BI’s Article search uses Boolean search capabilities. If you are not familiar with these principles, here are some quick tips.
To search specifically for more than one word, put the search term in quotation marks. For example, “workers compensation”. This will limit your search to that combination of words.
To search for a combination of terms, use quotations and the & symbol. For example, “hurricane” & “loss”.
ALBUQUERQUE, N.M. -- A New Mexico bank aided the operators of a bogus offshore insurer by allowing them to set up a trust account for policyholders using worthless or overvalued assets, the insurer's liquidator charges.
The Missouri liquidator of Meadowlark Insurance Co., a defunct Turks & Caicos Islands insurer, last month sued Sunwest Bank of Albuquerque, N.M., and its successor, NationsBank N.A., charging breach of trust, negligence and fraud. The suit was brought by John C. Craft, special deputy liquidator and a lawyer with Craft, Fridkin & Rhyne in Kansas City, Mo.
From 1990 to 1994, the suit charges, Sunwest produced statements purportedly showing that Meadowlark's policyholder trust was funded with more than $2.5 million in assets.
In fact, the assets were never worth more than $300,000, the suit says. In addition, Sunwest breached the trust agreement in several ways, including by trying to amend it after the fact to allow types of assets not normally permitted by the National Assn. of Insurance Commissioners, the complaint charges.
"They tried to unbreach the breach by getting in bed with the crooks," the liquidator's lawyer, Robert L. Brace of Hollister & Brace in Santa Barbara, Calif., said in an interview. "How many IQ points does it take to know you can't do that?"
The suit seeks more than $2.2 million in compensatory damages and unspecified punitive damages.
NationsBank last week removed the suit from New Mexico state court to federal court in Albuquerque. The bank also filed an answer generally denying the allegations. Its lawyers declined to comment further.
Meadowlark was one of several companies operated from Kansas City, Mo., by Ferrell Travis Riley Sr. and his wife, Cheryll S. Coon.
Mr. Riley and Ms. Coon were convicted on federal racketeering, conspiracy, obstruction of justice and other charges in February 1996. Prosecutors charged that they bilked policyholders of more than $28 million through a network of phony companies, including Meadowlark, and that they bribed a former Wyoming insurance commissioner and a Maryland state official (BI, Feb. 26, 1996).
Mr. Riley is now serving a nine-year prison term, and Ms. Coon is serving a term of seven years and three months.
In April 1996, a Missouri judge ordered Meadowlark and several other Riley-controlled companies into liquidation. Included in the liquidation are M&M Management Co. of Kansas City; Magnolia Acceptance Co., a Kansas City-based premium finance unit; Commercial Indemnity Assurance Co. of the Dominican Republic; and La Fenix Boliviana, a Bolivian insurer, according to Mr. Craft, the special deputy liquidator.
Mr. Craft declined to estimate outstanding claims against the Riley companies, which wrote property/casualty and health insurance, but said they are "very substantial." Few assets remain other than some "very doggy" real estate, he said.
Mr. Riley and others disposed of most of the companies' assets before Missouri regulators took control, Mr. Craft explained, adding that "the assets that were left were either illiquid or of questionable value."
Among Meadowlark's purported assets was its trust account for U.S. policyholders, set up at Sunwest Bank in Albuquerque in 1990.
Such trusts, following a standard form developed by the NAIC, are required by many states before a non-admitted insurer is deemed eligible to write surplus lines business, Mr. Craft's lawsuit against Sunwest notes.
Meadowlark's trust appeared to follow the NAIC form, which required a minimum of $1.5 million in cash, readily marketable securities or letters of credit from U.S. banks.
The "assets" Meadowlark actually contributed, though, never met these requirements, the suit charges. For example, the insurer deposited a leasehold interest in a Fort Worth, Texas, property that Sunwest valued at $1.1 million. The valuation, which the suit labels "absolutely false," assumed an unlikely large-scale renovation of the building into condominiums, Mr. Craft alleges.
Meadowlark's trust also included title to a Dallas-area property that was tied up in litigation and that Meadowlark did not even own at the time, the complaint charges.
The trust agreement required Sunwest to certify the existence and value of the trust in quarterly reports to the NAIC. While the bank provided Meadowlark with statements confirming more than $2.5 million in trust assets -- statements Meadowlark passed on to brokers to generate business -- Sunwest never made the required reports to the NAIC, the suit charges.
Instead, in May 1990 -- a few months after signing the original trust agreement -- Sunwest and Meadowlark executed an amendment purportedly allowing the insurer to deposit types of assets not approved by the NAIC and relieving Sunwest of its obligation to certify the trust's value to regulators.
Neither the bank nor Meadowlark ever submitted this amendment to the NAIC, which would have to approve it for the trust to be in compliance, the suit says.
The amendment shows that Sunwest knew from the beginning that the trust was deficient, that its assets didn't comply with the trust agreement and that the NAIC would reject any certification the bank attempted to make, the suit charges.
"The majority of assets held in the trust fund were illiquid, earned no income, were unqualified and were bogus," the complaint asserts. "Ironically, the trust agreement was utilized by the Meadowlark insiders to commit fraud, which the trust agreement was specifically created to combat."