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”.
CHICAGO -- The management of a defunct Illinois Insurance Exchange syndicate looted the syndicate of millions of dollars in a series of fraudulent investment and reinsurance deals with affiliated companies, Illinois insurance regulators allege.
Illinois regulators liquidating Geneva Assurance Syndicate Inc. have filed a racketeering lawsuit charging that syndicate operator Jeffery W. Beresford-Wood and several others plotted to strip valuable Geneva assets and replace them with worthless stock, money-losing real estate and other investments.
The transactions "gave the false and misleading appearance that Geneva's financial condition was satisfactory. . .and enabled Beresford-Wood and his co-conspirators to maintain control of Geneva and to operate it for their personal benefit," the complaint charges.
A variety of allegedly bogus transactions cited in the complaint include deals in which Geneva took over Mr. Beresford-Wood's investment in three failing non-insurance businesses, racking up more than $17 million in losses, and bought millions of dollars of worthless stock in companies owned by Mr. Beresford-Wood and his business associates.
The suit also charges that Mr. Beresford-Wood treated Geneva as a "personal bank," using it, for example, to pay $85,000 in bonuses to an architect and builder working on his California beach house.
A lawyer representing Mr. Beresford-Wood and several other defendants dismissed the allegations as "totally unfounded and not accurate at all."
"All of those things were done with the full knowledge, understanding and approval of the (insurance) commissioner and the IIE," said John F. Horvath of the firm of Horvath & Lieber in Chicago. "Everything done by Geneva and the defendants was above-board."
Mr. Beresford-Wood and two of his California-based companies named as defendants -- Concord General Corp. and JBW & Co. Inc. -- have filed a motion to dismiss the complaint. They charge, among other things, that the lawsuit fails to meet requirements for claims under the federal Racketeer Influenced and Corrupt Organizations law.
The Illinois Insurance Department lawsuit is the latest blow to Mr. Beresford-Wood, whose insurance empire has steadily fallen apart over the past three years.
Through Concord, Calif.-based Concord General and JBW, Mr. Beresford-Wood controlled Indiana-domiciled Classic Fire & Marine Insurance Co. and its subsidiaries United Southern Assurance Co. of Florida and Classic Syndicate Inc. of the Chicago-based IIE.
In 1990, through a newly formed unit of JBW, he acquired Geneva and an affiliate, Geneva Underwriting Syndicate Inc., from financially troubled London United Investments P.L.C.
By 1994, Classic Syndicate and Geneva Assurance were the two biggest underwriters on the IIE, based on $64 million and $55.5 million, respectively, in gross premium volume.
Things started to unravel the next year, though, when Geneva Assurance -- which already had absorbed affiliate Geneva Underwriting -- voluntarily closed its doors. Under an agreement with regulators, Classic Syndicate later that year reinsured all of Geneva's liabilities, withdrew from the Illinois exchange and merged with its parent, Classic Fire (BI, Jan. 8, 1996). Geneva was ordered liquidated in July 1996 (BI, July 15, 1996).
Last December, Classic Fire itself was ordered into rehabilitation by Indiana regulators, two months after the insurer's United Southern unit agreed to be liquidated by the Florida Insurance Department (BI, Dec. 22, 1997).
The Indiana Insurance Department is close to completing an analysis of Classic Fire's operations and soon will advise a state judge whether Classic Fire also should be liquidated, said Richard T. Freije Jr., a lawyer with Baker & Daniels in Indianapolis who represents the department.
Two years after Geneva entered liquidation, Illinois regulators have filed their racketeering complaint in U.S. District Court in Chicago. Defendants in addition to Mr. Beresford-Wood, Concord General and JBW include:
* Julie Ann Garrison, Concord General's former general counsel and a former Geneva officer and director.
* Howard L. Turpin III, formerly a Geneva director and an officer or director of other Beresford-Wood companies.
* James H. Ryan, former Concord General chief financial officer and president of Classic Fire.
* Richard E. Foss, former president of Geneva and vp of JBW. Mr. Foss previously underwrote for the two Geneva syndicates when they still were owned by London United.
* Brian D. Bethke, former president of Concord and general counsel for Classic Fire.
* Thirteen other former directors and officers of Geneva. They are Bob Roy, Gwen F. Kindelin, Barbara K. Marrs, Haydon S. Leedy, Francis P. McGovern, Roland G. Roth, Thomas M. Thie, Bruce A. Ricci, Charles Podczerwinski, Peter O. Norton, James R. Lambert, Dennis J. Bieda and Janis Florio.
Mr. Horvath of Horvath & Lieber also represents Ms. Garrison, Messrs. Turpin, Ryan and Foss, and several of the Geneva directors and officers.
Mr. Bethke, who said he has not yet hired a lawyer, denied the charge of looting Geneva but declined to comment further. Mr. McGovern also declined to comment.
The other defendants or their lawyers could not be reached.
