Forget about the broker; sue the board members
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Dear Mr. Berko:
In June I bought the preferred stocks of Lehman Bros. and Fannie Mae because they were AA-rated by Moody’s and Standard & Poor’s, and because my broker at Dean Witter told me they were solvent and “undervalued.” I bought 300 shares of each. Now both are insolvent, and I lost more than $12,000. I’ve decided, on the advice of my lawyer, to sue the broker. However, I’d appreciate your opinion. I also own a $125,000 AIG variable annuity, and it looks as if it is in very serious trouble. Do I have to worry about this annuity, or is there a federal insurance plan to protect policyholders?
S.N., Erie, Pa.
Dear S.N.:
It’s sad that so many people who won’t accept responsibility for their actions are so quick to sue a third party for their losses. Of course, you might have been influenced by an ambulance-chasing shyster out to make a buck. Do you know that this country has 1.4 million lawyers registered with the American Bar Association, plus an approximate 216,000 more who believe that ABA membership isn’t worth a road apple? That’s one lawyer for every 141 Americans.
However, suing your Dean Witter man for recommending Lehman Bros. and Fannie Mae is a stupid thing for your attorney to do. The real targets must be every board member at Lehman Bros. and Fannie Mae – the privileged narcissists in three-piece suits whom you elected and who got paid millions plus perks to be your corporate guardians. Tell your lawyer to get the names of every board member of Merrill Lynch, AIG, Wachovia, Lehman Bros., Bear Stearns, Fannie Mae, Freddie Mac, etc. Tell him to contact the shareholders and sign them up for a class-action suit, then hammer every board member.
These entitled corporate blue bloods failed egregiously in their fiduciary capacity to protect you and should not be allowed to walk away without serving time and losing blood. Board members have important fiduciary duties, and their quarterly congress should not have been merely an excuse for golf, liquor, cards, hardcore parties and male bonding. I know, because on two occasions I have resigned from corporate boards for those very reasons. I wish your lad good hunting, but I suspect this is above his pay grade. So I’ve sent you the names of several tort lawyers in Chicago who get excited about the mere prospect of slowly peeling the skin from the backs of those board members.
I am concerned about your AIG variable annuity. Insurance company defaults are governed by state, not federal, law. I can tell you that annuity contracts are protected against insolvency up to a specific dollar amount, usually between $100,000 and $300,000.
This is not federal government insurance; rather it’s a provision of your state guaranty association. So when insolvency occurs, your state guaranty association decides what should be done “on a case-by-case basis.” Though I can’t tell you what the downside is on your AIG variable annuity, I can tell you that I’d be uncomfortable owning it.
Many state guaranty associations are hidebound bureaucracies that will put you through frustrating delays before a claim is settled.
When choosing insurance products, stick with the high-class companies like MetLife, AXA/Equitable, Ohio National, John Hancock, New York Life and Hartford. These insurers are managed like old Swiss banks and eschew the risks of the present world investment philosophy.
Please address your financial questions to Malcolm Berko, P.O. Box 1416, Boca Raton, Fla. 33429 or e-mail him at malber@adelphia.net. © Copley News Service
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