PHL Policyholders Sue Golden Gate Capital Over $2.2 Billion Shortfall

Policyholders of PHL Variable Insurance Co. filed a lawsuit in Connecticut federal court against private equity firm Golden Gate Capital and its subsidiary, Nassau Financial Group. The plaintiffs allege the firms engaged in self-dealing and mismanagement that resulted in a $2.2 billion capital shortfall, making the insurer's liquidation likely.

The lawsuit claims the firms pillaged assets by investing PHL funds into their own credit products and using shell companies to buy back $1 billion in policies. Additionally, the plaintiffs accuse the defendants of using captive reinsurance deals, including one with an entity in the Cayman Islands, to conceal financial instability. State regulators had previously rejected rehabilitation plans for PHL, citing poor investment performance under the ownership of Nassau.

Nassau Financial Group denied the allegations, stating the claims are without merit. The company maintained that it is cooperating with the Rehabilitator to protect and serve PHL policyholders.