UKnight Interactive Details to Knights of Columbus Directors Significant Fraudulent Activity at the Knights of Columbus

BOULDER, Colo., Aug. 28, 2018 /PRNewswire/ -- UKnight Interactive ("UKnight") today reported it has sent the following letter (link below) to each member of the Knights of Columbus ("KC") Board of Directors presenting detailed information and analysis about major fraudulent activity with respect to KC's insurance business, which is the Catholic men's Order's major source of revenues and charitable giving. UKnight has brought charges of business wrongdoing and misconduct against KC in U.S. District Court in Denver. KC is the largest Catholic fraternal organization in the world.

Letter to Knights of Columbus Board Members

Among other key points, the letter questions the Board about how much KC management, known as the Supreme Council, has informed the Board about KC's insurance operations, to what degree the Board is investigating the issue of the fraud consistent with its fiduciary and governance responsibilities to KC membership, and whether the Supreme Council is employing deceptive marketing tactics to Catholic families, such as implying Vatican approval of its insurance products, to help perpetuate the fraud.

The letter informs the directors, among other things: "The recently exposed horrors with respect to the Catholic community in Pittsburgh were ignored by those with a duty to protect those children and, as we have learned, many other victims. We do not yet even know how high up into Vatican leadership the culpability will go. Since you are a KC director, I hope that you recognize your fiduciary duty. I hope you are prepared to do whatever is necessary to protect the confidence that generations of [KC] members have had in the morality and integrity of their Order, and to protect the faith and trust that thousands of Catholic families have shown to you, and to all [KC] leaders, by entrusting to you their hard earned dollars in the form of premiums paid month after month, year after year, in amounts that now total in the tens of billions of dollars."

The letter points out that, according to remarks made by KC Supreme Knight Carl Anderson at the Order's recent Supreme Convention in Baltimore, August 7-9th, KC has today only $24 billion in assets to cover approximately $111 billion in future insurance claims. Therefore, KC must somehow generate $87 billion in profits simply to cover that unfunded liability – $87 billion.  And with half the members holding KC insurance over 60 years old, and a full 30% already over 70, the letter emphasizes, it would seem KC will have to do so in a hurry.

The letter states: "A major hurdle in fulfilling this requirement, generating $87 billion in profit, is that according to KC tax returns, under the leadership of Carl Anderson KC lost almost $10 billion. The mathematical, dollars and cents fact is that KC's insurance program has paid out almost $10 billion more in claims than it collected since 2004. You can click here to see pages from KC's 2013-2016 tax returns that show KC lost almost $1 billion this way each of those years with no end in sight."

"Of course, the only way to generate $87 billion in time to pay those claims is to generate a profit, invest that profit, and then continue building those investments. Unfortunately, KC has been spending $1.70 on claims and expenses for every $1.00 collected, and has had to raid those investments just to break even.

"…Interestingly, Supreme Knight Anderson just announced to you in Baltimore that KC's assets grew by $500 million to just over $24 billion. That is not entirely truthful because assets actually grew by $1.5 billion, 3x as much. But instead of keeping all or even most of that $1.5 billion to prepare for future claims, KC had to cash out $1 billion, two-thirds of its asset growth, in order to pay current claims and expenses, including millions of dollars for executive salaries and donations to the Vatican.

"This is dangerous for many reasons, not the least of which is what Carl Anderson referred to during his speech as the 'Surplus.' This 'Surplus' is the value of KC assets that exceed their minimum reserve requirements established by regulators, a small fraction of KC's actual obligations. Carl Anderson emphasized that KC's surplus had grown by $188 million to $2.1 billion. But that too is just a selective part of the whole story.

"KC's surplus is actually diminishing.  Even though its assets have grown every single year, and that surplus number has gone up nine of the last fourteen years, KC's obligations are growing faster than its assets are allowed to grow and accumulate because they are being spent. As you can see, the buffer has now dropped below 10%! The slightest change in KC's reserve requirements can be fatal. And, if these practices continue, it won't be long before KC's surplus turns negative all on its own, which is to say KC will not be able to meet its reserve requirements."

