Category: Recent Posts
Deputy Attorney General Marshall Miller Delivers Remarks at the New York City Bar Association Compliance Institute
New York, NY
United States
Remarks as Prepared for Delivery
Thank you for that generous introduction. It’s great to be home in New York.
The leaves are changing. The Yankees are in the World Series. And we’re here to talk about corporate criminal enforcement.
It doesn’t get any better than this.
Today, I’m honored to be here to take stock of the Department’s programmatic overhaul of corporate criminal enforcement in recent years, to discuss how that overhaul is designed to empower compliance programs and professionals, and to take a look around the corner to what’s ahead.
There’s an old adage, laced with irony and sometimes attributed to an ancient Chinese curse: “May you live in interesting times.” Over the past few years, we at the Justice Department — indeed, all of us in America — have been on the receiving end of that adage. We all, truly, are living in interesting times.
The volatility and rate of change in the geopolitical landscape and the world economy can be head-spinning: here a regional armed conflict, there a natural disaster, and everywhere transformative leaps in technology.
Perhaps the opportunities seem greater than ever — but so, certainly, do the risks.
And one key area where risks have spread and morphed is in the field of corporate crime.
Corporate crime, of course, is not new. But it’s constantly evolving. So, we must skate to where the puck is going, not to where it’s been.
To meet the moment, over the past few years, the Department has engaged in an overhaul of our corporate criminal enforcement program by modernizing and adapting.
We’ve done that by emphasizing clarity, consistency, and transparency in our policies.
We’ve done that by increasing the consequences for bad actors — whether individual or corporate — and by providing new incentives for good corporate citizenship and investments in compliance.
And we’ve done that by recalibrating and surging resources to address today’s corporate crime threats — and tomorrow’s.
In doing so, we’ve created a clear roadmap of the Department’s expectations for every CEO, General Counsel, Board Member, and Chief Compliance Officer who’s navigating a fast-changing world and must mitigate risk and stay on the right side of the law.
* * *
Let me start with the balance of consequences and incentives — where we’ve increased punishment for bad actors and enhanced incentives for ethical corporate behavior.
To be clear, when it comes to corporate criminal enforcement, Job #1 is individual accountability.
Corporate crime hurts real people — and corporate crimes are committed by real people.
So the Department’s top priority in corporate criminal enforcement is holding individuals accountable.
Accountability not only promotes fairness, it also drives deterrence.
We’ve empowered our prosecutors to focus on the worst offenders committing the biggest crimes, no matter how high they rank on the corporate org chart — no matter how challenging and time-consuming the case.
This approach is resource intensive. Prosecuting the most important cases against the most sophisticated wrongdoers requires breaking down complex criminal schemes, understanding cutting-edge markets and technology, and analyzing terabytes of data.
So we’ve adapted enforcement policies to promote swift individual prosecutions.
We’ve given good actors more avenues to help us go after the bad guys — through innovative whistleblower programs and consistent, transparent, and predictable voluntary self-disclosure policies.
And we’ve made clearer than ever before what we expect from companies cooperating with government investigations to accelerate investigations of wrongdoers.
This updated approach has generated real returns, with timely convictions of: the CEOs of the world’s two largest cryptocurrency platforms — FTX and Binance; the CEO and the COO of Theranos; the Founder and the CFO of Archegos; two Goldman Sachs managing directors; and dozens of executives across a range of industries.
Prosecuting the most culpable individuals is not only the right thing to do, it has the greatest deterrent impact by changing behavior and preventing misconduct.
To increase accountability and deterrence, we’ve also clarified the rules of the road for corporate enforcement.
In prior years, a disjointed, patchwork Department approach to key tools like whistleblowing, voluntary self-disclosure, and monitor selection limited their effectiveness.
When corporate misconduct was detected, the benefits of whistleblowing or self-reporting to the Justice Department were often opaque and unpredictable.
The Department’s response seemed to depend on which office or even which prosecutor was assigned to the case.
Without written, public policies across most of the Department, self-reporting seemed like a roll of the dice without even a sense for the odds.
It was time for change.
Over the past few years, we’ve moved methodically to establish a very different paradigm –— one with consistent, transparent, and predictable rules of the road.
For the first time, every Justice Department component has a published Voluntary Self-Disclosure policy that sets forth exactly what a company needs to do to self-report misconduct — and what a company can expect if they do so.
For the first time, incentive compensation systems are assessed and upgraded as part of every Criminal Division resolution, because compensation systems can either promote compliance or reward risky — sometimes criminal — behavior.
And companies that claw back compensation from executives involved in wrongdoing can reduce penalties by the amount of those clawbacks, providing new incentives to make wrongdoers — not innocent shareholders — pay the price.
For the first time, all independent compliance monitors across the Department must be chosen under consistent, published selection processes and based on the application of public and transparent factors.
And for the first time, the Justice Department instituted a Department-led whistleblower program with clear incentives for dropping a dime on corporate crime.
Today, individuals and companies know when, where, and how to “do the right thing,” to borrow a phrase from my fellow Brooklynite Spike Lee.
We’ve also broadened the gap between the benefits an ethical company can access and the penalties a compliance-flouting company faces.
