UNITED STATES OF AMERICA 

Before the 

SECURITIES AND EXCHANGE COMMISSION 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 61601 / February 26, 2010 

ADMINISTRATIVE PROCEEDING 

File No. 3-11578 

In the Matter of ORDER APPROVING PLAN, 

APPOINTING A FUND 

CIHC, INC., CONSECO ADMINISTRATOR, AND 

 SERVICES, LLC, and WAIVING BOND 

 CONSECO EQUITY SALES, INC., 

Respondents. 

On August 9, 2004, the Securities and Exchange Commission (“Commission”) entered an 

Order instituting settled administrative and cease-and-desist proceedings against subsidiaries of 

public insurance company Conseco, Inc.: CIHC, Inc. (“CIHC”), Conseco Services, LLC 

(“Conseco Services”), and Conseco Equity Sales, Inc. (“CES”) (together, “Respondents”) in this 

matter (“Order”). In the Matter of CIHC, Inc., Conseco Services, LLC, and Conseco Equity 

Sales, Inc., Admin. Proc. File No. 3-11578, Securities Act of 1933 Release No. 8455 (Aug. 9, 

2004). In the Order, the Commission authorized the establishment of a Fair Fund, comprised of 

$15,000,000 in disgorgement and penalties paid by Respondents, for distribution to investors 

affected by certain market timing trading through Conseco variable annuity products. The Order 

provided that the Fair Fund was to be distributed pursuant to a distribution plan developed by an 

Independent Distribution Consultant. The Respondents retained Kormendi \ Gardner Partners, 

Dr. Roger Kormendi, and Mr. Cyrus Gardner as the IDC, who have developed a proposed 

distribution plan (the “Distribution Plan”) in consultation with the Division of Enforcement and 

Respondents. 

On January 19, 2010, the Commission published an “Amended Notice of Proposed Plan 

of Distribution and Opportunity for Comment” (“Notice”) pursuant to Rule 1103 of the 

Commission’s Rules of Fair Fund and Disgorgement Plans, 17 C.F.R. § 201.1103 (Exchange Act 

Release No. 61209A). The Notice advised all interested parties that they may print a copy of the 

Distribution Plan from the Commission’s public website, http://www.sec.gov, or by submitting a 

written request to George S. Canellos, Regional Director, United States Securities and Exchange 

Commission, 3 World Financial Center, Room 400, New York, NY 10281. 
 

 

The Notice also advised all persons desiring to comment on the Distribution Plan that 

they may submit their comments, in writing, no later than 30 days from the date of the Notice by 

sending a letter to the Office of the Secretary, United States Securities and Exchange 

Commission, 100 F Street, N.E., Washington, DC 20549-1090; by using the Commission’s 

Internet comment form (http://www.sec.gov/litigation.admin.shtml); or by sending an e-mail to 

rule-comments@sec.gov. The Commission received no comments on the Distribution Plan and 

no modification has been made to the Distribution Plan since its publication. 

The Distribution Plan provides for distribution of the Fair Fund to provide compensation 

for losses caused by Respondents’ permitting market timing in Conseco variable annuities 

despite prospectus disclosures from December 1999 through October 2002. The Distribution 

Plan describes the procedures to be used to identify the eligible investors that will receive 

distributions. The Distribution Plan further describes the procedures to be used to calculate the 

amounts to be paid to the eligible investors and to distribute those amounts to the eligible investors. 

Eligible investors will not be required to make a claim or submit documentation to establish their 

eligibility. 

The Distribution Plan also proposes Rust Consulting, Inc. (“Rust”) as the Fund 

Administrator and sets forth, among other things, procedures for distributing funds from the Fair 

Fund to investors; procedures for the administration of the Fair Fund, including provisions for 

filing tax returns; and a proposed timeframe for the termination of the Distribution Plan. 

Rust has not posted the bond generally required of third parties under Fair Fund Rule 

1105(c). Rather, the Plan incorporates several layers of protection for the Fair Fund. Among 

other things, under the Plan: (1) the Fund Administrator will have no custody, and only limited 

control, of the Fair Fund; (2) the Fair Fund will be held by the U.S. Treasury Bureau of Public 

Debt until immediately before transmittal of checks or electronic transfers to eligible investors; 

(3) upon transfer from the U.S. Treasury, funds will be held in an escrow account, separate from 

bank assets, as defined in paragraph 2 of the Plan, until presentation of a check or electronic 

transfer, at which time funds will be transferred to a controlled distribution account; (4) 

presented checks or electronic transfers will be subject to “positive pay” controls before being 

honored by the bank; and (5) both the bank and the Fund Administrator will maintain, 

throughout this process, insurance and/or a financial institution bond that covers errors and 

omissions, misfeasance and fraud. 

The staff requests that the Commission approve the Distribution Plan, appoint Rust as the 

Fund Administrator, and waive the bond requirement of the Fund Administrator for the good 

cause shown in the Plan. 

Accordingly, pursuant to Fair Fund Rule 1104, it is hereby ORDERED that the 

Distribution Plan is approved. 

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It is hereby ORDERED, pursuant to Fair Fund Rules 1105(a) and (c), that Rust is 

appointed as the Fund Administrator in accordance with the terms of the Distribution Plan and 

that the bond requirement is waived for good cause shown. 

For the Commission, by its Secretary, pursuant to delegated authority. 

 Elizabeth M. Murphy 

Secretary 

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