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NEW YORK-Two years after the collapse of broker Underwriters Financial Group Inc., three former UFG officials and another man are facing charges that they diverted more than $18 million from clients and premium finance companies in a desperate effort to keep the brokerage afloat.
A federal grand jury this month returned an 82-count conspiracy and fraud indictment against former UFG Chairman Donald Ferrarini, former Executive Vp Bruno Rumignani and Everett Vieira, a UFG-employed financial consultant. Also named is A. Michael Kagan, a former senior vp of one of the defrauded premium finance companies.
The indictment-which levels varying charges against each of the defendants-generally alleges that they conspired to embezzle client premiums and arrange fraudulent premium finance loans in the names of policyholders who knew nothing about the loans.
Mr. Ferrarini and Mr. Rumignani also are charged with defrauding UFG stockholders and filing bogus financial statements with the Securities and Exchange Commission.
In a separate indictment, Mr. Ferrarini also is charged with bank fraud for allegedly lying to a mortgage lender about support and other payments he owed his ex-wife. A New York bank loaned Mr. Ferrarini $349,600 for a Manhattan apartment after he gave the bank a doctored copy of a separation agreement that concealed his obligation to pay his ex-wife $100,000 a year for several years, the indictment alleges.
Mr. Ferrarini was arrested Sept. 19 and released after posting a $500,000 bond and surrendering his passport, according to Assistant U.S. Attorney Robert S. Khuzami. The others were not arrested and were ordered to appear in court; Mr. Khuzami would not say why only Mr. Ferrarini was arrested.
All of the defendants were scheduled to be arraigned last week, and all were expected to plead not guilty. None could be reached for comment.
Each of the multiple conspiracy, mail, insurance and securities fraud charges carries a statutory maximum of five or 10 years in prison, though actual sentences-if the men are convicted-would be lower under federal sentencing guidelines.
Mr. Ferrarini also faces a maximum 30-year prison term if convicted on the bank fraud charge.
Formerly known as B.R.I. Coverage Corp., UFG was privately held by its top officers until 1992, when it became a public company in a merger with Chippewa Resources Corp., an oil and gas concern. The merged company divested its oil and gas assets and continued the brokerage business with former B.R.I. partners as top officers and major shareholders (BI, Sept. 27, 1993).
Struggling with financial problems from the start, UFG developed a series of grandiose takeover plans, including a proposed acquisition of brokerage giant Frank B. Hall & Co. The Hall deal was to be financed in part with UFG's stockpile of "Kwajalein guarantees," described as notes purportedly backed by future U.S. government payments owed to property owners on a Marshall Islands atoll (BI, Aug. 14, 1995).
None of these deals panned out, and UFG's problems turned critical in 1995, when its treasurer jumped to his death from UFG's 11th floor offices and the company was charged in a civil racketeering suit with defrauding CPF Premium Funding Inc. of Lake Success, N.Y., on phony premium finance loans.
UFG and a brokerage subsidiary later filed for bankruptcy amid an investigation by the FBI and the U.S. Attorney's office in New York.
That investigation last year yielded two guilty pleas: Mark Bailine, UFG's former vp-finance, and Frank Palumbo, its former controller, pleaded guilty to conspiracy charges and agreed to cooperate with prosecutors (BI, Feb. 26, 1996).
Last week, prosecutors announced a long-awaited indictment of UFG's top managers.
According to the indictment, Messrs. Ferrarini, Rumignani, Vieira and Kagan conspired in a series of increasingly risky schemes to conceal UFG's financial troubles by misappropriating millions of dollars from clients and premium finance companies between 1993 and 1995.
Mr. Ferrarini and Mr. Rumignani, for example, oversaw UFG's theft of more the $6 million in client premiums that UFG falsely reported as income, prosecutors charge. UFG allegedly used some of the stolen money to cover payments to insurers of previously diverted premiums.
UFG also fraudulently siphoned about $12.7 million away from three premium finance companies: CPF Premium Funding; Imperial Premium Finance Inc. of Edison, N.J.; and New York-based A.I. Credit Corp., a unit of American International Group Inc.
In these schemes, UFG allegedly submitted phony finance applications on behalf of clients, forging client signatures and sometimes seeking two loans from separate finance companies on the same policy.
The indictment charges, for example, that:
Messrs. Ferrarini, Rumignani and Vieira obtained $2.8 million in fraudulent loans from Imperial on behalf of two clients who never sought the loans. Mr. Rumignani or another UFG employee forged the signature of one client company official on a premium finance agreement, the indictment alleges.
The three UFG officials and Mr. Kagan, the CPF Premium Funding senior vp, conspired to obtain $4.5 million in fraudulent loans from CPF on behalf of 18 client companies.
When CPF became suspicious about the loans, Mr. Rumignani and one or more UFG employees prepared bogus authorization letters from clients using client letterhead and forging client signatures, the indictment alleges.
CPF later approved another $3.2 million in fraudulent loans to eight other UFG clients, prosecutors say.
When one UFG client received a notice of a loan from Imperial and questioned UFG, a UFG officer said the loan was a "mistake" and asked the client to send him the Imperial payment coupon book. A UFG employee later was ordered to make the monthly payments to keep the client from discovering that UFG had retained the loan proceeds, the indictment says.
Mr. Ferrarini and Mr. Rumignani had a UFG employee obtain two signed premium finance agreements from one client-one for CPF and one for Imperial-telling the client that UFG needed both agreements to obtain quotes from the lenders. UFG then got loans from both finance companies and pocketed the proceeds of one of the loans, prosecutors say.
The four defendants applied for two loans to finance premiums on one of UFG's own insurance policies and received $104,800 from CPF and $117,507 from Imperial. UFG then canceled the insurance policy and kept the loan proceeds.
Mr. Kagan encouraged CPF to approve the fraudulent UFG loans. In return, UFG paid him $425,000, disguising $375,000 of the payments as "consulting services."
Prosecutors also charge that Mr. Kagan himself obtained $284,349 in fraudulent loans from CPF, four of them purportedly on behalf of clients of KBC Systems Inc., another company Mr. Kagan operated.
Throughout the alleged schemes, UFG kept two sets of accounting records, one showing actual income and accounts payable and the other doctored to conceal the allegedly fraudulent transactions.
Several of UFG's SEC filings for 1993 through 1995 also overstated UFG's income and understated its liabilities, prosecutors allege, charging Mr. Ferrarini and Mr. Rumignani with making false statements to the SEC and securities fraud.
In 1994, UFG raised about $4 million in a private placement of preferred stock, and the company and its top officers later were sued by shareholders who charged they were misled about UFG's finances.
Not mentioned in the indictment is Howard Miller, a former UFG senior vp who signed the SEC filings with Mr. Ferrarini and Mr. Rumignani.
Mr. Khuzami, the assistant U.S. attorney, declined to comment on whether Mr. Miller is cooperating with prosecutors. Mr. Miller and his lawyer could not be reached.