Investing in compliance and practicing good corporate citizenship should be the clear product of basic arithmetic — not some complex calculus problem with too many unknown variables to solve.
We aim to empower General Counsels and Chief Compliance Officers to make a simple and powerful business case to boards and C-suites: the case for investing in compliance programs, for calibrating compensation plans to promote compliance and deter wrongdoing, and for swiftly reporting detected misconduct to Justice Department.
As Deputy Attorney General Lisa Monaco put it in connection with the ground-breaking prosecution of TD Bank earlier this month: “If the business case for compliance wasn’t clear before — it should be now.”
* * *
Let me take a few minutes to delve deeper into the Department’s new whistleblowing and voluntary self-disclosure paradigm.
First, whistleblowing. We know it works. Whistleblower reports to the government lead to prosecutions and civil enforcement actions. Internal reports help companies address misconduct before it gets out of hand.
But gaps in whistleblower reporting opportunities left whole areas of corporate criminal misconduct unaddressed, with potential whistleblowers lacking a clear reporting path and a clear reason to blow the whistle.
So this year, the Justice Department launched a two-part whistleblower program — with different rules and incentives for whistleblowers not involved in the criminal activity they’re reporting and for those who were.
For whistleblowers not involved in the reported misconduct, Deputy Attorney General Monaco launched the first-ever Department whistleblower awards program — aimed at building on successful programs at the Securities and Exchange Commission and Commodity Futures Trading Commission.
The awards program is based on a simple premise: if an individual helps the Department discover corporate misconduct — otherwise unknown to us — then that person would qualify to receive a percentage of the resulting forfeiture.
This program not only incentivizes individuals to step forward, it puts pressure on companies to do the same – because a company can still qualify for voluntary self-disclosure credit if it reports the conduct within 120 days of the whistleblower report to the Department.
Now, by its very terms, this awards program doesn’t apply to individuals who were meaningfully involved in the criminal conduct itself. For that, we’ve launched whistleblower non-prosecution pilots in the Criminal Division and many of our most active U.S. Attorneys’ Offices.
Those offices are offering non-prosecution agreements to certain individuals involved in misconduct who report previously undiscovered wrongdoing.
In the same way a company could receive a declination, individuals with knowledge of misconduct can do the same — by stepping up, owning up, and helping us prosecute the most serious wrongdoers.
All this fits seamlessly with the newly clear, transparent, and cross-Department approach to voluntary self-disclosures by companies, instituted at Deputy Attorney General Monaco’s direction.
Voluntary self-disclosures drive successful criminal prosecutions of culpable individuals. They speed money back to victims and disgorge ill-gotten gains. They bring misconduct to a halt and tighten compliance programs with added government oversight.
So, where a company voluntarily self-discloses misconduct previously unknown to the Department — absent aggravating circumstances and after remediation, disgorgement, and victim compensation — it can avoid a guilty plea or indictment.
And such a voluntary self-disclosure to the Criminal Division can also qualify a company for the presumption of a declination of prosecution.
Early signs indicate these newly consistent and transparent programs are working.
Corporate voluntary self-disclosures to the Criminal Division are increasing every year, with more than twice as many last year as compared to 2021.
In the first few months of the Justice Department’s whistleblower awards program, we’ve already received more than 200 tips.
And U.S. Attorneys’ Offices report that individual voluntary self-disclosures have resulted in promising ongoing investigations.
Notably, the programs complement each other, setting up a virtuous cycle.
As the Deputy Attorney General has said, “when everybody wants to be first in the door, no one wants to be second” — regardless of whether you’re an innocent whistleblower, a potential defendant looking to minimize criminal exposure, or an audit committee chair at a company where the misconduct took place.
Our approach also involves increasing punishment for companies that are repeat bad actors or who flout compliance.
Calibrating a successful program of incentives and consequences requires increasing the penalties for corporate entities that aren’t getting the message.
And we’ve moved out on that as well.
Egregious corporate conduct demands a stiff punitive response.
So multinational companies like LaFarge, TD Bank, and Binance have pleaded guilty to egregious crimes involving material support for terrorism, money laundering conspiracy, and sanctions violations, respectively — with combined penalties of almost $7 billion.
Penalties also are levied to deter future misconduct. So, when a company breaks the law a second time or violates the terms of a prior resolution, we’ve made sure they pay a far steeper price.
Powerful companies like Boeing and Ericsson have experienced that approach in action — pleading guilty to charges that stemmed from recidivist conduct or violations of deferred prosecution agreements.
Corporate criminal charges and guilty pleas are no longer “specials” for certain customers —they’re now on the main, everyday menu.
Today’s overhauled corporate enforcement program at the Justice Department means clearer and more transparent policies; predictable benefits for whistleblowers and incentives for companies that voluntarily self-disclose; and a far bigger gulf between the criminal outcomes for good and bad actors.
All of it adds up to a clear business case for investing early and often in compliance.
* * *
I also want to highlight our surge of resources to address the dramatic expansion of corporate crime risks related to national security and emerging technology.
In returning to government some two and a half years ago, I was struck by how often our corporate criminal investigations now implicate the country’s national security interests.
The crimes vary — from sanctions violations to money laundering to material support for terrorism.
