Matt Gaul, a former deputy superintendent for life insurance at the New York state Insurance Department, has returned to the private sector after almost seven years as a regulator and enforcement attorney in state government. In January, Matt joined Steptoe & Johnson as a partner. I sat down with Matt to get his advice on the relationship between brokers, agents and state regulators.
SINDER: What are your recommendations for Council members when it comes to their relationships with state regulators?
GAUL: It may sound like a bit of a cliché, but the main thing is don’t be a stranger. In states where you do a significant amount of business, make sure you’re meeting with your regulators on a regular basis.
But what if there’s no particular issue or problem that you need to discuss?
The old adage is that the best time to make a friend is when you don’t need one. Developing personal relationships with the regulators before there is a problem can be invaluable. Regulators also appreciate the producer perspective. The carriers are in the insurance departments regularly, often on a weekly basis. Agents and brokers need to do the same.
How do you recommend going about that?
I think most people are surprised at how accessible their state commissioners are and how open they are to short meet-and-greet sessions. The average tenure of an insurance commissioner in the U.S. is only about 14 months, so it is also important to develop relationships with the civil service staff.
What is the potential impact of Governor Andrew Cuomo’s plan to merge the Insurance and Banking Departments in New York?
The proposed Department of Financial Regulation (DFR) legislation grants the new agency broad enforcement powers that eclipse those currently vested in the Insurance and Banking Departments and even those of the New York Attorney General. The DFR would be empowered to investigate and prosecute any financial fraud. The DFR would have the power to subpoena documents, compel testimony, grant immunity from criminal prosecution, and fine violators up to $5,000 for each violation—an amount that dwarfs the $500 per occurrence that the attorney general can impose under a similar consumer fraud law. If this bill gets through the New York legislature in anything like its current form, the governor, through his appointee, will be able to do everything he and Eliot Spitzer did at the attorney general’s office and more.
What are the three biggest mistakes that people make when the government comes knocking?
First, never begin your relationship with government agents by arguing that they don’t have the authority or jurisdiction to do the investigation. You’ll almost never manage to stop a government investigation in the early stages with procedural arguments. Instead, you’ll succeed in doing two things: (1) making it look like you have something to hide, and (2) antagonizing people who have a tremendous amount of power to determine the ultimate outcome of the investigation. Even if you are right, there will be plenty of time later in the process to press those arguments.
Second, don’t defend the business practices under investigation until you know all the facts. The investigators often know things you don’t.
Third, it’s OK to go over the heads of the frontline investigators in selective instances, but never do so without giving the people you deal with on a regular basis a heads up. The frontline investigators will inevitably find out that you went up the chain anyway, and most of them won’t mind if they’re given the courtesy of notice.
What are the three best things you can do if you find your company embroiled in an investigation?
First, try to understand the motivations of the investigators and the office they represent. While it’s true that government officials…are sometimes motivated by a desire to make headlines, it’s important to recognize that most people who work in regulatory and enforcement offices have a genuine desire to do the right thing. Try to pitch your arguments to those motivations and don’t get bogged down in legal technicalities. Being able to explain why your company’s conduct wasn’t morally or ethically wrong…is often more important than the technical requirements of the law.
Second, if you’ve made a mistake in presenting the facts or arguing the law during the course of the investigation, make sure the investigators hear about it from you first.
Third, let sleeping dogs lie. Prosecutors and regulators are perpetually understaffed and overworked, and the priorities set at the top of any organization are constantly shifting. Let this process work in your favor. If you haven’t heard from them in a while, let them be. There’s always the chance that more attractive targets have presented themselves.