Insurer Hid Bond Losses, SEC Charges

The Securities and Exchange Commission on Tuesday charged Presidential Life Corp. with “materially overstating” its earnings by failing to account for major declines in value of its junk bond portfolio.

The agency’s action against Presidential, parent of Nyack, N.Y.-based Presidential Life Insurance Co., is the first charging a financial institution with improperly accounting for investments in high-yield junk bonds.

It is all the more noteworthy because company founder and President Herbert Kurz has publicly insisted that he had a more discerning eye for risky junk bonds than did his competitors.

Indeed, the 72-year-old Kurz, who controls about a third of Presidential’s 28 million shares outstanding, would bristle whenever Presidential was mentioned in the same breath as Executive Life Insurance Co. and other companies seized by regulators because of junk bond losses.

All the while, according to the SEC, Presidential was “materially misrepresenting” its financial position in 1989, 1990 and 1991 reports filed with the agency. In its 1989 annual report, for example, the company stated--falsely, according to the SEC--that “its investments in high-yield/high-risk obligations will have no material adverse effects.”

All together, the SEC said that the decline in the value of Presidential’s junk investments totaled $25 million, or 37% of the company’s 1989 pretax income, and that a write-down of this amount was required by law.

Neither Kurz nor Presidential’s outside counsel, New York attorney Callman Gottesman, could be reached for comment. Kurz’s assistant, Donna Monacelli, said nobody else was authorized to speak for the company.