The corporate defendants range across industry – from construction and shipping to agriculture and telecommunications.
And the national security risks run the gamut – from money laundering for Russian interests to trafficking in Iranian crude oil to sanctions evasion to support the North Korean nuclear program.
To meet the moment, the Department has surged resources to address the challenge.
We’ve surged prosecutors into the Criminal Division’s Bank Integrity Unit, which prosecutes violations of the Bank Secrecy Act — including the recent, groundbreaking conviction of TD Bank.
We’ve added more than 25 white collar prosecutors and a Chief Counsel for Corporate Criminal Enforcement to our National Security Division to inject energy and expertise in corporate enforcement.
We’ve launched extraordinarily successful enforcement initiatives, involving Main Justice components, U.S. Attorneys’ Offices, and partner law enforcement agencies, to address particularly dangerous national security threats: initiatives like Task Force KleptoCapture, which has brought criminal charges against 100 individuals and entities who violated Russia-related sanctions or export controls — and seized, restrained, or obtained forfeiture orders against more than $650 million in assets. And initiatives like the Disruptive Technology Strike Force, which is laser focused on keeping the most sensitive technologies out of the world’s most dangerous hands, charging two dozen complex and high-impact cases since its launch last year.
Every company’s legal and compliance functions should sit up and take note: national security risks are not only here — they’re accelerating.
And they’re being supercharged by emerging technologies like artificial intelligence.
* * *
Now you might ask: what should compliance professionals be doing today to prepare for tomorrow?
As you may know, we recently updated the Criminal Division’s guidance on evaluating corporate compliance programs — known as the ECCP — in part to ensure that companies are focused on mitigating risks associated with the use and misuse of AI and other emerging technologies.
Now, the ECCP doesn’t tell companies how to design and implement their compliance programs. Instead, the guidance poses questions that companies should be asking themselves throughout the compliance program life cycle — from design to execution.
The Justice Department’s overhauled corporate criminal enforcement program places a particular premium on certain questions that executives and board members need to be asking:
- Have we empowered our compliance leaders and invested sufficiently in our compliance program, given our risk profile and today’s geopolitical landscape?
- Do we have effective internal detection and reporting systems and robust internal investigative capabilities — so we can avail ourselves of voluntary self-disclosure opportunities?
- Have we designed compensation systems that promote compliance and enable clawbacks or escrowing of incentive comp?
- Have we assessed risks associated with national security and emerging technologies and taken appropriate steps to mitigate them?
- If a company finds itself on the wrong side of a Department investigation tomorrow, the company’s posture may well depend on how its leadership answers those questions today.
I want to close by speaking directly to the compliance leaders here today.
Thank you for the work you do every day to promote compliance in companies across America and around the globe.
It’s not always easy to be the voice of compliance in the room.
But when you do your jobs effectively, you not only serve your clients well, you protect our nation.
At the Justice Department, our overhaul of corporate enforcement should empower you — along with other compliance-promoting corporate leaders — with stronger tools and greater sway to advocate for investment in compliance; to advance ethical behavior; to detect, deter, and report corporate misconduct; to defend against emerging national security and AI-related threats; and ultimately to promote good corporate citizenship.
We look forward to continuing our work with all of you on this important effort.
Thank you, once again, for being here today.
Webmaster’s Note…. This article, published recently, spells out the rules under the DOJ Whistleblower’s program. I have already been notified that the information I filed earlier in the program has entered a new phase where the progress by the Federal team of investigators is being tracked, and my submissions have been reviewed and approved for further research by an FBI criminal investigator to move it to the next level. Mr. Dan Houston needs to read this article, then re-read it until he understands the gravity of the situation. The instructions are clear… he has 120 days to self-report, or he loses that right. If he plans to challenge this matter in the court, there is a strong likelihood he will lose. If that happens, there will be billions more added to the penalties and several of his co-workers could go to prison. Mr. Houston has little time left to decide.
Final Whistleblowers Complaint to the SEC & DOJ
ADDENDUM 2.1 Investigation Abstract Principal Group of Companies
This memo is intended as a supplement to ADDENDUM 2.0, a continuation of the discussion relating to the missing plans where Principal filed false Form 5500 reports to the Department of Labor(DOL) in 2006, 2007, and 2008. I submitted as evidence THE PUSPSA 5500 Sch D filings for 2006, 2007, and 2008, attached to the Addendum 2.0 document.
These documents provide the investigator a complete list of all plan sponsor names that were included in the three years of Schedule D filing. The 2006 Schedule D will have 1220 pages attached with 8 plan sponsors listed per page. The numerical 1220 will appear on the lower far right edge of the page border in a very small font size. Multiply that page number times 8 (per page), and you will have approximately 9760 plans on the list for the year 2006.
Repeat this process for 2007 and 2008, and they will show 1,174 pages in 2007 and 2,127 pages in 2008. Since both years have 8 plan names listed per page, for 2007 there were 9392 plan names listed, and in 2008 there were 17,016 plan names listed in the Schedule D report for each respective year. At issue is the fact that there were almost twice the number of plans listed in 2008 than were listed in either 2006 or 2007. The fact denies logic that in 2008, when the plan was restricted, twice the number of plans would have been invested in the PUSPSA. The fact is that the numbers were fraudulently inflated in 2008, and deflated in 2006 and 2007 , in order to conceal the numbers of plans that really existed.
