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NEW YORK -- When Lloyd's of London recently published a disclaimer denying business relationships with a California financial company and an Aruba insurer, it barely hinted at the tangled web of transactions and unusual cast of characters involved.
The disclaimer, published last Monday, simply said that Lloyd's had never written insurance or reinsurance backing notes and performance bonds issued by The Kentfield Group L.L.C. and Berkston Insurance A.V.V.
The details, though, are intriguing.
Kentfield, with an office in Santa Cruz, Calif., is headed by David Bowman. Mr. Bowman was indicted earlier this year on federal charges that he used Kentfield to sell more than $500,000 in fraudulent promissory notes insured by Berkston and supposedly reinsured by Lloyd's. He has pleaded not guilty to the federal charges.
Aruba-domiciled Berkston -- whose 1996 interim financial statement features an allegedly phony audit opinion -- is operated by Richard F. Vucenic through his Lauderhill, Fla., company, Surplex International Ltd.
The Florida Insurance Department in 1994 ordered Mr. Vucenic to stop transacting insurance in the state after finding that he had placed business with two other offshore insurers that later collapsed. He is a former Michigan insurance agent whose license there was revoked in 1990; neither Mr. Vucenic nor Surplex is currently licensed as an agent or broker in Florida, an Insurance Department spokeswoman said.
Along with the federal proceedings, the Santa Cruz County district attorney's office has launched its own criminal investigation of the Kentfield notes and has seized Kentfield records, officials confirm.
Meanwhile, Lloyd's also is investigating another false claim that it wrote performance guarantees covering intended gold shipments by a Nevada company called Minerais Barexor USA Inc.
Mr. Vucenic acted as an intermediary on the purported Lloyd's placement, as did Peter Stewart Associates Ltd., a U.K. broker, court filings say. Federal prosecutors in Sacramento, Calif., earlier this year indicted Andre Cutress, a former Peter Stewart director, on charges that he produced fraudulent documents evidencing the purported Lloyd's coverage and collected thousands of dollars of Minerais premiums.
Mr. Cutress said in an interview that he was unaware of the indictment. He also denied wrongdoing and said he actually placed the Minerais coverage with Berkston.
Mr. Vucenic could not be reached.
What little information is available on Berkston may not inspire confidence among potential policyholders.
Reportedly formed in Oranjestad, Aruba, the insurer circulated a 1996 financial statement that showed revenues of $1.1 million for a six-month period ending May 5, 1996. The total includes $740,448 in earned premiums and $379,781 in interest income.
An accompanying interim balance sheet, however, shows no reserves and no liabilities. The balance sheet reports that Berkston has $23.3 million in assets, consisting of $114,000 in cash and $23.2 million in "certificates of deposit" that are not described further in the statement.
The Berkston statement also includes what appears to be an unqualified audit opinion from Peter Benson Malick, a certified public accountant in Woodland Hills, Calif.
In an interview, however, Mr. Malick said he never audited Berkston. Mr. Malick said Mr. Vucenic contacted him about a potential audit but first asked him to provide a sample unqualified opinion letter.
Mr. Malick said he sent Mr. Vucenic a sample letter stamped "tentative -- subject to change" but that the letter later surfaced on Berkston financial statements with the stamp removed.
"I never performed any services whatsoever for these guys other than attempting to get hired," he said.
During 1996, Berkston bonds were being marketed by MGA Bonding & Assurance Services Inc., a now-defunct Phoenix agency. In an Aug. 27, 1996, letter to MGA Bonding, Mr. Vucenic claimed Berkston "has negotiated reinsurance contracts" with several widely known reinsurers, including General Re Corp.
A General Re official, though, said none of the company's U.S. reinsurance units assumed any business from Berkston.
Two former officers of MGA Bonding, David Novick and Joel Wisse, pleaded guilty last year to federal charges that they helped generate false documents to support bonds written for contractors working for the U.S. Army Corps of Engineers and the U.S. General Services Administration. The charges did not involve Berkston.
The Kentfield controversy surfaced in May, when a federal grand jury in Sacramento, Calif., indicted Mr. Bowman, a Kentfield principal.
