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Chapter 11 announced - Part 3 - BSA's Toggle Plan


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Hartford had an investors call. It was...interesting.

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Beth Costello -- Chief Financial Officer

Thank you, Chris. Earlier today, we reported first-quarter core earnings of $203 million or $0.56 per diluted share. Core earnings were down 58% in the quarter, primarily due to the impact of three significant items. First, we recognized unfavorable prior year development in P&C of $223 million before tax. The largest component of the adverse development was the impact of the settlement agreement with the Boy Scouts of America that we announced last week. Partially offsetting the unfavorable development was favorable development in other lines, primarily Workers' Compensation, Package business, and Personal Lines auto.

Part 2, and the real humdinger

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Christopher J. Swift -- Chairman & CEO

Greg, I would share a couple of points with you. One regarding Boy Scouts and then the second on BI. I would say, Boy Scouts, obviously, is just a very unique situation. We've been in lengthy and meaningful discussions and intense negotiations with them for a lengthy period of time that ultimately culminated in providing what I thought was a fair settlement for all parties. And it really sort of put this behind us because when you really look at the risk of these -- some of these policies going back into the '70s, they were unaggregated risk policies, as most of those policies were issued during that time. So, if you think in terms of the nature of the industry being sexual molestation, it's just they're not good facts there.

Now, on the other hand, we felt we had prudent defenses and legal postures that sort of -- so also may defend ourselves, but that would have been costly, that would have been lengthy. And as Boy Scouts are trying to emerge from bankruptcy, there was an opportunity, and when you seized it to work with them to develop the settlement that we did. The settlement ultimately still needs to be approved later this year, but we're optimistic it will get the bankruptcy court approval. So, we'd share with you -- I don't see anything else in our portfolio close to resembling what the Boy Scouts exposures are. I feel good about the reserves that we have for any exposures, but particularly, the sexual molestation types of reserves that we carry on the books today.

 

Edited by CynicalScouter
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48 minutes ago, Eagle1993 said:

What I don't understand is how they can try and proceed with a plan without these major decisions decided (at least by the bankruptcy court).  

Because as far as they are concerned, as they expressed in the filings, this no big deal, no need to litigate this out, because of COURSE they are not playing shell games/acting fraudulently with respect to Summit/Arrow, WV. They are not about to concede that "Well sure, maybe what we did was fraudulent. Let's let a judge decide."

Deny. Deny. Deny.

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On 4/28/2021 at 2:43 PM, David CO said:

I understand.  As a long time baseball fan, I have a tendency to over-identify with my favorite team.  When they win, I win.  When they lose, I lose.  

Of course, I have no actual ownership stake in professional baseball.  I'm not a billionaire.  Being a fan is about emotions, not reality.  It's not really my team.

The same is true of BSA.  We don't actually own BSA.  We are not BSA.  We never have been.  We never will be.  It's time for all of us to stop over-identifying with BSA.

 

The problem with this argument is we are, or were, dues paying members of BSA.  At unit level, we were members of a licensed (ok, chartered) aka contracted organization. Council and National provided goods and services, we provided the last mile to the youth. 
 

IF we were in District or Council service, we were volunteers or employees of the local corporation.  Think about camp staff. 
 

if we were in Regional/National volunteer or professional service, we were part of big BSA. 

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3 hours ago, CynicalScouter said:

BSA and JP Morgan filed their objections to some of the recent TCC/FCR/Coalition moves to go after Summit/Arrow, WV.

BSA's effort to try and protect Summit/Arrow https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/79c9867a-f837-49ff-a8ab-562ce6c6dfdc_2733.pdf

Arguing, in effect, that the BSA-Arrow relationship and shell game isn't "fraudulent". (Hint: When you try to hide assets by putting phony notes payable on something, it's fraudulent).

JP Morgan 1 https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/48cdda3a-e13e-48de-80ed-a376c6676dd8_2732.pdf

Arguing now is not the time to determine Summit's status, wait until later in the Reorg process.

And JP Morgan 2 https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/48cdda3a-e13e-48de-80ed-a376c6676dd8_2732.pdf

Another attempt at defending Summit/Arrow WV

can you explain how you see this as a shell game.  I don't have a preconceived notion of it, but i can't seem to piece it together that way from the pleadings.

The common understanding among scouters was that BSA borrowed an absurd amount of money to buy and build the Summit.  There's no reason to think they've paid much if any of that off, which would suggest that there is a big honking mortgage/note still outstanding owed to somebody.  It wouldn't surprise me to find out there's little to no actual equity in the property.

But how do you see it?