The letter goes on to highlight the components of the insurance fraud scheme by KC.

• Manpower: Financial ratings agencies track the size of an insurance company's salesforce as an indicator of the company's strength and growth. To manipulate this indicator, KC requires its General Agents ("GAs") to hire a significant number of additional salesmen at the end of the year, thereby inflating its manpower numbers to receive higher ratings. In fact, KC has even told its GAs that if they do not hire more salesmen, KC's financial rating would drop.
  
  "We have been told first hand, that KC instructs GAs to suspend standard vetting procedures just to get additional salesmen on the books for their report, after which they can be terminated. GAs then hire and pay these salesmen out of their own pocket. The duped salesmen in this charade are Catholic men who are led to believe they have a future with this revered Catholic organization, until they've served their purpose and are dismissed. Indications are that in 2017, manpower numbers were inflated by 20%," the letter highlights.

• Membership: GAs must also cooperate with KC's member inflation even though it works against their financial best interests. GA territories and sales quotas are based upon the number of members KC says are in the councils they service. Even though the accurate member counts are far fewer than KC represents, and even though most GAs know it, failing to cooperate in the fraud could cost them their businesses, their ability to support their families, so most just go along. Some GAs report being unable to get non-U.S. councils removed from their agency. While putting an overseas council within a GAs territory adds to the number of "insurable" members, it works against his ability to earn certain bonuses.
  
  The letter goes on to alert the directors: "We have been told first hand that KC has terminated GAs with decades of exemplary service for refusing to cooperate. For example, one such GA tried to clean up the membership roles in his territory, and it cost him his business. He tried to remove hundreds of members, many he knew to be deceased, and to insist that his State Officers abide by KC's by-laws. For this he was terminated after serving KC for more than 20 years."

Supreme Knight Anderson took over leadership of KC in 2000 with a total 1.6 million members. Today, KC reports 1.9 million members, an average growth rate of 1% per year – worldwide. In 2017, UKnight surveyed councils to confirm the existence of and determine the extent of this member inflation. This survey revealed member counts that were 30% to 40% lower than what KC reports. This translates into a total membership count between 1.1 million and 1.3 million, a membership that is decreasing, not increasing. These numbers speak volumes about the difference between what KC says about its health and future, and what the reality is.

The letter informs the directors: "We are told that councils believe KC forces them to keep non-existent members on the books not only to report a growing membership every year, but so they can keep collecting per capita dollars for each of those members. Such forced payments are in reality, extortion.

"Councils must pay member assessments to the KC National and State governing bodies. If these annual assessments are rounded to $10.00 per member, and if only half of KC's 15,000 councils have only 30 phantom members each, this means that council volunteers will raise $2.25 million per year for local charity work, which KC demands for itself in payment for members that do not exist.

"But there is a more insidious, multi-billion-dollar reason for this practice: we have confirmed that KC uses these per capita payments to verify these false membership counts for actuarial purposes.

"Councils are independent entities, they operate in their own financial self-interest and they work hard to raise money to support charitable efforts in their own communities. Since the reasonable expectation is that these independent entities would not send KC any more money than is required, the assumption is that per capita payment counts must be accurate. This enables KC to use these inflated numbers as being independently verified in their reports to ratings agencies.

"The schemes all work together. 

• KC forces GAs to hire and pay for salesmen they don't need or want;
• KC forces councils to pay per capita for members that don't exist; and
• KC spend millions buying influence at the Vatican.
• A.M Best then interprets that data as KC having a growing salesforce to service a growing customer base/risk pool which contributes to their willingness to issue KC a Superior rating.
• KC then reports back to agents, to members, and to the public at large that KC has received a glowing endorsement from the Pope, has been named one of the world's most ethical companies, and has earned a Superior rating by A.M. Best for 41 consecutive years."

