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LOS ANGELES-A managing general agent linked to the late con man Alan Teale is facing charges that he used a fraudulent Irish insurer to bilk California policyholders in the early 1990s.
A federal grand jury last week indicted Lawrence R. Hoehne on three counts of mail fraud for his operation of Trelawney Insurances Ltd. of Ireland, which Mr. Teale at one time controlled.
Mr. Hoehne submitted bogus Trelawney financial statements to the California Insurance Department, failed to disclose Mr. Teale's ownership of the insurer and promoted Trelawney knowing that it was not licensed by the Irish government to write direct insurance, the indictment alleges.
Mr. Hoehne will be summoned to answer the charges, but an arraignment had not been scheduled as of late last week, according to Marcellus McRae, assistant U.S. attorney.
If convicted, he faces five years in jail on each fraud count.
Richard Nagby, a La Mesa, Calif., lawyer who has represented him in the past, said: "I never knew Mr. Hoehne to be a criminal. (The indictment) makes no sense to me."
Mr. Hoehne could not be reached.
Mr. Hoehne formerly was vice chairman of International Insurance Underwriters of Washington State Inc., a Lynnwood, Wash., MGA for several offshore insurers that ultimately failed to pay claims.
In 1993, California regulators issued a cease and desist order against IIU, Mr. Hoehne, IIU Chairman John D. Nordstrom and IIU President Robert Thul. Regulators charged that IIU illegally used California surplus lines brokers to produce tens of millions of dollars of auto and other business for half a dozen offshore companies (BI, March 15, 1993).
Among those were United States & Continental Reinsurance Co. of Belgium and Trelawney, both controlled by Mr. Teale.
When the California department won a court injunction against US&C in 1992, a California brokerage controlled by Mr. Nordstrom rolled its business over into Trelawney, documents show.
At about the same time, another of Mr. Hoehne's companies, Orca Holdings Inc., agreed to acquire Tre-lawney, which had been formed in Ireland in 1990 by a representative of Mr. Teale's Corporate & Marketing Insurance Consultants Inc.
In a 1992 interview, Mr. Hoehne confirmed the acquisition plan but declined to identify Trelawney's owners. He denied that CMIC owned the insurer.
Trelawney's 1990 financial statement reported a total of $9.6 million in assets, including $9 million in "marketable securities" that were not described further.
By mid-1992, as Orca moved to take over Trelawney, Mr. Hoehne reported to the California department that the insurer's assets included $10.5 million in over-the-counter stocks. Among these was stock in Monoclonal Medical Inc., which also appeared on the balance sheets of other Teale-controlled companies and which was deregistered by the Securities and Exchange Commission in August 1992.
Trelawney had acquired all of the stocks from Forum Rothmore Inc., a Colorado stock vendor. A federal jury in Philadelphia earlier this year convicted two Forum Rothmore officials, Philip A. Rennert and Nolan L. Mendenhall, of "renting" worthless penny stocks to Mr. Teale to prop up his network of bogus offshore companies.
Also convicted were Michael L. Miller, a Beverly Hills, Calif., lawyer who advised Forum Rothmore; and David R. Yeaman and George R. Jensen, promoters or owners of the penny stock firms involved in the deals. A sixth defendant, Jeffrey C. Hays, pleaded guilty to conspiracy charges before the trial (BI, Feb. 12, 1996).
The federal indictment of Mr. Hoehne charges that through at least September 1992, he worked with others in a scheme to defraud Trelawney policyholders. The indictment alleges that Mr. Hoehne:
Submitted fraudulent Trelawney financial statements to the California department knowing that they included "rented" and overvalued securities.
In renting securities, an insurance company obtains the right to use the stocks on its balance sheet in exchange for a fee paid to the stocks' actual owner. Statutory accounting rules, however, deny credit for assets that are not owned by an insurer in its own name.
Misused Trelawney premiums to cover other expenses, including rental fees for assets used by other entities that are not named in the indictment.
Mr. Hoehne allegedly diverted these premiums knowing that Trelawney lacked sufficient assets to pay claims.
Failed to disclose that Trelawney was controlled by Mr. Teale, a fact that would have prompted regulators to take a closer look at the insurer. Mr. Teale pleaded guilty in 1993 to defrauding policyholders with more than 20 offshore insurers, including Trelawney. He was sentenced to 17 years in prison but died in jail the next year (BI, April 18, 1994).
Promoted Trelawney as a direct insurer in California knowing that it was licensed only as a reinsurer in Ireland.
In the 1992 interview, Mr. Hoehne said he believed that if Trelawney's direct underwriting "is acceptable to a jurisdiction like California, that's an acceptable situation."
Caused a surplus lines broker to certify that he had reviewed Tre-lawney's financial stability, reputation and integrity, knowing that the broker had not reviewed Trelawney's records.
Told the California department in 1992 that Trelawney was voluntarily withdrawing from the state because of tightened surplus lines regulations, when he knew the insurer never was eligible to write business there in the first place.
"As a result of the fraudulent scheme, Trelawney ultimately failed to pay a significant number of claims arising under policies for which it had collected premiums," according to the indictment, which does not estimate the total of unpaid claims