ILNews

Teachers union could pay $14M to schools under settlement

Back to TopCommentsE-mailPrintBookmark and Share

The state’s largest teachers union and its national parent organization have agreed to pay $14 million under a tentative settlement announced Tuesday morning by Indiana Secretary of State Connie Lawson and Indiana Securities Commissioner Chris Naylor.

Those funds would be paid to 27 Indiana school corporations whose employees contributed premiums to the now-defunct Indiana State Teachers Association Insurance Trust for medical insurance.

A 2009 lawsuit brought by the Securities Division of the Indiana Secretary of State claimed that the ISTA Insurance Trust had sold the schools unregistered securities, commingled the funds of its medical and long-term disability insurance plans and falsified reports to the schools.

Those allegedly falsified reports claimed the schools had amassed $27 million in excess premium payments, which were being held in “claims stabilization reserves” to offset future premium increases.

In reality, however, the ISTA Insurance Trust began using those claims stabilization reserves to pay off claims being generated by members in its long-term disability insurance plan, according to the lawsuit filed in December 2009 by Naylor.

“It had many of the characteristics of the run-of-the-mill Ponzi schemes that we see,” Naylor said. “Just the dollar amounts were bigger.”

The settlement was hammered out July 3 during an all-day conference in federal court in Indianapolis. But it is still pending approval by the school boards of the 27 school districts.

Once finalized, the settlement calls for ISTA and its parent organization, the National Education Association, to write a check for the $14 million within 10 days. The money will be paid to the Secretary of State’s office, which will distribute it to the school corporations.

“We are confident that we have a majority of the schools in agreement,” Lawson said. She added that while the state believes ISTA and NEA should pay back all $27 million, the settlement would avoid the years-long legal battle that would be necessary to win such a judgment against them.

Mark Shoup, a spokesman for Indianapolis-based ISTA, said the teachers union hopes the settlement puts its troubles with the insurance trust behind it.

"It allows us as ISTA, the teachers organization, to really move forward and focus on our mission, which is being the voice of teachers," Shoup said.

The settlement will pay each school corporation roughly 52 cents for every dollar they were told was being held in reserve for them at the ISTA Insurance Trust. In 2009, the NEA offered to pay the schools between 25 cents and 33 cents on the dollar.

"We think it's more than fair," Shoup said. "At this point, we think it's something everyone can live with."

The settlement includes no fees for the legal work performed by or on behalf of the Secretary of State’s office, Naylor said. Rather, the outside attorneys the state hired for the case were paid out of fines from violators of Indiana’s securities laws.

Letters were mailed on Thursday informing the school districts of the settlement terms, which also require the school districts to release ISTA and NEA from any further legal claims. If any of the 27 school corporations does not agree to the settlement, then the case is set to proceed to trial Oct. 28.

The ISTA and NEA sought multiple times to dismiss the case or to excuse the NEA from liability. But Judge Sarah Evans Barker ruled against those motions, allowing the case to proceed to trial.

The ISTA Insurance Trust, launched in 1985, at one time provided health insurance to more than 7,000 school employees around the state and long-term-disability coverage to nearly 30,000 others. It offered its plans as a low-cost alternative to school employees—a strategy it could maintain so long as returns from its investments were good.

The collapse of the ISTA Insurance Trust was the result of poor investment decisions that were then exposed by the global recession and financial meltdown of 2008 and 2009.

From 2004 to 2008, the ISTA Insurance Trust increased the percentage of its assets invested in “alternative investments,” which tend to be hard to value and hard to sell, from less than 20 percent to more than 93 percent.

From the fall of 2007 until the spring of 2009, the value of the trust’s assets fell by 55 percent, leaving it $67 million short of its liabilities, according to a special report prepared in May 2009 for the Indiana Department of Insurance.

The plunge was accelerated because the trust had to sell off some of its liquid assets to pay health and disability claims of its members.

"That is just a recipe for disaster," said Jim Atterholt in 2009, who was at the time Indiana’s commissioner of insurance.

The settlement also brings to a close an ugly chapter for the ISTA. The revelation of the losses in its insurance trust led to the resignation of its longtime executive director, Warren Williams, and the effective takeover of the state organization by its parent, the NEA.

