U. S. Securities and Exchange Commission
CIHC, Inc., Conseco Services, LLC, and Conseco Equity Sales, Inc.
Independent Distribution Consultant (IDC) for Conseco Fair Fund established pursuant to the Sarbanes-Oxley Act of 2002. As IDC, KGP is responsible for developing a Distribution Plan that defines the methodology for distributing $15 million in disgorgement and penalties to variable annuity policy holders whose accounts were diluted by professional market timing in a case affecting over $10 billion of variable annuity assets.
KGP designed the algorithm to quantify dilution from the illegal trading of underlying mutual fund portfolios within variable annuity products. This process included the review of transaction level data for over 45 variable annuity funds to identify the funds that were materially affected. For each of the nearly 100 insurance companies that were omnibus account holders of the affected funds, KGP projected the dilution amounts to then quantify the damage incurred by an estimated two million individual account holders (within the omnibus accounts). KGP is using these results to establish a methodology for the proportionate allocation and efficient distribution of restitution payments to harmed annuitants.
Throughout this process, KGP has examined the dilutive effects of stale price arbitrage, liquidity requirement volatility and transaction augmentation on underlying equity and debt portfolios within these variable annuity securities. KGP has worked closely with the SEC and the Fund Administrator to assure that the harmed annuitants are treated fairly and to assure that the Distribution Plan properly addresses tax-related retirement account issues. Because of the nature of the damaged funds, KGP is one of the few IDCs for the SEC to develop a Distribution Plan that delivers restitution to individual account holders rather than to omnibus account holders.