To make it virtually impossible to identify whose plans were listed in 2006, 2007, AND 2008, Principal’s IT Manager, Mike Vaughan, created an SQL Code that scrambled the list with no logical order. Vaughan was, coincidentally, the brother Of Terri Vaughan, then Iowa State Insurance Commissioner. Later, Terri Vaughan would retire from the State position to become a member of Principal’s Audit Committee.
You will want to identify which plans belong where, and to do so Principal will have to provide that information. I suspect under threat of a charge of Fraud, Principal will cooperate. To make it more convincing, I have attached the Code that Mike Vaughan wrote on June 29th, 2006, at 2:40 PM Des Moines time (EXHIBIT 16) to this Addendum. I do know that the plans in 2008 were over-stated by approximately 9,000 plans, and under-stated in 2006 and 2007 by approximately 7000 plans each. I have spreadsheets to support that evidence as well. I can also create line charts if it would help to illustrate the crime timeline. My best approximation is Principal stole at least a billion dollars per year for the three years in question.
A spreadsheet (EXHIBIT 17), also attached, shows a recap of Schedule H Report filings by Principal from 2007 through 2014, When you review the numbers inserted for the years involved, it can be a real head shaker… for example, in 2006 and 2007 Principal reported $750,000,000 in assets were transferred into the plan each year, with an average number of plans at 9,300 for each year. That statistic would average $81,645 per plan. In 2008, with a reported 17,000 plans reported, and $32 million in assets transferred in, the average was only $1882.00 per plan, only a small fraction of the prior years and with thousands of supposed new plan participants.
There is no question that Principal has defrauded thousands of 401k plans out of retirement dollars. I expect that with a few weeks, Principal will contact your office directly to self-report, trying to convince your office they were simply using plan assets they already own. Under common law, they will argue they have no fiduciary duty, and under Federal laws, separate accounts covered under a group variable annuity are considered “risk-free” investments and plan recordkeepers have no responsibility to protect the assets. My response would then be to the Principal the question “why.” Why did you shuffle the name list, why did you fraudulently falsify the form 5500 records filed with the DOL, and why did you submit false accounting numbers in your reports. I could continue to file more documents, but for now I plan to wait until December 1st to see if Principal self-reports before I start submitting more information. Knowing the harsh penalties if they fail to self report, and knowing most of the perps involved have quit or retired, by not self reporting, those individuals will be placed in jeopardy.
Thank You,
Dennis Myhre, AIC
Cell #: 417-593-9177
A Whistleblowers Handbook of Facts and Evidence for the Principal Group of Companies
Preface
My wife and I had saved for retirement since the early 1990’s, fully realizing we had no other means of savings or a pension to rely on when we retired. In 2008, having reached the age of retirement, we made plans to withdraw our retirement, as defined in our Group Annuity Contract with Principal, and continue working. Instead, we watched most of our life savings vaporize. Our funds sat in the Principal U.S Property Separate Account with a withdrawal restriction, being told we did not qualify to receive our totally vested savings, because they (Principal) had “redefined” the definition of retirement to include “separation of service”!
Neither of us had wanted to quit our jobs… we both enjoyed working in the catastrophe industry for almost 20 years, working claims for insurance companies and FEMA, and we had no plans to quit. But our savings was dying, and we had no way to stop the bleeding. Somehow, I reasoned that Principal will use some common sense and reopen the PUSPSA to withdraws. It had all started with a 15 minute warning, at 11:45 pm on September 26, 2008, that the account was to be locked at midnight to protect all investors from a soon to be financial crisis. They emphasized the fact they had a “fiduciary duty” to do so., and under the law they claimed a right to do so. They never came to reason that they should return our money, at least those at retirement age and still working.
We first accepted the decision believing Principal was doing their duty, but soon, at years’ end 2008, a billion dollars disappeared from the account, soon followed by another 1.5 billion in 2009, and another 500 million in 2010. Finally, in 2011, the account seemed to level off and by years’ end most investors had received their savings, albeit in a grossly reduced amount, and the bad memories were expected to fade, at least from Principal’s perspective.
But for the Myhre’s it was a different story. We had resigned our jobs in 2010, fearful that our entire savings would evaporate, leaving us nearly penniless, and the meager amount we received from Principal was used to extinguish what debt we had, and purchase a small home at auction for $60,000. The $300,000 home we had owned in Branson, Missouri, was sold at less than market value to cover the mortgage.
For the past 12 years I have investigated, and continue to investigate, the “real” Principal Group of Companies. I have identified the methods in which they steal from their 401K clients, leading back an entire generation of Principal executive employees, and involving billions of stolen retirement dollars. What follows in the coming weeks is an expose’ of Principal’s crimes.
A Brief History of Principal Life Insurance Company
Principal Life Insurance Company is a nationwide provider of life insurance and annuities products, with the senior citizen market comprising a large share of its business. In the past, the company has also sold annuity products as Principal Mutual Life Insurance Company. In 2000, Principal Life Insurance settled a class action suit involving approximately 960,000 life insurance and annuity holders. An Iowa district court approved the $374 million settlement in early 2001.