The Illinois Department's complaint charges that Mr. Beresford-Wood, Ms. Garrison and Messrs. Ryan, Bethke, Thie and Foss plotted to drain Geneva's assets virtually from the time they gained control of the syndicate through JBW subsidiary Geneva Insurance Management Inc. in 1990.
GIMI bought Geneva and affiliate Geneva Underwriting from London United for about $31 million, using loans from Concord General and a Concord affiliate. Immediately after the sale, GIMI repaid $18 million to Concord using funds taken from the two syndicates "despite Beresford-Wood's express representation to the IIE that no assets of the (syndicates) would be used in this way," the suit charges.
Concord also immediately sold substandard California real estate to the syndicates for $23.9 million. By the end of 1991, the syndicates had recorded $3.9 million in losses from the declining value of the properties, the suit says.
Soon after acquiring the syndicates, Mr. Beresford-Wood started using them to bail Concord General and one of its subsidiaries out of bad investments in three non-insurance businesses, the complaint charges.
In one case, a Concord unit had taken control of Continental Publishing Services, a company whose only business was publishing a travel guide for Hertz Corp. By 1990, Mr. Beresford-Wood and other defendants saw that CPS would continue to operate at a loss and arranged for the two Geneva syndicates to lend the publisher $6.8 million. CPS used $3.5 million of the money to repay previous loans from other Concord affiliates but failed to repay most of what it owed the syndicates, ultimately leaving them with $7.5 million in losses, the suit says.
In another case, Concord sold its stake in a money-losing company called Payfax Inc. to Geneva for $2.5 million. By the end of 1993, Geneva had written off a total of $4 million it invested in Payfax, the suit says.
The two syndicates also paid Concord $2.1 million in 1990 to acquire Concord's stake in Homestar International Inc., a start-up toy manufacturer. Geneva went on to invest $3 million more in the company, but by the end of 1990, Homestar had shut down, and Geneva spent another $1.3 million to wind up its operations, the suit says.
Over the next several years, Mr. Beresford-Wood and other defendants continued to pirate Geneva's assets in a series of convoluted and allegedly fraudulent intercompany stock and reinsurance transactions, regulators charge.
One series of transactions, for example, grew out of a 1991 deal in which Concord General and TCO Holdings Inc., a unit of Solvang, Calif.-based Exstar Financial Corp., each bought $15 million of the other's preferred stock.
Exstar, headed by Peter J. O'Shaughnessy, also is the parent of Illinois-domiciled Alpine Insurance Co., which Mr. O'Shaughnessy said recently stopped writing new business and went into runoff. Mr. O'Shaughnessy is not named as a defendant in the Illinois Department's complaint.
Both preferred-stock issues were "essentially worthless" and were intended only to allow each company to report a cash infusion on its balance sheet, the complaint alleges, charging that neither Mr. Beresford-Wood nor Mr. O'Shaughnessy ever intended to pay any dividends or redeem the stock for its full value.
Concord and TCO both redeemed $4.3 million of their preferred stock within about a year of the deal. In 1994, the remaining $10.7 million of Mr. Beresford-Wood's TCO preferred holding was split among Concord, JBW, Classic Fire and Classic Syndicate. Mr. Beresford-Wood was getting ready to launch an effort -- ultimately unsuccessful -- to take Concord General public as the parent of Classic Fire, though, and wanted to rid the companies of substandard assets such as the TCO stock, the suit charges.
Toward that end, he and other defendants presided over a tangle of intercompany deals that resulted in all of the $10.7 million in TCO stock being dumped into Geneva in exchange for valuable Geneva assets, the complaint alleges.
Geneva's Illinois liquidators last year reached a restructuring agreement with Mr. O'Shaughnessy under which they exchanged Geneva's $10.7 million in TCO preferred stock for a $2.5 million promissory note from TCO payable over several years and guaranteed by Mr. O'Shaughnessy, court records show.
In an interview, Mr. O'Shaughnessy denied any intention not to pay dividends and denied that the TCO stock was worthless.
In another 1995 transaction, Geneva agreed to provide property and casualty excess reinsurance to Classic Syndicate in exchange for a $10 million deposit premium, the suit says. The deal provided for a sliding scale commission payable to Classic, though, under which Classic would ultimately recoup 90% of the premium either as losses or commissions.
Because the deal also called for Classic to "receive payment for its 90% minimum return," Geneva turned over title to a Carmel, Calif., estate appraised at $9.2 million and used as a residence by Mr. Beresford-Wood, regulators allege.
Thus, Geneva was stripped of a valuable property in exchange for "questionable" reinsurance business, the suit charges.
In addition, shortly after receiving the $10 million deposit premium, Geneva wired $4 million to JBW as a "management fee" and paid Concord General $7 million for allegedly worthless Concord preferred stock, the lawsuit charges.
Overall, Mr. Beresford-Wood and other defendants "at no time had any intention of operating or managing Geneva in a reasonable or proper manner conducive to its continued existence," the suit alleges. "These defendants intended simply to loot Geneva of its assets while using it as a repository for the substandard assets or worthless stock of, or owned by, other corporations in the JBW empire.'