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Conseco Wants Its Pound Of Flesh

In the late '90s, one joke in the state of cornfields and race cars went: "Don't bother trying to win the Indiana State lottery, just angle for a top job at Conseco." These days, no one is laughing. A year after emerging from bankruptcy, a newly reconstructed Conseco is seeking to recoup $650 million from the "Big Nine," a group of former directors, officers, and key employees. In flusher times, says Conseco Inc. (CNO), it guaranteed bank loans so the brass could buy the company's once-soaring stock. And now it wants the money back. Such directors and officers (D&O) programs were outlawed in 2002 by the Sarbanes-Oxley Act.

It's not as if Conseco doesn't have other problems. On Aug. 12, its third chief executive in four years, William J. Shea, abruptly resigned. He leaves with a parting gift of $13.5 million in severance -- an amount that forced the company to lower its 2004 earnings estimate, drawing boos from corporate governance champs. And on Aug. 9, Conseco announced a settlement with the Securities & Exchange Commission and New York Attorney General Eliot Spitzer over allegations that it allowed market timing by investors in its variable annuities. The company must pony up a $5 million fine, though it didn't admit or deny guilt. No surprise that its shares are in the tank, recently hitting a 52-week low of 15.40.

Still, Conseco is in hot pursuit of the "Big Nine." And it's in a doozy of a fight. In late 2003, in the U.S. District Court for the Southern District of Indiana, and U.S. bankruptcy court in Chicago, it sued nine former honchos who took part in the D&O program and allegedly owe the company money. Several filed countersuits. (It used to be the "Big 11," but Conseco's former president and Chief Operating Officer, Thomas J. Kilian, settled on Aug. 9. The company says another former director is in the process of settling.) Reed S. Oslan, a lawyer for Conseco, says most of the nine "have taken desperate measures in an effort to hide assets from Conseco."


Consider Stephen C. Hilbert, the 58-year-old former insurance and encyclopedia salesman who founded Conseco in 1979. According to Conseco lawyers, he owes the most: in excess of $220 million. Hilbert was chief executive until he stepped down in April, 2000, largely because the $6 billion acquisition of Green Tree Financial Corp., a failing mobile home lender, had put Conseco on shaky financial grounds.

During his tenure as CEO, Hilbert had a reputation for living large: He bought baronial estates, Ferraris, racehorses, and French antiquities and ponied up millions to local Indianapolis charities. About four years ago, he began switching almost all of his assets to his sixth wife, Tomisue, 33, a former exotic dancer. He has also put money into trusts for his children, according to court documents. Conseco attorneys are seeking to invalidate the transfers, alleging they are fraudulent and that Hilbert made them to avoid his repayment obligations. Says David H. Kleiman, Hilbert's lawyer: "Absolutely no improper or fraudulent transfers have taken place."

People close to Conseco say that to justify Hilbert's transfer of his assets to Tomisue, he is portraying his wife as a savvy businesswoman. Kleiman says the allegation is "ludicrous." And a lawyer for Tomisue, Linda L. Pence, says that "Tomisue has been a very smart, astute businesswoman for some time." Tomisue recently announced she is launching a clothing and accessories line featuring images of such dead icons as Marilyn Monroe and James Dean. Her Web site has trumpeted: "From the likes of Donald Trump and Melania Knauss to HRH Prince Michael of Kent, Tomisue has been told that she has a gift that can only be described as style."


Conseco is now hitting up Hilbert for his house. The company holds the $19.4 million mortgage on his 22,000-square-foot Carmel (Ind.) estate, "Le Château Renaissance," which features foyer murals depicting the courtship of Mark Antony and Cleopatra. Conseco is trying to force it into foreclosure. On Sept. 21, an Indiana judge will decide on the matter. Says Kleiman: "We expect the judge will deny [the action] and that the case will go to trial next year." At least the Hilberts have another domicile in case they're suddenly homeless in the Hoosier state: an 18,500-square-foot oceanfront estate in the Caribbean's St. Martin, "Les Château des Palmiers." The pad rents for $90,000 a week and comes with seven housekeepers, four gardeners, a chef, an electrician. and an estate manager who has worked with the "Secret Service providing security for dignitaries," says an advertisement. (Anna Nicole Smith, a Hilbert pal, recently taped a segment of her reality-TV show there, remarking in a press release she was "enthralled by the home's ambience and style.")

For his part, Hilbert contends he owes Conseco nothing. In court documents and according to Kleiman, he has asserted that Conseco's bankruptcy filing constituted a "change of control" of the company, entitling him to a cancellation of his debts.

Conseco is also gunning for the assets of former exec and director Ngaire E. Cuneo -- named by Working Woman magazine as the nation's fourth-best-paid female executive in 1997 -- to repay $60 million it alleges she owes in stock loans and interest. Conseco lawyers say that for Cuneo, home isn't just where the heart is, it's where the dough is. In May, according to court documents, Cuneo and her husband used the bulk of their assets ($8 million from selling securities and $2.4 million borrowed on their home in New Canaan, Conn.) to pay $10.2 million for a 12,300-square-foot mansion near Miami Beach on a 0.49-acre site. Under Florida's homesteading law, homes on up to half-acre plots and occupied as a principal residence are fully shielded from creditors.

In July, a district court judge in Indiana partly ruled against the Cuneos, saying that the couple's explanation for suddenly moving to Florida -- to be near her aging mother -- was bogus, since her mother lives 120 miles from Miami Beach. He also found that the couple had no intention of residing permanently in the house. Conseco is now pursuing the case in the Sunshine State. Says Oslan: "It's blatant what the Cuneos are doing. The house costs $400,000 a year in taxes and upkeep alone, and they claimed in court they make just $400,000 a year." Cuneo's lawyer declined to comment.

Meantime, Rollin M. Dick, Conseco's former chief financial officer, is on the hook for $70 million resulting from his stock loans. In court documents, Conseco claims he has continually and fraudulently transferred "tens of millions of dollars" to his wife and children over the past few years. The company says in 1998, Dick and his wife claimed they had a net worth of $121 million, with $37 million in mutual funds in Dick's name alone. By 2001, Dick's net worth had dwindled to a negative $8 million. Kleiman, who also represents Dick, says that as with Hilbert, "No improper or fraudulent transfers took place." Meanwhile, Dick faces other issues. In March, the SEC found that he and former Treasurer James S. Adams orchestrated a fraudulent accounting scheme at Conseco. As part of a settlement with the SEC, Conseco did not admit or deny the findings on behalf of Dick or Adams. Dick is also a subject of a criminal investigation by the Justice Dept. on similar matters. Kleiman declined to comment.

As for the remaining former execs and their stock loans, Conseco continues to duke it out with them. It remains to be seen how much Conseco will be able to collect. In a recent filing, the company has ratcheted down its forecast of how much it might recover, to just $51 million, net of collection costs, though Oslan says he believes the figure will be "in excess of $100 million." Meanwhile, the story keeps unraveling like a farce staged at Indianapolis' Hilbert Circle Theater.

By Marcia Vickers in New York

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