1. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Actuarial Board for Counseling and Discipline Inside an ABCD Deliberation International Association of Black Actuaries August 2, 2013

2. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Agenda Disclaimer ABCD Overview Cases Set-Up Case 1 – George Noir Case 2 – High Profile Questions and Answers

3. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Disclaimer Any opinion expressed by the speaker is entirely his own opinion and does not reflect the opinion of the Actuarial Board for Counseling and Discipline or the American Academy of Actuaries or any of the other US actuarial organizations. The case studies are fictional and are not based on any person, company, or any set of circumstances, actions or behaviors

4. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Actuarial Board for Counseling and Discipline ABCD was established in 1991 by the U.S. actuarial organizations to –Investigate alleged violations of the Code of Professional Conduct by members and recommend discipline –Counsel (provide guidance to) members –Mediate disputes between members and others.

5. Copyright © 2009 by the Actuarial Board for Counseling and Discipline RFG Summary 2008 - 2012 2008: 48 Requests; 10 Precepts 2009: 46 Requests; 10 Precepts 2010: 54 Requests; 12 Precepts 2011: 55 Requests; 11 Precepts 2012: 62 Requests; 10 Precepts

6. 2011 RFG Summary by Precept PreceptNo. of RFGs 120 28 312 413 51 60 74 86 92 10 113 123 137 140 General3 Total92 Copyright 2011 by the Actuarial Board for Counseling and Discipline

7. Copyright © 2009 by the Actuarial Board for Counseling and Discipline ABCD 2009 - 2012 Hearings Eight Precepts considered at 16 hearings –Precept 1: 12 –Precept 2: 6 –Precept 3: 3 –Precept 4: 4 –Precept 8: 5 –Precept 9: 1 –Precept 10: 1 –Precept 14: 3

8. Copyright © 2009 by the Actuarial Board for Counseling and Discipline HEARINGS Cases that come before the ABCD also generally involve more than one Precept. Hearings occur after a complaint is investigated and if the ABCD decides a hearing is the appropriate next step. The Subject Actuary receives notification of the circumstances and Precepts under review. The Subject Actuary’s attorney may be present, but not in a legal role.

9. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Range of Potential Discipline ABCD can recommend any of the following levels of discipline to the Subject Actuary’s (SA’s) membership organizations –Private Reprimand –Public Reprimand –Suspension –Expulsion The Joint Disciplinary Panel determines the level of discipline

10. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case Study Set-Up The presenters will briefly describe a fictional case –The complaint –The SA’s response –The investigator’s report –The ABCD hearing The presenters will simulate a – much abridged ABCD deliberation – hypothetical discipline recommendation

11. Copyright © 2009 by the Actuarial Board for Counseling and Discipline ABCD Deliberation Approach Currently, the ABCD summarizes –Facts of the case –Timeline of the alleged violation –Mitigating circumstances –Exacerbating circumstances The ABCD then determines –Did a violation occur? –If so, was it a material violation? The ABCD then determines the appropriate discipline to recommend

12. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir - Facts Mr. Noir (SA) was replaced as the Appointed Actuary for Clearwater Industries (CI) by Jill Brent Ms. Brent attempted to contact Mr. Noir 16 times over an eight week period asking for information and data to transition Clearwater’s work

13. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir - Facts Mr. Noir sent Ms. Brent copies of his last report immediately, but nothing else – and no participant data Ms. Brent filed a complaint against Mr. Noir with the ABCD, citing a violation of Precept 8 Mr. Noir sent some information six weeks later, including participant data, but did not answer any questions about his report

14. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir - Complainant Ms Brent said: –She sent Mr. Noir her standard transition letter used in previous situations, but she never expected to get, nor did she ever get, 100% of the information that the transition letter requested – Mr. Noir’s reports did not contain sufficient description of assumptions and methods for her to verify Mr. Noir’s previous results within a reasonable margin

15. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir - Complainant Ms Brent had requested: Previous four years’ actuarial valuation reports Fundamental participant (active and inactive) data for each of the four years Sample life reports for 2 actives and for each type of inactive from the most recent report Workpapers/ File notes that provide assumption selection basis All pertinent correspondence between Clearwater and Mr. Noir TRUVAL valuation program parameters

16. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir – SA Response Mr. Noir said: – he had never received such an exhaustive list for a transition, and so he sent items he had satisfactorily sent in other transition situations –the TRUVAL parameters were proprietary, and his lease with TRUVAL prohibited their release

17. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir – SA Response The SA said: Ms. Brent should get participant data, and correspondence from Clearwater: His engagement letter with Clearwater included a confidentiality clause He had not received a release from Clearwater He did not want Ms. Brent to have reliance upon him (Mr. Noir)

18. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir – SA Response Mr. Noir had unpaid invoices equal to 18 months valuation work, for a special project requested by Clearwater’s CFO Clearwater’s President was frequently unavailable and Mr. Noir had a working relationship with Clearwater’s CFO Mr. Noir had an engagement letter for the special project, signed by Clearwater’s CFO

19. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir – SA Response Clearwater’s President refused to pay because he had not personally authorized the project Mr. Noir said transition was his only leverage with Clearwater to get his outstanding invoices paid Mr. Noir said that Ms. Brent’s first request arrived at the busiest time of the year, and he had just lost a key staff person

20. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir - Investigator The Investigator’s report: –contained evidence that the SA failed to cooperate –concluded the SA’s report was sufficiently clear –Opined that two year’s of reports were the standard in transition situations –confirmed the TRUVAL lease prohibited release of parameters

21. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir – Investigator (Contined) The investigator’s report: –stated the SA’s engagement letter did not contain text that allowed the SA to withhold work if invoices were unpaid –confirmed that the SA satisfied the Qualification Standard requirements

22. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir – ABCD Questions the SA Usual ABCD proceedings –SA makes an opening statement –Investigator summarizes report –SA questions the Investigator –ABCD members question the Investigator –ABCD members question the SA ABCD role players will omit the first four steps and will now question SA

23. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir – ABCD Initial Deliberations Usual ABCD initial deliberations –Determine facts as they understand them –Determine timeline –Determine mitigating circumstances –Determine exacerbating circumstances –Determine recommended discipline The first four steps are summarized on the next four slides ABCD role players will then deliberate

24. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir – Deliberation Facts SA immediately sent his last report to Ms. Brent SA did not send other information until six weeks after the complaint SA refused to send remaining information, including TRUVAL parameters or sample lives TRUVAL lease prohibited release of this info SA admitted using transition as leverage for unpaid invoices SA’s engagement letter did not allow him to withhold work for nonpayment

25. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir - Timeline SA sent his last report immediately SA ignored follow-up requests for eight weeks Ms. Brent filed a complaint SA provided some more, but not all, information six weeks after the complaint

26. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir Mitigating Circumstances Investigator believed – Ms. Brent’s request was overly broad – SA’s report was self-explanatory – Clearwater should be source for some info Request occurred at busy time of year SA had just lost a key staff member Clearwater had internal issues

27. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir Exacerbating Circumstances SA should have made some response to the sixteen requests over the eight weeks SA knew, or should have known, that two years of reports were needed for transition SA was in a large office of a large firm, and so had access to other resources after key staff person left SA’s engagement letter did not allow withholding work for unpaid invoices

28. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir - Deliberation Did the SA violate Precept 8 of the Code of Professional Conduct? If so, was it a material violation? Did the SA violate Precept 3 of the Code of Professional Conduct? If so, was it a material violation? Did the SA violate Precept 1 of the Code of Professional Conduct? If so, was it a material violation?

29. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir - Deliberation ABCD role players will now discuss these questions and agree on the answers ABCD role players will also consider the range of discipline to recommend to the SA’s membership organizations Attendees should –Form groups to discuss these questions –Agree on the answers –Agree on the level of recommended discipline –Report to entire group

30. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 1 – George Noir - Deliberation ABCD role players will now report the results of their deliberations –Whether the SA materially violated Precepts 1, 3 and/or 8 –Level of recommended discipline Attendee groups will now report the results of their deliberations –Whether the SA materially violated Precepts 1, 3 and/or 8 –Level of recommended discipline

31. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 2 – High Profile The LALA Times reports a large marijuana drug bust in its Local News section. It identifies James Doobie as one of the members of the ring, and states he is a prominent local actuary. The local TV stations carry video of the bust showing Mr. Doobie in handcuffs.

32. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 2 – High Profile Mr. Doobie is well-known among actuaries in the state of Euphoria, one of the three most populous states in the country. The ABCD sees the LALA Times story and starts the discipline process.

33. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 2 – High Profile (continued) Mr. Doobie asks the ABCD to suspend the discipline process and the ABCD agrees to suspend while the case is at the trial level, for up to six months. Mr. Doobie pleads guilty during trial in exchange for a reduced sentence and goes to prison immediately.

34. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 2 – High Profile (continued) The LALA Times announces the plea bargain and sentence, and again identifies Mr. Doobie as a prominent local actuary. The ABCD investigator uses the LALA Times articles, the trial transcript and a copy of the plea bargain as the basis for his report.

35. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 2 – High Profile Deliberation Facts SA was arrested in a large drug bust SA pled guilty to a reduced charge SA is in prison SA’s arrest and trial were highly publicized SA is a well-known actuary in the state of Euphoria

36. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 2 – High Profile Timeline The SA was arrested and appeared on the local news that night The LALA Times prominently carried the story the next day The SA pled guilty five months after his arrest The SA was imprisoned immediately

37. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 2 – High Profile Mitigating Circumstances One of the original charges of racketeering was dropped

38. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 2 – High Profile Exacerbating Circumstances The SA is well known in the state of Euphoria The arrest and trial were highly publicized, and thus damaging to the reputation of the actuarial profession

39. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 2 – High Profile Deliberation Did SA violate Precept 1 of the COPC? If so, was it a material violation? What level of discipline is recommended? –Private reprimand –Public reprimand –Suspension –Expulsion

40. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Case 2 – High Profile Deliberation ABCD role players will now report the results of their deliberations –Whether SA materially violated Precept 1 –Level of recommended discipline Attendee groups will now report the results of their deliberations –Whether SA materially violated Precept 1 –Level of recommended discipline

41. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Questions and Answers What did you learn about the ABCD process? Were the simulated deliberations informative? Thoughts and reactions?

42. Copyright © 2009 by the Actuarial Board for Counseling and Discipline Inside an ABCD Deliberation Thank you for attending and participating!