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8 minutes ago, T2Eagle said:

can you explain how you see this as a shell game.  I don't have a preconceived notion of it, but i can't seem to piece it together that way from the pleadings.

This was explained really well on reddit. Summit has equity worth at least $345 million. They are just making it LOOK like it is in debt. It isn't.

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Except it isn't independent. And the lease and fees are "nominal" ($1 or something similar).

This is all a BSA shell game.

In 2009 BSA set up Arrow WV as a "Separate" nonprofit entity.

Arrow WV owns the Summit.

BSA has a promissory note ("note receivable") on Arrow WV. Arrow WV must pay the total value of Summit to the BSA on BSA's demand.

In other words, it is a shell game.

So BSA may not be forced to sell the Summit due to this shell game, but it CAN be forced to give up the note receivable.

Let me put it this way.

1) You set up an LLC to buy 30 acres so the LLC is the owner of record. Of course, YOU control the LLC, but put that aside for a second.

2) You direct the LLC to issue to you a "note receivable" for all its assets, namely, the 30 acres. That means in 1-year (or on-demand depending on how you write it) you have a right to demand from the LLC an amount equal to the value of the 30 acres.

3) You then hunt and fish 30 acres (and you direct the LLC you control to make you pay a nominal fee of $1). Of course, you have NO interest in actually calling the note.

4) You go into bankruptcy. Oh no, you can't take the 30 acres! It's really owned by the LLC which is a separate entity!

5) After the bankruptcy judge laughs for a minute he/she will direct you to turn over your asset: the note worth the price of the 30 acres of land.

 

Edited by CynicalScouter
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Read: "Yippee! Great for us. Great for BSA (though we don't really care about that.) We're getting out of this for a song and a prayer. Our butts are so far exposed on these ill-advised policies it's not even funny. Well, maybe it is. Jokes on you, BSA CSA victims..."

1 hour ago, CynicalScouter said:

Now, on the other hand, we felt we had prudent defenses and legal postures that sort of -- so also may defend ourselves, but that would have been costly, that would have been lengthy.

"Prudent defenses" and "legal postures." Ha. Read: "Yes, we have coverage defenses, but we are by no means confident in the strength or weight of those defenses. This is a happy exit for Hartford!"

Edited by ThenNow
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That doesn't really explain it.  That may mean BSA constructively owns Summit, but it skips any mention of JP Morgan.  

BSA may own Arrow, which owns Summit, but that doesn't mean Summit isn't encumbered to something like its full value by a JP Morgan instrument that's going to stand in front of any other claims.

I could set up an LLC or trust to own my home, but if there's a mortgage close or equal to the property's value, forcing me to reclaim title from the Trust/LLC wouldn't make any money available to me or a creditor until the mortgage note is satisfied.

Edited by T2Eagle
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38 minutes ago, T2Eagle said:

I could set up an LLC or trust to own my home, but if there's a mortgage close or equal to the property's value, forcing me to reclaim title from the Trust/LLC wouldn't make any money available to me or a creditor until the mortgage note is satisfied.

That creates the second part: JP Morgan's mortage/loan is a fraud to make it appear as if Summit is in debt. It isn't. TCC and the others are claiming, in effect, that the MINUTE that BSA gets out of bankruptcy, the note is going to be 100% paid off.

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/878880_2364 a.pdf

If JP Morgan and/or BSA really have a DEBT interest in Summit (as opposed to equity) then prove it. Otherwise, this looks like a fraud.

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Accordingly, (a) Arrow’s ownership of the Summit Property should be avoided and the property should be conveyed to BSA free and clear of any liens or claims of the Prepetition Lender, in accordance with sections 544, 548, 550, and 551 of the Bankruptcy Code and under other applicable fraudulent transfer law, or (b) the transfers made by BSA to fund the acquisition, development, and operation of the Summit Property should be recovered from Arrow in accordance with sections 544, 548, 550, and 551 of the Bankruptcy Code and under other applicable fraudulent transfer law.

 

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58 minutes ago, ThenNow said:

Read: "Yippee! Great for us. Great for BSA (though we don't really care about that.) We're getting out of this for a song and a prayer. Our butts are so far exposed on these ill-advised policies it's not even funny. Well, maybe it is. Jokes on you, BSA CSA victims..."

It really is that blatant at this point. BSA and Hartford hit a sweetheart deal, in which the sexual abuse victims (either through their attorneys or at least the TCC) had precisely 0 input.

And the two of them expect the abuse victims to just accept it.

This was the same stunt they pulled when they reached an "agreement" with JP Morgan over Arrow WV/Summit.

