X-Message-Number: 16427
Date: Mon, 4 Jun 2001 20:37:57 -0400 (EDT)
From: Charles Platt <>
Subject: Alcor and the Patient Trust Fund

Since it's important to me that I should never perpetrate factual
inaccuracies, and important to Michael Riskin that no one should doubt his
ethics or thoroughness when he did an audit of Alcor's finances back in
the early 1990s, Michael and I have been swapping messages trying to nail
down whether the Alcor patient care fund was in any way misused in 1992
and 1993, or whether any plans existed to misuse it. Our endeavor has been
far more difficult than it sounds.

For those who want to be spared the details (who can blame them?) I'll
begin with my conclusions.

1. At no time did I mean to imply that Michael had done anything less than
a thorough, honest job in his audit of Alcor's finances.

2. I stated in a previous post that I quit Alcor because I was unhappy
with the ways in which the patient care fund had been used. Michael
suggested that I was deliberately omitting other factors. This is not the
case. Everything I wrote during that period, either to CryoNet or via
email to Alcor people, specifically mentions fund issues as the cause of
my decision to leave.

3. The remaining question is: Was I right? Was the fund misused?

The remainder of this message is of historical interest only and has
nothing to do with current fund management at Alcor. The procedures and
the personnel have all changed. In particular, the fund is now a trust,
with many protections against misuse.

In 1992 or more likely 1993, I recall being shown a copy of Alcor bylaws
specifying that patient care funds should never be used to purchase real
estate. Michael has dug up the 1987 bylaws, which contain no such
provision. They only specify that if someone prepays for cryonics
services, those funds should not be invested in real estate.

I have spoken to four people, two of whom were Alcor directors at the
time. Both are adamant that the bylaws, or the patient care fund
guidelines, did prohibit investment of patient care funds in real estate.
One person actually claims that he was the one who worded the amendment to
the bylaws, prohibiting real-estate investments. Is his memory correct? I
don't know.  Could his amendment have been omitted from the bylaws by
accident? Yes. Another source confirms that Paul Genteman (who is no
longer with us, alas) wasn't always reliable about writing up the minutes
of meetings, let along transcribing modifications into the bylaws.

Is there any reference to this topic on CryoNet? Of course. Is it clear
and unequivocal? Of course not! The ways in which patient care funds
should or should not be used caused endless argument, and most of the
people doing the arguing were expressing opinions about the way things
_should_ be, rather than confining themselves to the precise wording of
Alcor's then-current documents, which were barely mentioned.

However, I did find a post which I wrote, quoting patient care fund
guidelines (which had been published in Cryonics magazine). This post
illustrates how complex the situation became. I'll quote from the post
(archived as cryomessage 0014.197 in the cryonics.politics section of
CryoNet), and hope to say no more on the subject. At this time, I simply
don't know whether some or all of my complaints were valid, because I
never received a reply to my list of concerns. Obviously, at the time, I
felt that my complaints were very valid indeed. Also I knew other people
who were even more agitated by the situation than I was. This is why, a
couple of weeks ago, I referred in passing, here on CryoNet, to possible
past misuse of the patient care funds, as if it is a topic which everyone
knows about. There was so much fuss about it, 8 years ago, I figured it
was enshrined as a notorious topic--rather like Nixon and Watergate.
Recall that the original transgression in Watergate was minor;  someone
broke into an office. Recall also that the current administration has
policies, procedures, and personnel that are totally different from the
Watergate era. Thus, one should be able to refer to the Watergate saga
without upsetting anyone in government today, and we should be able to
refer to the fuss over patient care funds at Alcor in 1993 without
upsetting anyone in Alcor today. At least, that's how I see it. Am I
naive? Of course.

Here's the excerpt from the relevant message, which I quote merely to
support my previous statement that this was the issue which led me to quit
from Alcor. I am not claiming that everything I said, below, was proven to
be true. The argument was never settled conclusively.


Article IV of the Fund Policy states that the Board of Alcor
must appoint an Investment Committee of at least three
persons, all Alcor suspension members, none of them serving
as Officers of Alcor. The Fund Policy states: "The Investment
Committee shall have authority to manage the assets of the
Trust Fund." This seems clear enough: there should be a
committee which will have control of the fund.

However, the most recent Patient Care Fund Advisory Committee
resigned in 1992, after complaining that their advice had
been ignored. (Their resignation was announced in the
January, 1993 Cryonics magazine.) So far as I know, the
committee members have not been replaced. Is this not a
violation of Fund Policy?

I believe Carlos [Mondragon] himself made investment
decisions in the absence of the committee. Since he was an
officer of Alcor at the time, this too seems to violate the
policy which Carlos is pledging always to uphold.

