NEWARK, N.J. -- A former state insurance regulator has pleaded guilty to a federal charge that he operated a fraudulent offshore insurer that has left more than $1 million in unpaid claims since its 1996 collapse.

Owen Guidry, a former examiner with the Louisiana and Arizona insurance departments, last week admitted that he conspired to defraud policyholders of Westwood Insurance Co. Ltd., a now-defunct Antigua insurer he headed as managing director.

Among other things, Mr. Guidry admitted that Westwood Insurance's principal asset -- a purported $15.5 million "special certificate of deposit" -- was worthless. He also lied when he told Westwood agents and policyholders that the insurer was audited by a "Big Six" accounting firm, according to court records.

The single federal charge of conspiracy to which Mr. Guidry has pleaded guilty carries a statutory maximum sentence of five years in prison. However, under federal sentencing guidelines, his actual sentence is likely to be lower.

He is scheduled for sentencing in U.S. District Court in Newark next Feb. 24.

John Yauch, a lawyer representing Mr. Guidry with the Federal Public Defender's office, said that Mr. Guidry has agreed to cooperate with federal prosecutors and that it is "fair to say" there is an ongoing investigation of Westwood's operations.

At a court hearing last week, Mr. Guidry identified Peter M. Stanley, a New Jersey businessman, as the person who actually controlled Westwood, Mr. Yauch confirmed. Mr. Guidry said that Mr. Stanley recruited him to manage Westwood and that Mr. Guidry believed it to be a legitimate insurance company.

Later, "it became apparent to him that Westwood did not have the financial backing" it claimed to have, according to Mr. Yauch.

"Mr. Guidry's mistake was that he continued to solicit customers for Westwood knowing it did not have financial backing," Mr. Yauch said.

Mr. Stanley could not be reached. He hasn't been charged in the case.

In 1994, when Westwood was getting started, Mr. Stanley pleaded guilty to federal bank fraud and mail fraud charges in two unrelated schemes. In one, he admitted diverting loan funds from a New Jersey bank; in the other, he admitted defrauding an Illinois man of more than $240,000 in an offshore investment scam. He was released from prison earlier this year after serving about eight months.

At the time of his plea agreement, Mr. Stanley was under investigation by federal prosecutors in six other states, according to a 1997 report in the Newark Star-Ledger. Those investigations were dropped as part of the plea deal, the paper reported.

Mr. Stanley had been a high-profile real estate developer whose projects included a large New Jersey house built on speculation and later sold to Chubb Corp. Chairman Dean O'Hare, Mr. O'Hare confirmed.

Assistant U.S. Attorney Mark Winston, who is prosecuting Mr. Guidry, also handled the earlier fraud case against Mr. Stanley.

A spokesman for the U.S. Attorney's office would not comment on whether an investigation of Westwood is continuing.

The short-lived Westwood looked much better on paper than it proved to be in reality: In an unaudited 1994 financial statement, the insurer reported $13.8 million in assets, including $10 million in "Certificates -- U.S. Currency notes."

This asset, Westwood claimed, was a certificate of deposit issued by the London branch of Chase Manhattan Bank. The certificate was a "special" CD purportedly backed by "U.S. currency notes issued by the United States of America to the Philippines and known as Series 66 Victory Notes," Westwood papers showed.

In fact, Series 66 notes were scrip issued by the Philippines government to U.S. troops in World War II and were never U.S. government obligations. The last of the notes became worthless in 1967, when they were demonetized by the Philippines government, a U.S. Treasury Department spokesman said (BI, Aug. 12, 1996).

In a year-end 1995 financial statement, Westwood reported $16.7 million in assets, including a $15.5 million "special" CD.

After questions about these assets arose in 1996, Mr. Guidry told brokers that Westwood was seeking to recapitalize. In one plan, a company identified as Suma Corp. was to deliver an initial $5 million to Mr. Stanley and make available $100 million more to support Westwood, documents show.

Nothing came of this plan, though, and Mr. Guidry shut down Westwood's management office in Charlottesville, Va., in late 1996.

Mr. Yauch, Mr. Guidry's lawyer, said that Mr. Stanley arranged Westwood's initial capitalization with Series 66 notes and that Mr. Guidry had no role in obtaining the assets.

Another plan that fell apart with Westwood's demise was its much-ballyhooed purchase of Blairsden, a 31-bedroom Peapack, N.J., mansion built in 1902 by banking magnate C. Ledyard Blair. Westwood had rented the mansion -- where Mr. Stanley and Mr. Guidry entertained brokers -- and had said it would buy the property from its owners, the Sisters of St. John the Baptist, an order of Catholic nuns.

The Sisters of St. John have been unable to sell Blairsden to date.

In their criminal complaint filed in Newark, prosecutors charge that Mr. Guidry "and his co-conspirators" told brokers and Westwood policyholders that the insurer held a CD worth more than $15 million when they knew the CD was worthless.

Mr. Guidry also misled brokers about Westwood's purported audit by a Big 6 firm. While not named in the complaint, the firm Mr. Guidry claimed to have engaged was KPMG Peat Marwick L.L.P.

In his previous career as an examiner, Mr. Guidry's much-criticized audit of Louisiana-based Champion Insurance Co. showed the insurer to be solvent shortly before its 1989 collapse.

Former Louisiana Insurance Commissioner Douglas D. Green was sentenced to 25 years in jail in 1991 for taking campaign contributions in exchange for favorable regulatory treatment of Champion.