Lloyd’s of London Hindsight: What the ‘Names’ Couldn’t Have Known

“Lloyd’s of London Under Fire” (Jan. 9) was a fine, objective and totally accurate description of the Lloyd’s fiasco.

The subsequent letter you ran from Peter Middleton, chief executive officer of Lloyd’s, suggesting that investors knew--or should have known--of the risks involved in their investment typifies the attitude of many English aristocrats in and around the London market (“Checks and Balances Assure That Lloyd’s of London Investors Know of the Risks,” Jan. 29). What Mr. Middleton was really saying is, “Any investor reasonably intelligent should be able to tell the good from the bad, assess his or her investment risks . . . and make a proper decision.”

The truth of the matter is that we “Names” relied on Lloyd’s 300-plus years of success, its highly publicized reputation for never having failed to pay a claim and its snob appeal.

But what Mr. Middleton didn’t tell you was that the information that should have been provided for many new investors was hidden by the powers that be at Lloyd’s. As far back as the early ‘80s, Lloyd’s understood fully the huge liabilities that were piling up for asbestos and pollution claims.

Mr. Middleton neglected to mention that the huge sums were actively hidden by the insiders--a fraudulent act on the part of the organization’s leaders that would eventually suck in literally thousands of investors with brand-new money (their total assets) to keep Lloyd’s in business.

He also neglected to mention that there is alleged fraud throughout Lloyd’s management, evidenced by insiders taking a disproportionate amount of any profits. (Indeed, the farther away from London an investor lived, the more dramatically different--less--results he or she had.)

He also failed to mention that the lack of management on the part of Lloyd’s resulted in a variety of nefarious activities hidden from Names (investors), including the placing of reinsurance in nonexisting organizations, unlisted ownership of reinsurers by the actual Lloyd’s underwriters themselves, insuring risks other than from its promised activities, reinsuring among each other which resulted in the insurance spiral, or not prudently protecting against any series of catastrophes.

No, Mr. Middleton, we were not told about these activities (and a laundry list of others too long to mention) resulting in hundreds of lawsuits against the corporation of Lloyd’s and its agents.

GEORGE NORDHAUS

Chairman, Insurance Marketing

& Management Services

Santa Monica

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Peter Middleton, CEO of Lloyd’s, has attempted in his letter to refute the accusations brought against Lloyd’s by hundreds of U.S. investors, by misrepresenting that “the checks and balances” in the procedures used by Lloyd’s in selling U.S. investors “have been vetted by the U.S. Securities and Exchange Commission.”

Without elaborating on the misleading nature of the entire letter--i.e., the procedures described in Middleton’s letter have never been employed with respect to most of the American investors in Lloyd’s, including Mrs. Bencsics, myself and the other investors identified in the article--it is necessary to immediately refute the mistaken characterization of the SEC’s position. Existing and potential investors in Lloyd’s, some of the million and a half readers of the Sunday Los Angeles Times, may be given false comfort that the SEC has blessed this investment. The SEC has not reviewed, let alone “vetted” the materials, disclosures and statements used in soliciting individual investors to become Names of Lloyd’s. The solicitation of an individual to become a Name (investor) involves the offer of a security within the meaning of the federal securities laws. By placing the false imprimatur of the SEC on the alleged “checks and balances” employed by Lloyd’s in the offer of its securities, Lloyd’s does what no other company dares to do: represent that the SEC has approved the offering of its securities.

RICHARD D. ROSENBLATT

Chairman, American Names Assn.

Rancho Santa Fe

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Lloyd’s of London is in a position few other institutions enjoy. Insulated from ruin by an obsequious government, protected from serious legal reversals by a biased judiciary, relieved of the obligations of commercial morality by fiat of the British establishment, its CEO, Peter Middleton, can tell any lie with impunity. But the thousands of Lloyd’s investors over whose ruin Middleton and his colleagues have blithely presided know the truth.

It is simple enough. Lloyd’s never warned its victims of the massive pre-existing liabilities they would inherit on becoming underwriters. It never warned them that they were recruited precisely in order to lessen the growing financial exposure of corporate “insiders.” It never warned them that, forced to consent to the exclusive jurisdiction of the English courts, they could never actually sue in England because Lloyd’s had obtained legislative immunity from a complaisant Parliament. Any warnings Lloyd’s actually gave were superficial, perfunctory and trivial, and such suitability standards as it eventually adopted were never applied to the vast majority of its members.

Middleton knows all that and more. He should thank the fates that he lives in a community which requires nothing more of him than a stiff upper lip.

FREDERIC M. SMITH

South Pasadena