THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Sunday, April 14, 1996 TAG: 9604130283
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: BY TOM SHEAN, STAFF WRITER
LENGTH: Medium: 93 lines
For some investors, the prestige of belonging to a 300-year-old British institution made Lloyd's of London attractive.
For others, it was an opportunity to earn handsome profits.
Whatever their reasons for joining, tens of thousands of individuals flocked to Lloyd's during the 1970s and early 1980s.
Many later regretted it.
Membership in a Lloyd's investment syndicate required an individual to pledge his or her entire net worth to cover losses, if necessary.
For about 17,000 investors in England and 2,700 in the United States, being part of Lloyd's has produced painful losses and continued uncertainty about their future liabilities.
Although some syndicates at Lloyd's have prospered, several have been crippled by onerous losses from asbestos and pollution claims in the United States. To meet these claims, Lloyd's has demanded payments from syndicate members.
Its member-investors, known as ``names,'' have not borne their difficulties quietly. Thousands have sought relief from the courts and regulators. They also have sued law firms, auditors and managing agents at Lloyd's syndicates.
Lloyd's investors in the United States have had little success in the courts or with the Securities and Exchange Commission. But they have captured the attention of securities regulators in nine states, including Virginia.
The battles with securities regulators in the United States have come at an awkward time for Lloyd's, which is trying to carry out a complicated restructuring.
In an attempt to curb future losses, Lloyd's devised a plan to isolate many of its pre-1993 claims in a separate insurance entity, dubbed Equitas Ltd. It also has agreed to compensate investors for some of their losses from the pre-1993 claims.
But many member-investors are dissatisfied with the reorganization plan, and some are counting on help from state regulators. An American investor who has been fighting Lloyd's said he expected the obligations of many investors to be erased, including his.
And what about the future of Lloyd's? ``I think it will go muddling through,'' the investor said.
Some states, including Missouri, Colorado and West Virginia, have blocked Lloyd's efforts to claim certain assets of investors.
Virginia may be next. Two weeks ago, the state's Division of Securities and Retail Franchising asked the State Corporation Commission for a temporary injunction against Lloyd's attempts to move against investors in Virginia.
The securities division also asked that Lloyd's be barred from soliciting new members in Virginia.
As in other states, Virginia's securities regulators said a Lloyd's membership fits the definition of a security and that Lloyd's broke state laws by failing to register its memberships with regulators.
In an affidavit filed to support its request, the Virginia securities division said Lloyd's seeks to collect $2.7 million from at least 26 investors and former investors in the state. All but one of these have resigned from Lloyd's, the affidavit said.
In response to regulators' actions, Lloyd's has said the individuals seeking help were sophisticated investors who don't need assistance from regulators. In addition, the efforts to bar Lloyd's from collecting what it is owed could hamper payments to insurance policyholders, Lloyd's said.
But on April 3, Lloyd's and securities regulators in eight states announced a 30-day cease-fire. Lloyd's agreed to temporarily suspend its efforts to collect payments from member-investors in those states.
In return, state regulators said they would hold off on further legal action against Lloyd's. Lloyd's and the North American Securities Administrators Association also agreed to work toward a permanent solution to Lloyd's dispute with investors. Virginia was not part of that agreement.
Lloyd's member-investors readily acknowledge that they agreed to put their net worths at risk when they joined. But Lloyd's, they argue, defrauded them by minimizing the likelihood of losses and by failing to disclose the heavy losses that some Lloyd's syndicates were already facing.
``We were told that you could get out in three years, which wasn't the case, and we were told that you couldn't lose more than 10 percent'' of your investment, said one Lloyd's investor, who spoke on the condition that his name not be used.
The interview process at Lloyd's worked this way:
``They sort of marched you in, and they fired four or five questions at you,'' the investor said. ``They asked if you understood that you had unlimited liability. You answered, `Yes,' `Yes,' and `Yes,' because you had been coached before the interview by a member's agent.''
This investor said he and other Americans should have been suspicious when Lloyd's was recruiting heavily in this country during the 1970s and early 1980s. For most of its history, Lloyd's had been an exclusive club with close ties to England's landed gentry, he said.
``Suddenly, they were throwing open the doors to all these unwashed colonials,'' he said. by CNB