The class action claimed that Principal Life Insurance sales agents deceived the class members into purchasing life insurance and annuity products through the use of false and misleading policy illustrations, marketing materials, and sales presentations. The plaintiffs alleged that Principal Life Insurance made marketing statements and presented sales illustrations that depended on deceptive actuarial assumptions and undisclosed material facts. According to the plaintiffs, Principal sales agents fraudulently concealed the presently known fact that the assumptions upon which the performance of the “vanishing premium” policies were based could not be supported by Principal’s current experience. The plaintiffs also claimed that Principal knew the dividend, interest, and investment return assumptions essential to its sales illustrations could not be maintained, and indeed, their projections did not even indicate that they could be maintained. Nonetheless, the plaintiffs argued that the sales personnel used these illustrations to induce the class members to purchase the life insurance and annuity products.
Aside from the above narrative, there have been multiple legal cases involving Principal’s poor judgement at best, or clearly criminal activities at their doorstep that has been commonplace. Principal’s criminal history has followed the company since it’s inception in 1879, and it’s heritage follows closely behind even today. My focus relates to the Principal Group of Companies, including their affiliates, the stench of which has ruined the lives of millions of 401k savers today, and will continue to do so until the Federal government decides to act on what is obvious, that being the fact that Principal is a grossly corrupted company that must be reorganized by the Federal Government.
Is Principal a Fiduciary?
Before we can decide Principal’s culpability regarding actions they take to relieve the 401k saver of his or her life savings, we need to define Principal’s status as it relates to your savings plan. Of course, all of the pros will tell you to read your Group Variable Annuity contract for answers, but they would be wrong! actually, you will find no reference to the term “fiduciary” in any plan documents you receive from Principal, and you never will. Your savings plan has it’s own label, and you will not find it anywhere as well in your plan documents.
To open this issue, I will quote a comment voiced by the National Association of Insurance Commissioners (NAIC) directed to the American Academy of Actuaries, stating the following, The charge of the NAIC Work Group is to, “Study the need to modify existing regulatory guidance related to separate accounts where, in recent years, various products and contract benefits have increased the risk to the general account.” As a footnote, the following was explained, “A non-unitized separate account is one in which benefits are declared by the insurer and are not directly related to the assets held in the separate account. This contrasts with a unitized separate account, in which benefits are expressed in units whose value varies directly with the value of the separate account, such as a variable annuity. For the purpose of the NAIC analysis and
the SAWG’s comments, we are also assuming that unitized separate accounts would include all types of pass-thru separate accounts, including some non-unitized private placement VUL, since the issues being discussed relate to the nature of the product and its risk to the general account, not to how the product allocates separate account assets among policy or contract-holders.”
As confusing as it appears, it is even more so for millions of separate account investors, whose ownership is controlled by a Variable Group Annuity. With Principal, most 401k plans include the Variable Group Annuity and separate account investments. Your boss does not understand how the separate account works, you do not understand, and as you can see above, even the regulators do not fully understand the function either. There is one word that describes your separate account investment… the State of Iowa will NOT allow you to own your own money, will not allow Principal to claim to be a “fiduciary,” and under almost any circumstance, Principal can steal at random all the value from the separate account you own, and they cannot be stopped. The following letter (Exhibit 2) is a 22 page letter written to the Board of Governors and the FDIC by then Principal’s CFO Terrance Lillis, describing reasons why Principal should not be required to set reserves on their separate account balances. EXHIBIT 2
Who owns the money that is deposited with Principal by your employer every month?
Mr. Lillis makes your concerns very clear on page 12, in the second to last paragraph. (Principal Life Insurance Company) … “PLIC does not market or maintain any separate account product that provides a minimum return or account value guarantee to a contract holder or participant upon contract surrender.” The statement is very clear (and accurate). But, the problem is that Principal also retains zero risk on the separate accounts as well, as Lillis states in the last sentence on page 11. Principal has no asset or liability risks with your money, so common law prevails, and since the State of Iowa also tells you that once Principal gets their filthy hands on your money, they own it.
Principal claims they are fiduciaries of the actual separate account, and they can do whatever is necessary to “protect” the account, which does not include protecting the money. From their past activity, it appears that they believe in giving themselves total control with no restrictions, so they steal your money. Pretty simple when you think about it! I hope this is clear for you, because your employer is clueless, and he/she will agree by contract to agree with Principal on any issue that develops if the money disappears, as did happen in 2008-2009. Read the entire 22 page letter, because Lillis is talking about YOUR money, and he describes in detail the reasons why he can steal the funds.
Has Principal engaged in any money laundering schemes?
During my 12 years of investigating Principal, I discovered one instance where they engaged in money laundering, by traditional means, using a regional bank in Maryland. As near as I could tell, Principal executives assumed a role as bank executives, and that was how they were discovered, because their new banking roles showed up of SalesForce.com. The list of names were long, 41 Principal executives, and a few names, like Therese Vaughan, who was hired by Principal after she termed out as the Iowa State Insurance Commissioner. Exhibit 1 (not published) is the list, and it is very convincing. The email addresses appeared to be valid in 2011 and earlier, and Exhibit 2 (not published) is the Whois Data, displaying IP addresses, etc. It also appears that the POC stopped on 12-5-2014. The registration date was 09-27-2004.
