Wednesday, June 28, 2017

The Source of Michael Arlen Davis' Fortune

Leonard "Notorious BIG Shady" Davis
Michael Arlen Davis (MAD) is a rich man. Inquiring minds want to know how that came to be.  The answer will likely surprise you.  MAD's dad, Leonard Davis, was a co-founder of AARP - though it will take some research to uncover that fact.

Old Leonard put up the original $50,000 to start AARP, but his motivations might not have been to help the elderly.  According to Charles R. Morris, author of a book chronicling AARP's history, Leonard Davis used the organization as a front for selling overpriced insurance to the elderly--its political activism on behalf of retired people largely a cynical effort to establish credibility.

Shortly after co-founding AARP, Leonard Davis created Colonial Penn, a for-profit insurance company under his control:

"Although the Colonial Penn companies were theoretically separate from AARP, Davis, to protect his marketing bonanza, wrapped Colonial Penn tentacles firmly around every aspect of the operation. According to a 1977 lawsuit by former executive director, Harriet Miller, Davis had carefully insulated the board from AARP's financial operations, and at the same time he had made them almost utterly dependent on Colonial Penn...In the early 1970s, [Leonard] Davis shored up his control by introducing a new law firm as AARP's outside counsel. The firm...maintained offices in the same Madison Avenue building that house Colonial Penn's New York offices, ARRP's local offices, and Davis's personal offices and those of the Davis Family Foundation...

AARP, which to all appearances was a dowdy nonprofit organization serving the elderly, had been turned into a money-minting machine - it was the alchemists trick, said one reporter, converting base metal into gold.  From 1967 to 1976, Colonial Penn's revenue had grown a stunning tenfold, from $46 million to $445 million. Pretax income had grown from almost nothing in 1967 to more than $50 million. Almost all of its revenues - 92% of its health insurance revenues - came from AARP members. An analysis by Forbes magazine in 1976 showed that Colonial Penn, measured by average 5-year return-on-capital, was the most profitable company in the country.

Davis, with about 19.5% of the company, was the controlling shareholder. The market value of his shares, depending on the ups and downs of the stock market, fluctuated between $90 million and $125 million in 1975 and 1976. And that did not count the large blocks of stock Davis had already unloaded. In 1970-72 alone, the Davis family realized more than $80 million from the sale of Colonial Penn stock."
The lid was blown off the scam in 1978, when Andy Rooney and CBS's 60 Minutes did one of their famous sting operations. 
"The 60 Minutes expose of AARP which aired on May 14, 1978, at the seven o'clock prime time news hour under the title "Super Salesman," was devastating.  A former Colonial Penn executive remembers it was a turning point in the company's fortunes. AARP and Colonial Penn made all the wrong tactical moves. They tried stonewalling Rooney...In any case, AARP national officers, fed up with the Colonial Penn domination, were quietly feeding Rooney information and rumors...The AARP volunteers and members Rooney did manage to talk to clearly had no idea of the role Colonial Penn played in their organization. Most tellingly, AARP members had no idea that editorial like articles in the health insurance on health insurance in modern maturity were actually Colonial Penn advertisements...
The Rooney show marked the beginning of the end of the Colonial Penn/AARP relationship.  In a related development,  the postal service at begun a serious investigation into the Colonial Penn/AARP abuse of the nonprofit mailing privilege...the investigation continued until 1981 and resulted in the recommendation to the US District Attorney for a criminal fraud action against AARP and Colonial Penn...
Although Colonial Penn's fingerprints stayed on the organization for a long time...[AARP] began a serious redirection in the 1980s...While Andrus's [Davis' co-founder] picture is everywhere and she is quoted frequently, I could not find a single mention of [Leonard] Davis anywhere. The former honorary president, whom the official histories once billed as Andrus's closest collaborator is now a non-person."
Hyperbole, Leonard had hair

Read More: Leonard Davis, Andy Rooney, and the CBS 60 Minutes Expose

Read More: The AARP--Exposing Leonard Davis for what he was

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