The letter makes clear that, as a result, KC executives maintain their exorbitant salaries and positions of power and influence, and KC members are duped into over-paying for over-priced financial products believing it is their Catholic duty to buy financial products from a company that appears to have endorsements from the Pope, that supports Catholic causes, and has earned the highest possible financial ratings for 41 years.  

As noted in the letter: "This is a very serious matter because the higher risks associated with KC's limited customer base and risk pool make the number, growth, and vibrancy of KC's membership critically important to its long-term viability. Ratings agencies, reinsurers, and purchasers of KC financial products want and need to know whether KC will be able to pay its claims in thirty, forty, or even fifty years. And today, how broadly are its insurance obligations dispersed over the demographic spectrum or, like social security, is the coverage more concentrated: How soon will KC need that $111 billion?"

The letter provides the following statistics to the KC Board about the Catholic Order's insured members:

• 30% of current insured members are 70 years old and above
• 22% are between 60 and 69 years old
• 24% are between 50 and 59
• 13% are between 40 and 49
• 8% are between 30 and 39
• 4% are 29 years old and younger

The letter asks members of the KC Board: "Does KC have sufficient younger members to buy enough new life insurance policies to cover that $87 billion gap?"

The letter asserts that KC deceptively skews its demographics. "Data provided by councils show that of all the non-existent, phantom members carried on the books – hundreds of thousands of them – 45% are under 29 years old.

• "2% of Phantom Members reported by councils are 70 years old and above
• 5% of Phantom Members are between 60 and 69 years old
• 10% of Phantom Members are between 50 and 59
• 18% of Phantom Members are between 40 and 49
• 19% of Phantom Members are between 30 and 39
• 45% of Phantom Members reported by councils are 29 years old and younger"

The letter emphasizes to KC directors: "By law, only members in good standing of the KC Fraternity who reside in the U.S. and Canada can buy KC financial products. The KC Fraternity is shrinking, aging, and dying. Any new member growth is occurring overseas, where KC financial products cannot be sold."

The letter states: "With so many thousands of Catholic families relying upon KC, you have every right as directors to review the qualifications of KC officers and Board members to make sure there are in place the skills and experience necessary to get the job done."

The letter questions how the three directors recently appointed at the Baltimore convention have either the expertise and/or are free of conflicts to properly evaluate how KC is handling its U.S. insurance business. The three recent appointees are: Arcie Lina, a Vancouver, Canada KC council member; Terry Simonton, a land surveyor and Texas KC council member; and Anthony Minopoli, an insider involved closely with Supreme Knight Carl Anderson.

In highlighting serious concerns about the KC Board being properly informed by the Order's management and carrying out both its fiduciary and governance duties, the letter asks directors: "Did you approve the cash donation of $470,000 to a California-based entity named First Do No Harm?"

In 2010, Lisa Bartoletti filed the Mutual Benefit Corporation First Do No Harm, Inc. In 2013, California suspended her entity for failing to file required biennial reports. In 2015, she still had not filed a single report, her entity was still suspended, but KC still gave her $470,000 in cash.  Extensive searches turned up absolutely no information about Ms. Bartoletti or her company, except that its location was a home listed for sale in late 2014, taken off the market in 2015, and then sold in 2017. In 2018, after five years in suspension, First Do No Harm, Inc. was administratively dissolved by the state of California.

"Directors of non-profits have an especially critical role. With no owners, no shareholders, it is left to directors, like yourself, to recruit officers who can successfully manage the company, and then hold those officers accountable to carry out their responsibilities," the letter emphasizes.

More information about the issues raised in the UKnight letter to the KC Board can be found on the website established by UKnight named www.supremedirectors.org.

Media Contact:
Robert Siegfried
212-521-4836

SOURCE UKnight Interactive

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