Exhibit 3 (not published) shows the OTC stock owned by the Bank in a graph form, reflecting a high degree of activity during the time span stated above. A sudden heavy price increase in 2004, which followed through into 2008, and falling suddenly in 2009. This time frame would closely follow the activity in question that resulted in false reporting to the DOL in 2006-2009. Ironically, the same pattern followed the share price for Principal’s stock (PFG) as well in Exhibit 4 (not published).
Most of my allegations have been submitted to the SEC and the DOJ, and there appears to be a strong interest by both agencies in my submissions. The clock is running, and Principal has a short time left to self-report to get the harsh penalties waived. I have done everything I can to convince Principal to self-report to protect the future of the company and to force them to repay 401k investors their due. Now it is their turn to do the right thing…
DOJ Voluntary Self-Disclosure Policy
All DOJ components and offices that prosecute corporate crime now have a voluntary self-disclosure policy that is publicly available on their websites. These policies set forth the component’s expectations of what constitutes a voluntary self-disclosure, including with regard to the timing of the disclosure, the need for the disclosure to be accompanied by timely preservation, collection, and production of relevant documents and/or information, and a description of the types of information and facts that should be provided as part of the disclosure process. The policies also lay out the benefits that corporations can expect to receive if they meet the standards for voluntary self-disclosure under that component’s policy, and what circumstances constitute aggravating factors under the component’s policy.
Specifically, all Department components must adhere to the following three principles regarding voluntary self-disclosure.
- First, absent aggravating factors, the Department will not seek a guilty plea where a corporation is determined to have met the requirements of the applicable voluntary self-disclosure policy, fully cooperated, and timely and appropriately remediated the criminal conduct. Each Department component shall define such aggravating factors in their written policies.
- Second, the Department will not require the imposition of an independent compliance monitor for a cooperating corporation that is determined to have met the requirements of the applicable voluntary self-disclosure policy and, at the time of resolution, demonstrates it has implemented and tested an effective compliance program. Such decisions about the imposition of a monitor will continue to be made on a case-by-case basis and at the sole discretion of the Department. See JM 9-28.1700.
- Third, the Department will apply a presumption in favor of declining prosecution of a corporation that voluntarily self-disclosed, fully cooperated, and timely and appropriately remediated misconduct uncovered as a result of due diligence conducted shortly before or shortly after a lawful, bona fide acquisition of another corporate entity, subject to the requirements described in Section 9-28.900(A)(3) of the Justice Manual. (source: https://www.justice.gov/corporate-crime/voluntary-self-disclosure-and-monitor-selection-policies )
Investigation Abstract… Principal Group of Companies…Part 2
In 2008, Principal Life Insurance Company promoted their Principal U.S. Property Separate Account (PUSPSA), a 401K separate account, as a fixed income account, which prompted several thousand additional 401k investors to transfer their 401k dollar resources into the account. The values in the account surged. Then, on September 26th, at 11:45 pm, Principal emailed a notice to all account holders that the PUSPSA would have a withdrawal restriction placed at midnight, which immediately prevented millions of plan participants from withdrawing their invested dollars, and the value of which diminished by almost $3 billion in the weeks that followed. At issue were the diminishing values. The account, invested mainly in commercial buildings, were being reported by Principal to have unrealized losses, a loss underwritten on paper only, which would later recover. Meanwhile, the actual cash dollars which had supported the fund were being drained out of the account by Principal to the tune of billions of dollars, dollar values that would never be recovered.
The legal issues facing regulators are multi-faceted. The fact that Principal has criminalized the 401K industry is a known fact by most insurance and savings marketers in the industry. Principal buys the right from regulators, including the SEC and the DOL, to commit their crimes. It is now time for change. When a solution to prevent Principal from having to be accountable for stealing money from investors is to set a “reserve fund” as recommended by the NAIC, expensed by the investors themselves, we have reached a crisis point in this discussion.
The NAIC and the American Academy of Actuaries have been trying for years to find a way to “insulate” the insurance company General Account from separate account assets. The individual states clearly define how the separate account assets should be addressed… separately from the insurance company assets. But the billions of dollars in the separate account underlying assets were purchased by the insurance company with cash collected from 401k investors. The cash is converted into “units of value” that actually bear no value. Meanwhile the cash is safely tucked into Principal’s General Account for a rainy day. Now the lines between General Account assets and insulated separate account assets become blurred, and when the insurance company falls short to pay their guaranteed commitments, companies like Principal will steal the cash from the non-guaranteed separate accounts to cover their losses.
Ok, so Principal stole 3-5 billion dollars between 2007 and 2012 from the PUSPSA. The numbers, charts and graphs prove that as fact. Principal altered the reporting documents filed with the DOL… ie., the Schedule D reports for the respective years were grossly understated or grossly overstated, depending on where the money was needed, or not needed.
