Conseco wins $29M judgment in latest round of legal war

Conseco Inc. has won another round in court against former Merchants National Bank CEO James D. Massey this month, ringing
up a $29 million judgment against him in a court in Illinois.

But Massey shows no sign of throwing in the towel in the years-long litigation over millions he borrowed to buy Conseco stock.
Massey was a director of Conseco from 1994 to 2000.

On June 16, Massey's attorneys appealed his case to the Indiana Supreme Court. Massey is hoping to overturn rulings by
three courts in Indiana and Illinois–none of which have allowed him a trial–that have pinned him with judgments totaling
$38 million.

Massey has frustrated Conseco's attempts to wrap up its series of lawsuits against 11 former directors and officers of
the company, who all took out large stock loans in the late 1990s. The company has resolved nine of those cases, all of which
began in 2003.

Conseco hasn't secured any settlements since December 2006, when company co-founder Stephen Hilbert agreed to undisclosed
terms in his nearly $300 million case. Also, Conseco has so far failed to sell Hilbert's Carmel mansion, for which it
has been asking $15 million.

Conseco attorney Reed Oslan still predicts the company will collect more than $100 million from the 11 borrowers.

Besides Massey, the other unbowed borrower is Ohio attorney Dennis E. Murray Sr. Both men are represented by the Indianapolis
law firm Price Waicukauski & Riley LLC. Their attorney, Henry J. Price, says they were fraudulently deceived by Conseco
managers, who he says inflated the company's reported profits in 1999.

"Did Conseco defraud Mr. Murray and Mr. Massey, just like they defrauded everybody else, and ended up in bankruptcy?"
Price asked rhetorically in an interview. "That's what we're entitled to have a jury determine."

Conseco filed for bankruptcy reorganization in December 2002, rendering its stock worthless. The loan borrowers failed to
repay their debts to their bank lenders, so Conseco, which had guaranteed the loans, settled up with the banks during bankruptcy.

Months after Conseco emerged from bankruptcy in September 2003, it sued the 11 largest borrowers to recover the money.

Hilbert took his case the furthest, appealing to the Indiana and the U.S. supreme courts. Both declined to hear his arguments.

But Massey has a weapon Hilbert didn't have, Price said. Hilbert could not claim the company defrauded him because he
was CEO when the stock-loan program was in effect.

Massey, an outside director of the company, can claim he bought and held Conseco stock based on faulty financial information
provided by the company's executives.

Massey, 73, spent 35 years in the banking industry. He was CEO of Indianapolis-based Merchants National Bank for six years
until 1992, when the bank was sold to Cleveland-based National City Corp.

Alleging fraud

Massey has some evidence for his fraud claim. In April 2000, Conseco shocked Wall Street by announcing it had overstated
its 1999 profits by $368 million because of a mistake in projecting the value of financial instruments known as "interest-only
securities." The disclosure led to the departure of Hilbert and Chief Financial Officer Rollin Dick two weeks later.

The U.S. Securities and Exchange Commission later accused Dick and Conseco Treasurer James Adams of improper adjustments
to the value of the securities. The case was settled in July 2006. Dick and Adams admitted no guilt but agreed to pay fines
of $110,000 and $90,000, respectively.

The Indiana Court of Appeals, in a ruling on Jan. 22, said Massey cannot claim he was defrauded because he conducted no "reasonable
investigation" to verify the truth of Conseco's financial statements. Since Massey was on the audit committee of
Conseco's board of directors, the three-judge panel wrote, he had a duty to know the true state of the company's finances.

But Massey's attorneys say Indiana law and court precedent give directors the right to rely on the financial reports
provided by company management, without requiring them to conduct their own investigations.

"If left uncorrected, the Court of Appeals' ruling would impose on all directors a duty to investigate that goes
far beyond the reasonable realities of corporate governance," wrote Carol Nemeth, an attorney for Massey, in a brief
to the Indiana Supreme Court.

Hamilton County Judge Steve Nation, who ruled against Massey in June 2006, said Massey could not claim fraud because he refinanced
his loan agreements in November 2000–seven months after Conseco's financial misstatements came to light.

Nation's ruling found that Massey had to repay the interest on the bank loans, which Conseco paid on his behalf. That
money totaled $4.4 million in 2002. With default interest, the tab now stands at $8.5 million.

Price said Nation "made a mistake of law." He declined to make Massey available for comment.

Judge Dennis J. Burke, of Cook County, Ill., took the same position as Nation. He rejected all of Massey's claims, including
his fraud argument, and declared Massey must repay Conseco for the principal loans he borrowed to buy stock. Those loans totaled
$15.2 million in 2002. With default interest, they now stand at more than $29 million.

"It's particularly significant because we now have judgments that exceed what he and his wife have," said Oslan,
Conseco's attorney.

Oslan said Conseco is preparing to argue "fraudulent transfer" claims against Massey and his wife, Margaret, in
December. That trial would happen before Judge Nation in Hamilton County.

Oslan said Massey has transferred most of his wealth to his wife in an attempt to shield those assets from Conseco. Most
other stock-loan borrowers did the same, but all settled before those claims were fully heard in court.

No settlement talks

Oslan said Conseco and Massey have had no settlement discussions since last year.

"We have repeatedly told him, over the last four years, that his course would result in economic devastation to his
family. But he has continued to thumb his nose at us," Oslan said.

Meanwhile, Conseco is also tussling with Murray, but has failed to get a ruling on its claims. Murray's case is pending
before Judge Larry J. McKinney in U.S. District Court in Indianapolis.

Murray, 68, was the second-largest borrower behind Hilbert. If a judge rules against him, several years of default interest
would inflate his debt to more than $220 million.

But Conseco's ability to actually cash in assets has been difficult. Attorneys' fees haven't been disclosed,
but have consumed much of the collected assets.

Conseco's attempts to sell Hilbert's Carmel mansion have been tripped up recently by troubles in the credit markets.
Failure to secure financing has scuttled more than one offer, including an unidentified woman represented by Carpenter Realtors.

In November, she reached an agreement with Conseco to buy the mansion. But the deal was never closed.