Edited by CynicalScouter
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1 hour ago, CynicalScouter said:

That creates the second part: JP Morgan's mortage/loan is a fraud to make it appear as if Summit is in debt. It isn't. TCC and the others are claiming, in effect, that the MINUTE that BSA gets out of bankruptcy, the note is going to be 100% paid off.

https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/878880_2364 a.pdf

If JP Morgan and/or BSA really have a DEBT interest in Summit (as opposed to equity) then prove it. Otherwise, this looks like a fraud.

 

That's where you lose me.  Somebody lent the BSA a boat load of money to buy and develop Summit.  BSA never had that kind of money to throw around, and JPMorgan didn't become JPMorgan by giving money away.  Whatever twists and turns of rolling over that debt looked like, the idea that the Summit is unencumbered defies sense.

Is there some assertion, let alone some proof, that JPMorgan or some precursor to JPMorgan didn't issue a bunch of debt and send out the cash to buy the property and improvements?

You can make a lot of transfers of both debt and equity between LLCs more or less controlled by the same people without any of them being fraudulent conveyances.  I don't know who the burden of proof lies with here.   I suspect that for so long as BSA is the debtor in possession than the burden lies with a petitioner. 

JPMorgan attorneys would have to have really screwed up if they don't stand in first position on any claim of the Summit.  I don't see that money going into the settlement trust, at least not without JPMorgan collecting its funds first.

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Trying to get some clarity.  First, now the number pending is under 1000; is that just stuff to be added, or did they do some major editing?

On the docs included, most of the cases seem to be in New York, Arizona, Hawaii, and scattered otherwise.

On the lists of debtors, I do not understand how it could/would include the Catholic Church AND LDS in the same claim.

Is it standard legal practices to use this terminology; "Does 1-5
whose identities are unknown to
Plaintiff"

That would seem they are saying we really do not know, so lets just put some empty spots to add people to later.  

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1 hour ago, skeptic said:

First, now the number pending is under 1000; is that just stuff to be added, or did they do some major editing?

No. There are claims vs. lawsuits.

  • Currently, there are over 900 sexual abuse lawsuits pending (meaning someone went into a courthouse, filed papers, and formally started a lawsuit against BSA National, a Local Council, a Chartered Organization, or some combination).
  • There are currently 82,500 claims (roughly). These were documents filed with the bankruptcy court last November that claimed the person was sexually abused as a scout.

The idea is that if you have/had ANY claim (prior to February 2020) that BSA owed you ANY money in ANY way, shape, or form, you had until November 2020 to at least get a claim in.

That does not mean you'll get money.

That does not mean your claim is valid.

It just means that if you did NOT put in that claim by November 2020, you waived ANY right to make a claim against BSA National for ANYTHING that took place before February 2020.

1 hour ago, skeptic said:

On the docs included, most of the cases seem to be in New York, Arizona, Hawaii, and scattered otherwise.

On the lists of debtors, I do not understand how it could/would include the Catholic Church AND LDS in the same claim.

New York and Hawaii opened/reopened their sexual abuse claim windows, allowing claims that would have normally been beyond the state's statute of limitations to be filed. Expect in the near future to see a lot of New Jersey and North Carolina cases for the same reason.

1 hour ago, skeptic said:

On the lists of debtors, I do not understand how it could/would include the Catholic Church AND LDS in the same claim.

Depends on the context. For example, if the scout was in an LDS unit, then went to a Catholic Church chartered unit in the same council and was abused in both. OR there was overlap (the Catholic Church chartered the unit, the scout went to an LDS summer camp where he was abused, so he sues both).

The other is that some people are suing in groups (Sexual Abuse Victims/Plaintiffs 1-7). So they are all suing BSA National, but

Plaintiff 1 is suing  BSA National + LDS for chartering his unit.

Plaintiff 2 BSA National + is suing the Catholic diocese for chartering his unit.

Etc.

1 hour ago, skeptic said:

Is it standard legal practices to use this terminology; "Does 1-5
whose identities are unknown to
Plaintiff"

That would seem they are saying we really do not know, so lets just put some empty spots to add people to later.  

Yes, for example 1) I know I was abused by two people - Scoutmaster Smith and Assistant Scoutmaster someone I can't remember his last name. Later on, as part of the lawsuit, I find out that was Assistant Scoutmaster Jones. 2) Placeholder - I know I was abused by SM Smith and the unit was in XYZ Council, but I don't know/can't remember who the chartered organization was that let SM Smith abuse me. I'm putting this in as a place holder in case as things progress that information comes out.

