Back to DeFillippo:

As for the allegation that there was some secret agreement between Prudential and the VA, the use of the Alliance Account was, as Evans reports, done with the approval of the VA. From the outset, the use of Alliance Account as the lump-sum option was disclosed to beneficiaries in the letter they receive prior to selecting a payment option.
I think Bloomberg accurately reported on the deal. Yes, it was done with the approval of the VA, as any deal with the VA would have to have been. But what Bloomberg reported on September 14 was that documents obtained through a Freedom of Information Act request disclosed an amendment to Prudential’s contract with the VA that had been put through a year ago, on September 1, 2009, which in turn:


…ratified another unpublicized deal that had been struck between the insurer and the government 10 years earlier—one that was never put in writing….This verbal agreement in 1999 provoked concern among top insurance officials of the agency, the documents released in the FOIA request show…

And, according to Bloomberg, the original 1965 contract between Prudential and the VA:
“….says any alternations must be made in writing.”

That’s secret.

When I talked to Bloomberg editor Neumann, who subsequently was given permission to talk to me, he said that the VA was asked whether it or Prudential had publicly announced the change. “We gave them a whole range of questions. ‘Did you say it in any form? Did you do a press release or inform Congress?’” The gist of what VA attorney Dennis Foley said was “this is how these types of contract changes are made,” said Neumann.

Since the Bloomberg stories ran, a news story from the American Forces Press Service, a news service run by the Department of Defense, surfaced that, in a backhanded way, could be said to have announced the deal. The story, which is the equivalent of a DOD press release, ran in October 1999 to announce a related change the program. It said:

Recent changes to the Servicemembers’ Group Life Insurance program should ease the burden on beneficiaries immediately following a service members death.

Since June 1999, benefits are immediately placed into interest-bearing checking accounts rather than lump-sum checks mailed to beneficiaries, which was the previous practice. Now, beneficiaries receive a checkbook for an Alliance Account set up by Prudential, which runs the program.

‘This is important because it relieves the immediacy on the part of the beneficiary to find something to do with that money,’ Navy Capt. Elliott Bloxom said during an interview.

Neumann said the Bloomberg team was unaware of the DOD news service story. DeFillippo, who sent it to me, said even he only saw it long after the series had run. He found it linked to in one of the comments on Chittum’s original post about the series. Neumann also said no one interviewed in the course of reporting the series had ever mentioned the article and that it doesn’t undo the fact that neither the VA nor Prudential announced the agreement when it was made.

I agree. Granted, the fact that there was a DOD news service story about the change suggests there was no great effort to keep it secret. But going back to my point about more disclosure being better than less, it would have been good to announce that the program was being changed when it happened. And, as a VA lawyer acknowledged in a story, the contract change should have been done in writing. That’s a no-brainer.

The spread

Here is another point that apparently didn’t get made to Evans and Neumann. DeFillippo said in an e-mail to Hugh Son, a Bloomberg reporter who writes about insurance, which DeFillippo shared with me after our initial interviews about his complaint:

The Alliance Account assets constitute less than 1 percent of our General Account assets and the rate that we earn on the Alliance Account assets is not comparable to rates earned on the General Account as a whole.

Neither Neumann nor DeFillippo found any record that that point was in the e-mails exchanged after DeFillippo’s and Evans’ conversations became “very contentious,” in DeFillippo’s words.

Martha M. Hamilton , CJR's Audit Arbiter, explores complaints about fairness, accuracy, and other issues arising from business-news stories. Send possible story ideas her way at the link on her name. A former reporter, editor, and columnist at The Washington Post, she is a writer and editor for PolitiFact.com.