To begin, the EFAST reporting system functions as a resource to prevent fraud, pure and simple. But when the Department of Labor needed the system in place, Principal graciously stepped forward to offer their services. They designed the system, as I understand, and they also paid for the system. And when Principal decided to juggle the books in 2006-2008, it appears there was a DOL insider that helped that to happen. The EBSA has been making public all form 5500 records since 2006, except for Principal and the Principal U.S. Property Separate Account documents for those specific years.
They also make it more difficult for the public to view the records. Click on this link which will take you to the public page of PUSPSA records. Type as the Plan Name “Principal U.S. Property Separate Account.” Review the PUSPSA records as displayed by the DOL. To begin, the list of plan sponsors is scrambled… and you will note the records are missing for several years. If you export the chart to CSV, the same issues exists.
Next, click on the blue arrow in the first column to open the form 5500 and the Schedule D. What you won’t find are any listings for 2006, 2007, or 2008. Those years were fraudulently reported to the extent the DOL did not want to publish them. I tried to get digital copies, and was told I would have to spend almost a thousand dollars to receive paper copies from the Washington, DC archives. Fortunately, a CD disk showed up at my residence one day with all three years, so I do have a copy… must have been a good Samaritan at the DOL that wanted to stop the corruption…. Below are files you will not find on the DOL Website:
PUSPSA 2008 5500 PUSPSA 2008 5500 Sch H PUSPSA 2008 5500 Sch D PUSPSA 2007 5500 PUSPSA 2007 5500 Sch H PUSPSA 2007 5500 Sch D PUSPSA 2006 5500 PUSPSA 2006 5500 Sch H PUSPSA 2006 5500 Sch D
After weeks of research, I was able to convert the three missing report years to an alphabetical order listing, and after applying my years of business studies in college, was able to put together a statistical analysis. The results were shocking. In 2006 and 2007, based on my information and belief, Principal omitted almost 4,000 plans from their Schedule D report for each year. In 2008, Principal reported almost $800,000,000 was transferred out of the plan by plan participants. It never happened… that cash was also stolen. They had also reported plans in 2008 that didn’t exist to account for those monies that were illegally reported as transfers out. Principal also grossly under-reported transfers of assets into the plan as well by new plan participants. My wife and I were two that fit that profile.
You will note in the PUSPSA attached reports the all three of the form 5500 reports filed by Principal are blank for the years 2006, 2007, and 2008. The Schedule H forms are grossly inaccurate. First case in point as follows:
The 2008 Schedule H form filed with the DOL shows on line (5), partnerships/joint ventures valued at $4,577,530,235. The 2008 PUSPSA Annual Report shows real estate joint ventures $15,733,715. Loans are zero in the Schedule H, $11,658,331 in the Annual Report. Real Estate at fair value is $6,758,4525,000 in the Annual Report, $1,742,884,000 in the Schedule H.
Nothing in these two reports even come close to matching. The report in the Annual Report is audited, the Schedule H is not, so Principal can lie themselves to eternity and there will be no questions asked.
To both the SEC and the DOL, the message is now is the time to investigate Principal with an intent to act on the facts. The millions of retirees they have defrauded has to stop, and only you guys can make it happen. What can now be proven, with evidence I have presented with this report, is the fact that Principal intentionally submitted fraudulent reports to the DOL concerning their retirement accounts, and that Principal stole billions of dollars from 401K plan participants.
Investigation Abstract…. Principal Group of Companies… Part 1
NOTE: The following Narrative and Exhibits were provided in kind to the Securities & Exchange Commission as well as the Department of Justice recently under their respective Whistleblower programs.
Principal life Insurance Company markets Group Variable Annuities through 401k plans to Employers. As such, Annuities are regulated by FINRA and the Securities & Exchange Commission. In 2008, Principal placed a withdrawal restriction on the Principal U.S. Property Separate Account (PUSPSA), a popular real estate investment account in which many of their 401k clients invested due to the fact that Principal had re-defined the account as a fixed income account a few months prior to the withdrawal restriction.
Almost immediately following the restriction, the PUSPSA began to lose value, dropping almost a billion dollars in 2008, then another billion dollars in 2009. Another billion dollars were lost as an unrealized loss in value until 2014, when the account began to recover. By then, the damage had be considerable to the investors, and many lost over a third of their original investment.
The arbitrary estimated market value of the account holdings were recognized as an unrealized loss for six years by Principal, and a review of their financial reports filed annually proved out the fact that Principal’s subjective analysis of unrealized losses was the key player in the account losing billions of dollars in value between 2008 and 2013.
The attached header image illustrates the unrealized losses estimated each year by Principal, as found in the annual reports also attached as Exhibits in this report. Interestingly, EXHIBIT 2 depicts a letter written by then CFO Terrance J. Lillis, also Senior Vice President, in which he discusses at length the function of Principal’s “non-guaranteed separate account,” offered to 401k clients, including the presumption that said accounts represents “zero” risk weight to the insurer as provider of these investments. This chart shows between 2008 & 2010, the PUSPSA lost almost 40% of it’s value, which would account for Principal’s sudden “gift” of over $3 billion. Principal needs to pay back the money they stole, pure & simple, and the SEC and DOJ are the only regulators that can make this happen.
