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US prosecutors are investigating insurance companies run by billionaire financier Mark Walter, the co-owner of Chelsea FC and owner of the Los Angeles Dodgers baseball team and Lakers basketball team, financial filings show.
Walter’s Delaware Life Insurance Company and Clear Spring Life and Annuity Company have been subpoenaed by the US Attorney’s Office for the Southern District of New York and the US Securities and Exchange Commission over whether they failed to adequately disclose ownership of assets tied to other parts of the financier’s sprawling business empire, according to the June 17 disclosures filed with federal insurance regulators.
Over the past two decades, Walter has captivated Wall Street by using insurance companies to help fund high-profile acquisitions, such as his takeover of the Dodgers in 2012. In addition to sports, Walter is an owner of Guggenheim Investments, a more than $360bn-in-assets investment manager and investment bank.
Delaware Life said in the filing prosecutors were examining whether it had failed to disclose that certain of its private credit investments were made with counterparties in which returns depended on the performance of entities owned or controlled by TWG Global, Walter’s holding company, which also owns the two insurers.
After receiving the subpoenas, Delaware Life reclassified some of its private credit investments, resulting in a jump of affiliated investments from 3 per cent of invested assets to about 42 per cent. In response, S&P Global Ratings revised its outlook on the company to “negative”.
Affiliated and related-party investments typically carry higher regulatory capital charges, partly due to risks of financial contagion in case of a counterparty failure.
Delaware Life said it had private credit investments in which the return was dependent on the performance of affiliates worth $17.8bn as of March. The insurer also disclosed a “restated” investment management agreement with Guggenheim Partners, in which Guggenheim manages about $2.5bn of its investments.
In recent years asset managers have snapped up insurers, signing investment-management deals with life insurance and annuity providers or buying them outright. Some US regulators are concerned asset managers could be using insurance policyholders’ funds as a cheap source of financing for potentially risky investments.
The treatment of affiliated and related-party assets has emerged as a recent flashpoint, with regulators concerned about whether insurers are being loaded up with loans originated by parents or affiliates at improper prices or with too little diligence.
Some private capital groups with insurance clients and subsidiaries have complained current rules are too sweeping and that too many loans made at arm’s length are improperly classified under current rules as “affiliated”.
“TWG is aware of and co-operating with the investigation,” a spokesperson for the company said in a statement to the FT.
Group 1001, a TWG entity that owns Delaware Life and Clear Spring, said it was co-operating with New York prosecutors and the SEC and added that it was undertaking “remediation plans . . . to reduce and restructure certain of the investments at issue”.
Spokespeople for the SDNY and SEC declined to comment. The subpoenas were reported earlier by Bloomberg.
