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Cypen & Cypen
AUGUST 25, 2005

Stephen H. Cypen, Esq., Editor

Never Forget - September 11, 2001


Your editor will be exploring the Far East for a few weeks, so there will be no newsletters on September 1 or September 8. The next issue will be on September 15, 2005 -- jet lag permitting.


In a decision that is not to be published, the United States Court of Appeals for the Eleventh Circuit has affirmed lower court decisions entered in favor of the Trustee of bankrupt Florida Fund of Coral Gables and against the Miami Police Relief and Pension Fund. The Florida Fund was a Ponzi scheme, which bilked the Police Fund out of more than $1.3 Million. The Police Fund learned of the fraud, and using a personal relationship with the Florida Fund’s principal, squeezed him into repaying over $770,000 to the Police Fund. When the Florida Fund went bankrupt, the Trustee filed an adversary proceeding against the Police Fund, seeking to avoid those payments. The Bankruptcy Court awarded the Trustee the amount sought, and the District Court affirmed the judgment (see C&C Newsletter for April 23, 2003, Item1). On further appeal to the Eleventh Circuit, the lower court rulings were affirmed. The Police Fund raised three issues, which the appeals court rejected. First, the Police Fund waived any alleged right to sovereign immunity under the Eleventh Amendment to the United States Constitution: “A governmental unit that has filed a proof of claim in the case is deemed to have waived sovereign immunity with respect to a claim against such governmental unit that is property of the estate and that arose out of the same transaction or occurrence out of which the claim of such governmental unit arose.” Second, the Police Fund was an insider of the Florida Fund: “No one can seriously dispute the closeness of the relationships between ... the principal of the Florida Fund and the Police Fund ... the transactions ... were not at arm’s length. ... The record shows that the Police Fund discovered the fraud of the Florida Fund before any other creditor, and based on its long-standing relationship with [the principal], the Police Fund was able to obtain the preferential transfers the Trustee sought to avoid.” Third, the Police Fund is the proper defendant: “The Police Fund asserts that the proper defendants are the individual police officers of the City of Miami who are beneficiaries of the Police Fund. This argument is absurd. The Police Fund has offered no authority to support its assertion that the Police Fund cannot pay a judgment entered against it in an adversary proceeding. The Police Fund filed, in its own name, a proof of claim in the bankruptcy of the Florida Fund, and we reject the proposition that the Police Fund may sue, but not be sued, in its own name.” In Re: The Florida Fund of Coral Gables, Ltd., 2005 WL 1943188 (U.S. 11th Cir., August 15, 2005). According to press reports, the amount now due, including interest, exceeds $900,000. Payment to the bankruptcy estate will help 27 other investors recoup some of the money they lost in the scam. Again, we hasten to emphasize that this fund is not our client City of Miami Fire Fighters’ and Police Officers’ Retirement Trust.


For the first time, Orlando’s Police Pension Board has revoked the lifetime benefits of two former Orlando Police Department retirees, according to Both committed felony crimes on the job. One claimed his retirement just weeks before he was charged with felony grand theft. He later admitted stealing more than $10,000 from Crimeline. Another, a former s.e.x crimes detective, is serving 26 years for long-term s.e.x.u.a.l abuse of a 14-year-old girl, some of which occurred in his cruiser while on duty. Both former officers are appealing the Board’s actions.


According to Watson Wyatt Worldwide, while pension finances are very much in the news, as recently as five years ago companies did not worry much about their defined benefit pension funds. After two decades of strong U.S. stock market returns, most companies were adequately funded and many were overfunded. Indeed, some plans ran up against Internal Revenue Service contribution limits and had to stop contributing for a time. But beginning in 2000, the easy returns came to an abrupt end. Stock markets plummeted, while falling interest rates pushed up present-value measures of liabilities. Suddenly, many plan sponsors found themselves in double jeopardy, facing both pension shortfalls and challenges in their core business at the same time. Many speculative stories have addressed the risks that pension plans can pose to an individual company’s financial health, entire industries and the overall financial markets. But most are not backed up with analysis that quantifies how pension plans relate to other financial measures. Watson has developed a measure of the amount of risk that pension plans pose to individual companies and to the larger financial system, which is called the Pension Risk Index. The analysis suggests that for the majority of the Fortune 1000, pension plans pose little risk to the individual firm’s financial health. Additionally, of companies that do sustain a significant level of pension risk, most are on solid ground, suggesting that, while they may want to evaluate and manage that risk, they could likely weather a crisis. In a broad context, therefore, pension funds do not pose a significant risk to the functioning of financial markets. Specifically, 84% of the aggregate pension risk currently in the system belongs to companies with an investment-grade bond rating. The remaining 16% belongs to companies with a junk-bond rating.


At an average price pushing $3.00 per gallon, the cost of gasoline is outrageous. But, compared with the cost of other liquids, spending almost three bucks a gallon to fill up might not be so bad. Compare the following price per gallon for other common products: Arizona Green Iced Tea - $5.07; Minute Maid Premium Original Orange Juice - $5.79; S. Pellegrino Sparkling Natural Water - $9.95; Red Bull Sports Drink - $31.56 and Robert Mondavi 2002 Pinot Noire - $109.95. Here’s lookin’ at you, Kid.


As we previously reported, Governmental Accounting Standards Board Statement No. 45 establishes standards for measurement, recognition and display of other post-employment benefits (OPEB) expenses/expenditures and related liabilities (see C&C Newsletter for June 30, 2005, Item 2). Now, Gainesville, Florida, may be the first governmental agency in the country to sell bonds to fund an unfunded actuarial liability for a government retiree medical plan. According to a report summarized in, Gainesville’s July, 2005 sale of taxable Other Post Employment Benefit Bonds was in response to new requirements of GASB Statement No. 45. Local governments in Florida are authorized to issue taxable OPEB bonds to fund all or a portion of the unfunded liability, similar to the sale of pension bonds to cover unfunded liability of a pension plan. However, future liabilities of retiree medical plans depend on factors not present in pension valuations and more difficult accurately to predict -- such as cost of medical care decades away and future changes to federal medical benefits. Unlike in the private sector, reducing benefits for current retirees is often not a viable option for local governments, due to legal and political constraints (such as labor agreements), state law and the political risk to politicians who propose such a course of action.

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Items in this Newsletter may be excerpts or summaries of original or secondary source material, and may have been reorganized for clarity and brevity. This Newsletter is general in nature and is not intended to provide specific legal or other advice.

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