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ORLANDO, Fla.-Financial guarantees from a small Antigua insurance company may not be the most impressive form of financial security, but backing from some of the world's largest reinsurers helps.

Unless, of course, the reinsurance is an illusion.

That is the problem facing investors who bought $5 million in promissory notes issued by a Florida real estate developer and guaranteed by Tangent Insurance Co. Ltd. of Antigua.

Documents for the offering of unregistered Sweetwater Development Corp. notes reported that Tangent's guarantees were reinsured by several internationally known reinsurers, including a London unit of Kemper Reinsurance Co. and Lloyd's of London underwriters.

The reinsurers, however, say they know nothing about any such coverage. Several have demanded that Sweetwater and Tangent stop using the reinsurers' names and have complained to insurance regulators in Florida and Delaware.

Sweetwater Vp Jeffrey L. Klein says the developer was only passing along reinsurance information provided by Tangent representatives.

A Tangent management official blames the insurer's agents for mistakenly providing incorrect information and says the agents have been told to stop.

Other aspects of the note offering, though, might also have given investors pause, documents show.

Tangent's U.S. claims representative, for example, is a disbarred lawyer who served a jail term in the 1980s for embezzling client funds.

Officials of Tangent's management company also have been targets of previous regulatory action or have operated other insurance companies that failed, including the defunct Victoria Insurance Co. of Georgia and Regency Insurance Co. Ltd. of the Turks & Caicos Islands.

The Sweetwater offering also was not Tangent's first foray into financial guarantees: The insurer last year guaranteed millions of dollars of similar unregistered promissory notes sold by Legend Sports Inc., another Orlando-area company. Florida securities regulators have since charged that the Legend notes and a subsequent stock offering should have been registered and that Legend has defrauded investors in an illegal Ponzi scheme.

Legend Sports denies the charge and is suing Florida State Comp-troller Robert F. Milligan to enjoin regulatory action.

Mr. Klein, who acted as a consultant and corporate agent for Legend Sports before joining Sweetwater, said state regulators have not challenged the legality of Sweetwater's note sales.

Kevin D. Rosen, assistant general counsel with the Florida Department of Banking and Finance, declined to comment on Legend Sports or Sweetwater.

Tangent has a short but complex history and until last year was in fact covered under a property treaty by some of the reinsurers now complaining about the Sweetwater offering.

Incorporated in Antigua in 1992 as World Wide Insurance Co., Tangent changed its name in May 1995 when it came under the management of Sussex Insurance Group.

The London office of Sussex is headed by Charles Gordon-Seymour, former president of Atlanta-based Victoria Insurance Co., which collapsed in 1988.

Mr. Gordon-Seymour allegedly helped to bankrupt Victoria after taking control of the insurer from convicted swindler Alan Teale, according to testimony at a 1991 U.S. Senate hearing on the failure (BI, April 29, 1991).

Sussex's Bridgetown, Barbados, office, which Mr. Gordon-Seymour said handles day-to-day management of Tangent, was headed until last summer by Eamon Baird. In 1994, the U.S. Department of Labor sued Mr. Baird over his role in placing reinsurance for a fraudulent union health benefit trust with two offshore insurers that later failed to pay claims (BI, May 18, 1992). Mr. Baird also previously worked as a producer for International Casualty & Surety Co. Ltd. of New Zealand (BI, March 7, 1994).

Mr. Baird, who could not be reached for comment, left Sussex last July, and Gary Pigot now heads the Barbados office.

In the early 1990s, Sussex managed Regency Insurance Co., whose directors included Mr. Gordon-Seymour and Simon J. Samuels, now a Tangent director.

Insurance regulators in the Turks & Caicos revoked Regency's license in 1995 for various reasons, including questions about its audited financial statements and Regency's failure to pay reinsurance claims from Caribbean hurricane losses, according to Colin Holder, superintendent of insurance.

Mr. Gordon-Seymour said in an interview that Regency surrendered its license because of the "negativeness of its domicile" and complained that Regency was the victim of a "witch-hunt" by Turks & Caicos regulators.

After the Regency shutdown, Sussex moved its business into Tangent, management company documents show.

Tangent appears to have grown quickly: While it had only $267,900 in total assets at year-end 1994, assets had grown to $54.3 million by mid-1995, after Sussex assumed control, the insurer's financial statements show.

In a June 30, 1996, statement, Tangent reported writing net premiums of $9.7 million and showed total assets of $54.8 million, including $46.7 million in bonds and $6.1 million in "marketable securities" that are not described further.

Sussex documents obtained by Business Insurance say Tangent holds sizable stakes in Fortune 500 companies, such as Lockheed Martin Corp., Raytheon Co., Tenneco Inc. and Bank of New York. The documents describe the bonds only as treasury securities "in a spread of currencies, all of which are rated BBB or better."

Mr. Pigot said the bonds are U.S. government securities, but he and Mr. Gordon-Seymour both declined to provide further details, referring questions to Tangent's auditor, Merle S. Finkel.

Mr. Finkel said he could only respond to questions submitted in writing and approved by Tangent's management.

Tangent has in fact enjoyed support from international reinsurers: Kemper Re and GIO Insurance Ltd. of Sydney, Australia, confirmed that they participated on a property excess-of-loss reinsurance program that initially covered Regency and was shifted to cover Tangent in 1995. The program expired last July.