 

Edited by CynicalScouter
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4 hours ago, T2Eagle said:

That's where you lose me.  Somebody lent the BSA a boat load of money to buy and develop Summit.  BSA never had that kind of money to throw around, and JPMorgan didn't become JPMorgan by giving money away.  Whatever twists and turns of rolling over that debt looked like, the idea that the Summit is unencumbered defies sense.

Is there some assertion, let alone some proof, that JPMorgan or some precursor to JPMorgan didn't issue a bunch of debt and send out the cash to buy the property and improvements?

You can make a lot of transfers of both debt and equity between LLCs more or less controlled by the same people without any of them being fraudulent conveyances.  I don't know who the burden of proof lies with here.   I suspect that for so long as BSA is the debtor in possession than the burden lies with a petitioner. 

JPMorgan attorneys would have to have really screwed up if they don't stand in first position on any claim of the Summit.  I don't see that money going into the settlement trust, at least not without JPMorgan collecting its funds first.

Amen!  The BSA borrowed an enormous sum of money to purchase the Summit Bechtel Reserve (SBR).  There have been some donation and some donations in the form of life insurance and other funds that will go to the BSA upon the death of the donor.  The cost and debt of the SBR has been much of the controversy surrounding it.  Some lending organization(s) had to provide the money for the purchase and the debt is far from being paid.  While I am not certain that J. P. Morgan was the lending institution, I believe that it was.  I am certain that the debt has not been paid - not even close to paying it off.  It is likely that the BSA still owes over $300 M on the SBR and that J. P. Morgan is legitimately owed that money.

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46 minutes ago, vol_scouter said:

It is likely that the BSA still owes over $300 M on the SBR and that J. P. Morgan is legitimately owed that money.

Super! Then why is BSA fighting tooth and claw to NOT get this in front of a judge?

All they would have to do, today, now, this instant, is present in court the documentation proving this.

They haven't. Instead, they filed an objection to even allowing the sexual abuse victims to put this deal before a judge.

Document 2733 https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/79c9867a-f837-49ff-a8ab-562ce6c6dfdc_2733.pdf

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DEBTORS’ OBJECTION TO JOINT MOTION  OF THE OFFICIAL TORT CLAIMANTS’ COMMITTEE AND  FUTURE CLAIMANTS’ REPRESENTATIVE FOR ENTRY OF AN  ORDER GRANTING STANDING AND AUTHORIZING THE PROSECUTION OF  CERTAIN CHALLENGE CLAIMS ON BEHALF OF THE BANKRUPTCY ESTATES

And not just BSA. JP Morgan has now filed objecting to having a judge look at this as well.

Document 2732 https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/48cdda3a-e13e-48de-80ed-a376c6676dd8_2732.pdf

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JPMORGAN CHASE BANK, NATIONAL ASSOCIATION’S OBJECTION  TO JOINT MOTION OF THE OFFICIAL TORT CLAIMANTS’ COMMITTEE  AND FUTURE CLAIMANTS’ REPRESENTATIVE FOR ENTRY OF AN ORDER GRANTING STANDING AND AUTHORIZING THE PROSECUTION OF CERTAIN CHALLENGE CLAIMS ON BEHALF OF THE BANKRUPTCY ESTATES

It would actually be EASIER to simply produce the debt documents and bank statements. Just produce the debt statements and financial documents to the TCC and be done with it.

Instead, BSA is objecting to even having to entertain this effort by the sexual abuse victims.

That tells you everything you need to know about this shell game. If this were a true and honest debt and not a shell game with BSA and JP Morgan, it could be settled in 1 hour, a few phone calls, and a PDF printout of the debt documents.

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3 minutes ago, CynicalScouter said:

Super! Then why is BSA fighting tooth and claw to NOT get this in front of a judge?

All they would have to do, today, now, this instant, is present in court the documentation proving this.

They haven't. Instead, they filed an objection to even allowing the sexual abuse victims to put this deal before a judge.

Document 2733 https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/79c9867a-f837-49ff-a8ab-562ce6c6dfdc_2733.pdf

And not just BSA. JP Morgan has now filed objecting to having a judge look at this as well.

Document 2732 https://casedocs.omniagentsolutions.com/cmsvol2/pub_47373/48cdda3a-e13e-48de-80ed-a376c6676dd8_2732.pdf

That tells you everything you need to know about this shell game.

It would actually be EASIER to simply produce the debt documents and bank statements. Instead, BSA is fighting even having to do produce that.

The BSA attorneys are supposed to be among the best in this area of law so they have reasons.

So please let us all know where the money came from and who purchased the SBR because the BSA did not have the funds.  The BSA has been making payments on the debt.  Why if there was no loan?  Please let us know where the money came from and why the BSA is making large debt payments.

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