Moving on through the Fund Policy, Article IV contains three
numbered paragraphs which limit the ways in which money may
be invested:

"1. An amount of capital equal to fifty times (50X) the
amounts of annual projected patient care expenses will be
held in interest-bearing investments which carry negligible
risk to the principal. All surplus income shall be similarly

"2. Where there exist capital sums in excess of the amount
described above, they may be invested in small risk income-
producing securities or moderate risk capital growth
investments up to a maximum of 20% of the total Trust Fund
with no single invested amount being greater than 5% of the
total Trust Fund. Any income or gain from these investments
is to be added capital.

"3. Investments in real property or useful commodities will
only be made if financial analysis demonstrates that the
resulting decrease in projected expenses is greater than the
income being generated by the principal to be used."

Let's take these points one at a time.

Paragraph (1) assumes that we should know what the projected
patient care expenses will be, because "The Officers of Alcor
will submit a comprehensive semi-annual projection of direct
patient care expenses and contingencies." Actually I don't
believe this projection has been computed, which is another
violation of Fund Policy.

Let's suppose, conservatively, that the annual projected
expenses of the patient care fund will be at least equal to
the expenses listed in Alcor's Financial Statement for 1992
(audited version, published in Cryonics magazine, May 1993.)
This sum is $53,064. If we multiply this by 50, as paragraph
(1) asks us to do, we get an amount greater than $2.5
million. Since this is more than the fund contains, I
conclude that ALL of the fund should be invested in
"interest-bearing investments which carry negligible risk to
the principal." If I have made an error, here, I hope Carlos
will direct my attention to it.

Even if the fund did contain sufficient money to allow a
proportion to be invested in "moderate risk capital growth
investments," according to paragraph (2), no more than 5% of
the fund is allowed to go in any one investment of this type.
So, if we consider the new building an investment which would
produce income (in the form of rents from tenants) as Carlos
suggests, no more than 5% of the fund may be put into it.

Even this 5% may not be legitimate, because according to
paragraph (3), the fund may only be put into real estate if
this will reduce projected patient-care expenses by an amount
GREATER than the income currently being generated by other
investments. But the Fund Policy demands a "financial
analysis" to prove this point. I'd like to see this analysis,
assuming we can also find a way of getting around the "no
more than 5%" rule in paragraph (2) and the restriction on
risk-bearing investments defined in paragraph (1).

I conclude that in three entirely separate ways, the Fund
Policy rules out the kind of real-estate investment that
Carlos is recommending. And in any case, Carlos shouldn't be
one of the people making that kind of an investment decision.
According to Fund Policy, there should be an investment
committee, none of whom are officers of Alcor. Since Carlos
is not an officer anymore, he is theoretically eligible to
serve on the investment committee; but he has not been
appointed to do so.

Let me now turn to Article I of the Fund Policy, which
describes how the fund may be used to pay expenses:

"Fund capital and income shall be spent only for direct
patient care expenses. Direct patient care expenses are
defined as cryogens, purchase and amortization of storage
equipment, storage equipment maintenance, floor space
charges, a fraction of emergency responsibility charges,
routine patient transfers, and legal expenses which may be
required to defend continued care of the patients and/or
maintain the integrity of the Patient Care Trust Fund."

If we look at the purchase of the new building as an expense,
rather than as an investment, some of the fund can be spent
on "floor space charges" for the patients. I assume that the
exact amount should be proportional to the square footage
actually occupied by the patients. I calculate that this will
be less than 5% of the total square footage of the new
facility which Alcor is considering buying.

Alcor's president, Steve Bridge, who is an honorable man, has
already expressed his willingness to spend 16% of the fund on
the new building. Does this mean I have misunderstood the
policy, or does it mean he is intending to violate the
policy, or does it mean he has not familiarized himself with
the policy recently, or does it mean he is expecting to
modify the policy? (Modification will require a two-thirds
vote of the Alcor directors.)

It's also worth mentioning, in passing, that Article I of the
Policy makes no mention of employee salaries. But according
to the audited Financial Statements, the patient care fund
spent more on salaries than it spent on nitrogen: $18,573 in
1992. I understand from Joe Hovey that this figure includes
all of Mike Perry's very modest annual income as patient
caretaker, plus a percentage of other staff salaries,
depending on how much time each member of the staff devotes
to patient-related activities. I imagine that this may be
justified, in part, as being the "fraction of emergency
responsibility (sic) charges" referred to in Article I. Yet
somehow I can't believe that this interpretation was intended
by the people who drew up the policy. Their description of
expenses was extremely specific. If they had intended the
fund to pay people's wages, surely they would have said so.

When I add up the ways in which the policy seems to have been
violated already, and I see the extent to which the policy
may be violated in future, I think perhaps I wasn't so wrong
after all, suggesting that there are no guidelines
controlling the ways in which the fund may be spent.
Certainly it seems that the guidelines are not being


End of quote, and end of topic, I hope.

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