Mr. Lillis did make a point in his letter I will pursue in filing this Whistleblower’s claim. It seems that Mr. Lillis, almost in a boastful manner, on page 8 in the last paragraph, asserts the following statement:
“At year-end 2008, Principal had an after-tax and after-DAC unrealized loss position on AFS debt securities of $4.2 billion dollars. Since then, only a small fraction of that amount has emerged as an actual realized loss. Actual after-tax realized losses on AFS debt securities from 2009 through 2011 have totaled only $507 million, which represents approximately 12% of the original unrealized loss position on these investments.”
By definition, an “AFS debt security” meets the true definition of a Principal separate account such as the Principal U.S. Property Separate Account. On page 9, Mr. Lillis also states that at the end of 2011, Principal had an unrealized gain of $728 million, yet they reported the PUSPSA continued to lose value, up to and including 2013.
His letter really does a fine job of arguing this case for the benefit of thousands of plan providers as well as tens of thousands of 401k savers. If, on the other hand, Mr. Lillis refutes his own letter, I believe the Governors of the Federal Reserve System as well as the Office of the Comptroller of the Currency may have some questions as well. I suspect Mr. Lillis would like to get this matter resolved, as would myself and my fellow 401k savers. The Principal Group of Companies have been ravaging millions of savers of their hard earned savings over the past thirty years, and if this matter goes before a Judge, I have a portfolio of evidence that would likely shut down the company.
My position regarding this matter is for the Principal Insurance Company to reimburse past PUSPSA investors for their losses, by disbursing in full the estimated $3 billion, plus the accrued interest since 2008.
The attached Exhibits include the following:
Exhibit 1………………. Unrealized loss worksheet
Exhibit 2………………. Terrance Lillis Letter
Exhibit 3………………. Audited financial statement for 2008/2009
Exhibit 4………………. Audited financial statement for 2010/2011
Exhibit 5……………….. Audited financial statement for 2012/2013
Exhibit 6……………….. 2008 Annual Report
Exhibit 7……………….. 2009 Annual Report
Exhibit 8……………….. 2011 Annual Report
Exhibit 9……………….. 2013 Annual Report
Exhibit 10……………… Principal U.S. Property Separate Account Profile
ADDENDUM 1.0
Compare the above header chart and statements made with EXHIBIT 11, which displays a “year-on-year” quarterly growth & shares outstanding chart for Principal. It is obvious that Principal’s financial problems far exceeded Mr. Lillis’s statements in his letter. Principal appears to be well on it’s way to bankruptcy. Principal should have been in a crisis state of mind at this time, their share values had plummeted, and the number of shares outstanding had plummeted as well, as the above graph also shows. In fact, their shares remained below par until 2013, when PFG shares began a slow climb.
EXHIBIT 12 shows Principal’s share value had plummeted at the beginning of 2007, hitting bottom on March 12, 2009, when share price was $7.77. They had been operating in the red early in 2006, and likely much earlier than that date.
Then suddenly, the company was infused with billions of dollars in cash! Of course, Lillis explained in his letter that Principal had no “troubled asset” issues, and didn’t even apply for federal funding. The facts are that they did apply, then learned several of their comrades had been audited and sentenced to prison for their misdeeds. EXHIBIT 13 shows Principal had a serious issue with troubled assets. The chart shows Principal’s troubled assets went through the roof at the same time their shares plummeted, and in March, 2010, almost 50% of their owned assets were underwater. But then, once again, suddenly appears their savior, and their troubled assets plummeted to a normal 15% by year’s end!
I believe the above facts clearly show that things were not as rosy as Mr. Lillis expressed in his letter to the banking regulators, and SEC Chairperson Mary Shapiro may have agreed, since she called a meeting in her office on Thursday, February 26, 2010, to discuss undisclosed matters. In attendance were Larry Zimpleman, then CEO, James McCaughan, CEO of Principal Global Investors, and Jeffrey Hiller, Chief Compliance Officer (see EXHIBIT 14). As I recall, earlier in the week, she met with the Iowa State Insurance Commissioner.
Several other charts and graphs are available, as well as UCC reports and county records to add more bread crumbs to implicate Principal in a money laundering scheme using the Principal U.S. Property Separate Account. Evidence will show the movement of funds through mortgage lending schemes using the attached Loan Purchase Agreement (EXHIBIT 15), whereby the 401k account would guarantee the loan under any circumstance.
Principal’s moral fibers are shredded.
I have exhausted my retirement life dealing with Principal’s total lack of morality. Setting aside the cocaine issues, the fraud and lies to investors, how bad can it get? The answer is, “pretty bad.” 170 King Street in San Francisco was purchased by Principal for the Principal U.S. Property Separate Account in 2003. Basically, the residential building is located across the street from Oracle Park baseball stadium. As a fiduciary for the Principal U.S Property Separate account, one can only ask how low can a Principal employee go to in owning and managing this building.
The images below somehow explain the low mentality of whatever Principal General Manager possessed to conceive the facade on the front of the building. Words can’t adequately express the total disgust and demonic mindset that person had to waste what appears to be millions of dollars to “refurbish” the facade…. the image of Mark Hanrahan shown here was the Principal Project Manager that purchased this building on behalf of the 401k investors.
Contrast these images with the image shown below of a young woman holding her pet… this image appears on their web page.