if you're not collecting a fine what exactly is the bar for this minimum payout?
- WheelsAtLarge 5y agoYes, but there was $1 billion recovered for the victims. I guarantee the lawyers that did the work got a share of that money. I think the whistleblower should have gotten, at the very least, his expenses covered. That's how bankruptcy works. There's an amount of money recovered then all interested parties tell the court how much they are owed. An finally, a judge decides who gets what. Like I said, the lawyers got their share. I think he should too.
- paulpauper 5y ago3 trillion for covid relief like nothing. Why not set aside just a miniscule amount for whistle-blowers? Getting the govt. To geta payout is like prying open a bear trap.
- stuff4ben 5y agoThis is a bit of a click-baity article title. He went broke because he assumed he was getting a payout and did stupid things. From the bottom of article: Early in the Life Partners saga, Mr. McPherson was so beguiled by the lure of whistleblower millions that he essentially quit his day job to become a full-time whistleblower, using his accounting and life-insurance knowledge to spot potential miscreants...In 2018, he took out a $1 million litigation-funding loan at very high interest rates, secured by the Life Partners whistleblower claims, to pay back taxes and continue to pursue his cases.
- yellow_lead 5y agoYou would think that if he were so invested in the whistleblower program he would do his due diligence to understand the fine print.
- matthewdgreen 5y agoThe fine print seems to be that the bankruptcy process privileges investors, rather than requiring companies to pay fines (which pay for the whistleblower program.) I don't know if this is good or bad, but it's the important substance of the article -- not the silly detail about this particular person's finances.
- cortesoft 5y agoWell the crime the company committed was fraud against their investors... shouldn't the victims get their money back? Paying out the whistleblower before the victims would be like if someone stole your bike, then the cops arrest the guy and recover your bike because of a tip... and then the cops give your bike to the guy who called in the tip
- HarryHirsch 5y agoIt's all about the incentives. You have to decide what you want, a criminogenic environment or fairness.
- hackettma 5y agoWhat is less clear to me is why he borrowed so much money to setup this business? The debt had as much or more to do with his going broke than the flawed whistleblower process. As with many things in life this is a cautionary tale about not counting on something before it’s done.
- fivestarman 5y ago* "this is a cautionary tale about not counting on something before it’s done." * The story, to me, is about a flaw in the whistleblower program that disincentivizes people from using it, and thus makes it less effective.
- mcguire 5y agoIs it a flaw that, in bankruptcy, fines come after other classes of debts?
- AlbertCory 5y agoI read the original WSJ. I guess the tricky moral question is: were the investors partially culpable for the crime, or blameless victims? You can say "they should have been more diligent" but are you equally willing to apply that standard to ALL fraud victims? Example: You moved into an unsafe apartment building that collapsed snd killed you -- "too bad, you should have checked it out better! The signs were there." Bernie Madoff ran a Ponzi scheme and paid early investors with the funds of later ones. The early people who benefited from the fraud were forced to disgorge their "investment returns" and some of that money was returned to the later ones. So was that "justice?" Should the whistleblower have gotten some of that? Not easy questions. Don't be too quick to take sides.
- baybal2 5y agoThe legal system should not protect ponzi schemes investors, or just any investors. Somebody's lack of commercial sense, and financial stupidity should not be rewarded with such "insurance" by the public. American ultralitigious banker/investor culture effectively rewards people going completely casino with their, or, more often, somebody's else money.
- lallysingh 5y agoThe system protects investors who were lied to. Yes that includes lies that are a bit obvious, but the result is a very, very healthy investment economy in the US. Investing is safer from flat-out fraud in the US, and that makes for more investment.
- AlbertCory 5y agoCorrect. You don't want to reward the people who are exceptionally good liars, like Madoff: the ones who can con those who normally can't be conned. There are actually people who believe a message that their Social Security number has been compromised, and they have to pay money to avoid going to prison. The stupid deserve fraud protection, too.
- aeturnum 5y ago
- paulpauper 5y agoThis is why you should not try to save the world. It is not your job to save others. Focus on your own life.
- knodi123 5y agoI don't think you'll get a lot of traction with a heartfelt argument against the concepts of heroism and personal sacrifice.
- paulpauper 5y agoI made the opposite argument in an earlier reply which was also downvoted. Can someone tell me what opinion is the correct one?
- knodi123 5y ago> I made the opposite argument in an earlier reply which was also downvoted. Yeesh. Don't change your positions just to try and win votes. But if you want a palatable position that doesn't offend anybody, how about "each person should decide for themselves how much sacrifice they're willing to make"? We don't need a society of all heroes or of all pragmatic cowards.
- fmajid 5y agoI would think the SEC fines would be senior to investors, but it seems the SEC never filed to recover them in bankruptcy court. As noted pedophile Woody Allen once said, 80% of success in life is showing up.
- Zachsa999 5y agoI wanted to read it, but I didn't want to sign in.
- neonate 5y agohttps://archive.is/KAY41 https://archive.is/KAY41
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