According to the indictment, Mr. Bowman earlier this year organized seminars at which investors were solicited to buy Kentfield promissory notes purportedly backed by Lloyd's guarantees.
When a Lloyd's official contacted Mr. Bowman in March, Mr. Bowman explained that Berkston was issuing performance bonds to Kentfield and that Berkston had obtained Lloyd's backing through Peter Stewart Associates of Beckenham, Kent, and London-based Lloyd's broker Edgar Hamilton Ltd.
The Lloyd's official told Mr. Bowman on March 2 that Lloyd's was not involved in the coverage and that Lloyd's had confirmed with Edgar Hamilton, Peter Stewart and Berkston that they had not obtained any Lloyd's coverage, the indictment says.
Three weeks later, though, Mr. Bowman told an investor that Kentfield's notes were guaranteed by Berkston, which he said was 100% reinsured at Lloyd's, according to the indictment, which charges Mr. Bowman with mail fraud.
Those involved in the controversy offer various accounts of what happened.
Officials of Edgar Hamilton and Peter Stewart -- including Peter Stewart Chairman Peter Bruce and Mr. Cutress -- say they had never heard of Kentfield until they were contacted by Lloyd's about the purported Lloyd's placement.
Mr. Bruce also said that Mr. Vucenic confirmed in a July 9 phone conversation that Peter Stewart never placed any reinsurance for Berkston on the Kentfield notes.
However, Paul B. Meltzer, a Santa Cruz lawyer representing Mr. Bowman, provided a copy of a May 13 letter from Mr. Vucenic to Mr. Bowman in which Mr. Vucenic appears to confirm that he placed reinsurance for the "bond program" with Lloyd's through Peter Stewart and Edgar Hamilton.
"Berkston represented that they had reinsurance through Lloyd's of London, and my clients David Bowman and Kentfield Group paid for that insurance," Mr. Meltzer said.
Mr. Bowman, who was released on his own recognizance after pleading not guilty, could face a maximum of five years in jail if convicted on the mail fraud charge.
Shortly before the Kentfield situation erupted, some of the same people were involved in a separate controversy over purported Lloyd's performance guarantees covering Nevada-domiciled Minerais Barexor, described as a gold mining company.
In February, a Sacramento federal grand jury indicted Mr. Cutress of Peter Stewart on three counts wire fraud. Prosecutors charge that between 1996 and this year, Mr. Cutress defrauded Minerais of at least $25,000 in premiums, falsely claiming he had placed coverage at Lloyd's guaranteeing Minerais' delivery of gold to its customers and even claiming that Peter Stewart had binding authority for Lloyd's underwriters.
Mr. Cutress continued to confirm the purported Lloyd's coverage even after he acknowledged to a Lloyd's investigator that no such coverage was in place, the indictment says.
Mr. Vucenic acted as an intermediary between Minerais and Peter Stewart, the indictment says, and one of the three wire fraud counts against Mr. Cutress is based on a fax from Mr. Vucenic to Minerais regarding premium payments to Peter Stewart. Mr. Vucenic is not named as a defendant.
Those involved again offer differing accounts of what happened.
Dan Geiger, chief executive of Minerais, said MGA Bonding first offered to place the coverage with Berkston but that Minerais decided against it. Mr. Geiger said a business partner of Kentfield's Mr. Bowman then introduced him to Mr. Vucenic, who proposed arranging coverage at Lloyd's through Mr. Cutress.
Mr. Cutress, however, says he handled two bond deals for Minerais, one written by Berkston and the other -- never completed -- to be written by another insurer.
Peter Stewart officials acknowledge receiving $95,000 in Minerais premiums, which they say were divided among Peter Stewart, Mr. Vucenic and Ian McGuire. Mr. Cutress described Mr. McGuire as a longtime business acquaintance who introduced him to Mr. Vucenic.
Mr. McGuire -- who could not be reached -- was one of several brokers who handled a fraudulent reinsurance placement in the mid 1980s that bilked Occidental Petroleum Co. of $22.5 million (BI, Feb. 10, 1986)