Liquidators for General American Life Insurance Co. were scheduled to go to trial Nov. 1 in Kansas City, where they were suing accounting giant KPMG in connection with General American's collapse.
Instead, the parties met Aug. 24 in Maui, where they hammered out a settlement calling for KPMG to pay $18 million to a General American liquidation fund, according to attorneys in the case.
Judge Thomas Brown of the Cole County (Missouri) Circuit Court signed an order approving the settlement Sept. 21.
The deal concludes a lawsuit Scott Lakin, director of the Missouri Department of Insurance, and Albert Riederer, special deputy liquidator for General American Mutual Holding Co., brought against KPMG and six of its partners in 2002 that alleged they breached their professional obligations to General American.
The suit did not seek a specific dollar amount but said more than $1 billion was lost. As part of the settlement, individual partners were dismissed from the case and KPMG did not acknowledge any fault.
With the settlement, the pool of funds collected through the General American liquidation now stands at $47.5 million. Most of those funds eventually will be distributed to General American's 300,000 policyholders, many of whom live in the St. Louis area. The liquidators already have distributed more than $1 billion of the $1.2 billion collected from General American's sale to Metropolitan Life more than four years ago.
Once the largest life insurance company based in Missouri, General American faced financial collapse in August 1999 during a liquidity crisis when investors sought to cash in nearly $7 billion in notes redeemable in seven days that were backed by long-term assets. The company turned itself over to the Department of Insurance, which sold the business to Metropolitan Life.
Tom Fitzgerald, a KPMG spokesman, said the firm decided to settle so it could focus on its audit business. “KPMG is confident that the audit services we provided to General American were consistent with professional standards and industry practices.”
Rick Lombardo, with Shaffer Lombardo & Shurin in Kansas City, who represented Riederer, declined to discuss talks that led to KPMG agreeing to the $18 million figure because of the potential impact on other liquidation cases.
Riederer filed suit in June against Morgan, Stanley & Co. of New York for more than $3 billion. That suit claims Morgan Stanley withheld information from General American officials about the risky investment product that led to General American's demise. The suit also names former General American executive Leonard Rubenstein, who ran General American's Conning Corp. investment business. He is the only executive from General American facing any legal action from the collapse.
Lawyers in the KPMG case said they first tried to reach a deal July 8-9 at the San Francisco law offices of Tony Piazza, who has a reputation for bringing complicated legal matters to settlement. They were following a directive from Circuit Judge Peggy McGraw, who was handling the KPMG suit in Kansas City.
Some progress was made during those meetings, but lawyers continued to prepare for a November trial, said attorney Martin Green, of Green Schaaf & Jacobson in Clayton. He represented former KPMG partner Paul Kopsky.
A breakthrough came almost seven weeks later, when Piazza brought both parties to his offices in Maui, said Tony Durone of Berkowitz, Stanton, Brandt, Williams & Shaw in Kansas City. He represented KPMG and six individual KPMG defendants.
Lombardo and Riederer both attended that session, as did Durone and Steve Carlin, an associate general counsel for KPMG in New York. The meeting lasted all day and stretched into the evening before the attorneys came to an agreement that they referred to as a “napkin settlement,” because it was comparatively short and handwritten.
“Simple is better a lot of times,” Durone said. “We managed to do this on two pages.”
Green said his client, Kopsky, was elated that he was dismissed from the suit. He said Kopsky left KPMG in 1997, but could not find work in St. Louis following the suit, and now works for an insurance firm in Ohio.
The other KPMG executives named in the suit were Christopher Swift, who also left KPMG in 1997; Thomas Kochis, an audit manager on the General American account in 1997 and 1998; Jack Myers, a partner on the 1998 audit; Jonathan Wismer, senior audit manager on General American's 1998 audit; and Charles Friedstat, KPMG's actuarial reviewer for General American audits from 1995 to 1998.
Wismer left KPMG after the liquidator suit was filed, Durone said. Myers and Friedstat are still with the firm, and Kochis has retired.
© 2004 American City Business Journals Inc.