Also, some cited the financial turmoil for ISTA’s inability to stop Republicans from gaining control of the state Legislature in the 2010 elections and then passing a series of sweeping education reforms in the spring of 2011.

The Secretary of State’s office also filed suit against David Karandos, the financial adviser for the ISTA Insurance Trust, who advised the numerous investments in private equity and hedge funds.

Karandos, who worked for UBS and Morgan Stanley Smith Barney during his time as the ISTA’s adviser, was a close friend of Williams. The two vacationed together, and Karandos even introduced Williams to his current wife.

In March 2012, Karandos agreed to a fine of $50,000 and a suspension of his broker’s license for 75 days.

Since June 2012, Karandos has worked as a mortgage loan officer for two different lenders, Cross Country Mortgage and then GVC Mortgage, according to his LinkedIn page. Also, since June 2012, Karandos has operating his own financial advising business, which his LinkedIn page called Private Client Advisors/ DMK Financial Services Group.

The two Wall Street firms that employed Karandos have reached separate settlements with the Securities Division. UBS in May 2011 paid a $450,000 fine and $227,000 in investigative costs, and Morgan Stanley in January 2012 paid a $100,000 fine and $110,000 in investigative costs.

 ISTA last year reached its own settlements with Morgan Stanley and UBS. But the amounts the firms agreed to pay have not been made public.

Story originally published at IBJ.com.
 
 

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Indiana State Bar Association

Indianapolis Bar Association

Evansville Bar Association

Allen County Bar Association

Indiana Lawyer on Facebook

facebook
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. I can understand a 10 yr suspension for drinking and driving and not following the rules,but don't you think the people who compleate their sentences and are trying to be good people of their community,and are on the right path should be able to obtain a drivers license to do as they please.We as a state should encourage good behavior instead of saying well you did all your time but we can't give you a license come on.When is a persons time served than cause from where I'm standing,its still a punishment,when u can't have the freedom to go where ever you want to in car,truck ,motorcycle,maybe their should be better programs for people instead of just throwing them away like daily trash,then expecting them to change because they we in jail or prison for x amount of yrs.Everyone should look around because we all pay each others bills,and keep each other in business..better knowledge equals better community equals better people...just my 2 cents

  2. I was wondering about the 6 million put aside for common attorney fees?does that mean that if you are a plaintiff your attorney fees will be partially covered?

  3. I expressed my thought in the title, long as it was. I am shocked that there is ever immunity from accountability for ANY Government agency. That appears to violate every principle in the US Constitution, which exists to limit Government power and to ensure Government accountability. I don't know how many cases of legitimate child abuse exist, but in the few cases in which I knew the people involved, in every example an anonymous caller used DCS as their personal weapon to strike at innocent people over trivial disagreements that had no connection with any facts. Given that the system is vulnerable to abuse, and given the extreme harm any action by DCS causes to families, I would assume any degree of failure to comply with the smallest infraction of personal rights would result in mandatory review. Even one day of parent-child separation in the absence of reasonable cause for a felony arrest should result in severe penalties to those involved in the action. It appears to me, that like all bureaucracies, DCS is prone to interpret every case as legitimate. This is not an accusation against DCS. It is a statement about the nature of bureaucracies, and the need for ADDED scrutiny of all bureaucratic actions. Frankly, I question the constitutionality of bureaucracies in general, because their power is delegated, and therefore unaccountable. No Government action can be unaccountable if we want to avoid its eventual degeneration into irrelevance and lawlessness, and the law of the jungle. Our Constitution is the source of all Government power, and it is the contract that legitimizes all Government power. To the extent that its various protections against intrusion are set aside, so is the power afforded by that contract. Eventually overstepping the limits of power eliminates that power, as a law of nature. Even total tyranny eventually crumbles to nothing.

  4. Being dedicated to a genre keeps it alive until the masses catch up to the "trend." Kent and Bill are keepin' it LIVE!! Thank you gentlemen..you know your JAZZ.

  5. Hemp has very little THC which is needed to kill cancer cells! Growing cannabis plants for THC inside a hemp field will not work...where is the fear? From not really knowing about Cannabis and Hemp or just not listening to the people teaching you through testimonies and packets of info over the last few years! Wake up Hoosier law makers!

ADVERTISEMENT