In addition, London broker Alwen Hough Johnson Ltd. last year placed marine excess-of-loss coverage for Tangent with Lloyd's underwriters and Cornhill Insurance, documents show.

This cover was later canceled from inception for non-payment of premium, sources familiar with the placement say. Mr. Pigot said Tangent disagreed with reinsurers over the deposit premium due in the policy period's first quarter.

Even the reinsurers actually involved with Tangent were apparently surprised, though, to find themselves identified last fall as backers of Tangent's financial guarantee business, documents show.

The guarantee business, only a small part of Tangent's book, is underwritten for the insurer by Beta Management Ltd., a Bahamas company that John K. McGarrity heads, Mr. Pigot confirmed.

Mr. McGarrity, a former president of Bermuda-based Amberco Brokers Ltd., did not return phone calls.

Tangent's U.S. claim representative on the guarantee business is Francis O. Clarkson Jr., a Charlotte, N.C., businessman. Mr. Clarkson, a former president of the Mecklenburg County, N.C., bar association, was disbarred in 1984 and later served a jail term for embezzling more than $460,000 in client funds, state bar association officials confirmed.

Mr. Clarkson did not return several phone calls seeking comment.

During 1996, Tangent initially wrote financial guarantees on promissory notes issued by Legend Sports, a company that develops and operates golf driving ranges in Florida.

The Legend notes had at first been guaranteed by Westwood Insurance Co. Ltd., another Antigua insurer, but Tangent later was substituted, according to James T. Staples, Legend's chairman.

Westwood, capitalized almost entirely with worthless World War II-era Philippine government notes, closed its Charlottesville, Va., management office late last year (BI, Aug. 12, 1996).

Legend's efforts to raise capital soon ran into trouble, though: The state banking and finance department last November issued a cease and desist order barring further sales of the promissory notes, finding that they should have been registered with the state.

Three weeks later, regulators issued a new cease and desist order after finding that Legend also was trying to sell unregistered preferred stock, including offering the stock in exchange for its outstanding promissory notes.

Legend quickly filed suit against the state comptroller in federal court in Orlando, arguing that the notes and stock are exempt from registration requirements and seeking to enjoin the regulatory action.

In court filings last month, the department said Legend had sold nearly 350 notes in 1995 and 1996 for a total of more than $16 million. A department analysis of one Legend checking account showed that $5.5 million from the note sales was deposited but that $1.4 million was then paid out to individuals-including Legend officers-and that almost 75% of the money went for purposes other than acquiring assets for the company.

Legend has said in its own court filings that it cannot pay its debts and expenses if it is not allowed to sell stock, meaning that the company is operating as an illegal Ponzi scheme, regulators charge.

A lawyer representing Legend could not be reached for comment. Mr. Staples declined to answer questions about the company in a phone interview.

Legend's motion for an injunction and the department's motion to dismiss the company's lawsuit are pending.

Meanwhile, Tangent last year also guaranteed another unregistered note offering by Sweetwater Development, a Delaware corporation based in Orlando and headed by President John W. Staples.

Mr. Klein, the Sweetwater vp, said John and James Staples are brothers. John Staples could not be reached; James Staples would not comment directly on any relationship.

Mr. Klein emphasized that Legend and Sweetwater are unrelated companies.

In offering documents dated last Sept. 5, Sweetwater said it was seeking to raise $5 million to buy a 215-acre site in Kissimmee, Fla., and build a "manufactured home community" for retirees.

Repayment on the promissory notes, the documents said, was guaranteed by Tangent and reinsured by Kemper Reinsurance London Ltd., GIO (UK) Ltd., Le Rocher Reinsurance Ltd. and QBE International Insurance Ltd.

Kemper Re and GIO soon found out about the offering and in late October and early November wrote to John Staples, Mr. Klein and Mr. Clarkson-Tangent's claims representative-demanding that they stop using the reinsurers' names.

Responding to GIO, John Staples said Sweetwater had mistakenly used an "outdated" reinsurer list and that the problem would be corrected.

Sweetwater then issued a supplement to the note offering dated Oct. 29, with a new list of Tangent reinsurers that included Lloyd's, Aetna Re-Insurance Co. (UK) Ltd., Skandia International Insurance Corp., AXA Reassurance and EXKO Excess.

The response to this list wasn't much better: Officials of Lloyd's complaints department demanded in December that Sweetwater and Tangent stop using the market's name, and a law firm representing Skandia made a similar demand, documents show.

Mr. Clarkson replied to Lloyd's last month, explaining that "agents working for (Sweetwater).*.*.may have inadvertently used the name of Lloyd's."

The protests apparently came too late to make a difference in the offering: Mr. Klein said the $5 million note sale has been completed.

He also said that Sweetwater was only using reinsurance information Mr. Clarkson and Beta Management's Mr. McGarrity provided.

"I only operate on the information I'm given, and have no basis to question it," Mr. Klein said.

Tangent's Mr. Pigot also said the lists were simply mistakes, conceding that even companies like Kemper Re that actually reinsured Tangent property risks would not have covered financial guarantee risks. Tangent has told its producers to stop providing any information on the company's reinsurance, he added.

"Anything we do should not be marketed on the back of our reinsurance," Mr. Pigot said. "I've gone to great lengths to nip this in the bud."

Tangent has new reinsurance treaties covering its property, marine and financial guarantee business, according to Mr. Pigot. He declined to name any of the current reinsurers.