Allegations Pile Up Against Suspended Insurance Agent

Copyright 2010 ProQuest Information and LearningAll Rights ReservedCopyright 2010 Arkansas Business Arkansas Business

June 21, 2010 Monday

Pg. 13 Vol. 27 No. 24 ISSN: 1053-6582

12923

1258 words

Allegations Pile Up Against Suspended Insurance Agent

Mortiz, Gwen

ABSTRACT

According to the AID, taking out fraudulent premium finance loans loans ostensibly to pay the premium on large commercial premiums – had become standard operating procedure for Standridge and his Steve Standridge Insurance agency during 2009. According to Uhrynowycz’s complaint, Standridge “was unable or unwilling” to come up with the cash required to recapitalize Gibraltar, so First Service and Standridge “concocted a scheme” in which the bank would secretly lend the money to Standridge and his wife, who would then use the money to buy certificates of deposit in the name of Gibraltar. FULL TEXT

ACCUSATIONS OF WRONGUDOing are stacking up against Steve

Standridge of Mount Ida, whose insurance license was suspended in March for two seemingly unrelated violations.

In March, the Arkansas Insurance Department accused Standridge of falsifying the collateral he used when he bought Gibraltar National Insurance Co. of Little Rock from businessman Ed Harvey in January 2009. The AID also said Standridge had defaulted on a premium finance loan that had been misrepresented to the lender, the Bank of Star City.

But with two new filings last week, one by the AID and one by the receiver appointed when it became clear that Gibraltar was effectively insolvent, the depth of Standridge’s financial hole became much clearer. According to the AID, taking out fraudulent premium finance loans loans ostensibly to pay the premium on large commercial premiums – had become standard operating procedure for Standridge and his Steve Standridge Insurance agency during 2009. And Steve A. Uhrynowycz, the receiver for Gibraltar, alleged in a civil complaint filed in Pulaski County Circuit Court that Standridge conspired with bankers at First Service Bank of Greenbrier to deceive insurance regulators about his financial ability to purchase Gibraltar.

No specific bank officer is named in the suit, except Chairman, President and CEO Thomas H. Grumbles as the bank’s registered agent. Grumbles did not return a call seeking comment.

Uhrynowycz’s lawsuit seeks actual damages from Standridge and First Service of $4 million, which is the amount that Standridge was required to inject into struggling Gibraltar when Insurance Commissioner Jay Bradford approved his plan to purchase the workers’ compensation carrier from Little Rock businessman Ed Harvey in January 2009.

According to Uhrynowycz’s complaint, Standridge “was unable or unwilling” to come up with the cash required to recapitalize Gibraltar, so First Service and Standridge “concocted a scheme” in which the bank would secretly lend the money to Standridge and his wife, who would then use the money to buy certificates of deposit in the name of Gibraltar. The CDs, which were represented as unencumbered capital to insurance regulators, were then secretly pledged as collateral on the First Service loan.

Uhrynowycz also alleges that Standridge and First Service Bank “fraudulently induced” the president of Gibraltar, Audra Welcher, to sign documents giving the bank a security interest in the CDs that were supposedly owned by Gibraltar. On Jan. 29 of this year, the day after the one-year CDs matured, First Service Bank confirmed to Gibraltar’s auditors that the CDs were unencumbered.

“This and the other confirmations are evidence that the Bank knew it acted fraudulently and was trying to hide its fraud from the Department and Gibraltar’s staff,” Uhrynowycz wrote.

Welcher and Gibraltar’s treasurer, Julie Lewis, signed documents renewing the CDs and pledging them as collateral for the loan to Standridge. Welcher, who was Gibraltar’s president before and after the insurance company was sold to Standridge, is the daughter of Lenita Blasingame, the AID’s chief deputy commissioner. The roles of Welcher and Lewis, as described by Uhrynowycz, were those of innocent employees forced into an uncomfortable position.

“Because Standridge was a fiduciary to Gibraltar and boss to Ms. Welcher and Ms. Lewis, and because Ms. Welcher and Ms. Lewis knew that Gibraltar needed the cash formerly in the CDs to remain solvent, the ladies felt they had no alternative but to sign the documents….”

Premium Finance

The receiver’s complaint was filed a couple of hours after the staff of the Arkansas Insurance Department filed a 72-count petition in support of an administrative hearing scheduled for July 8 before Commissioner Bradford. That hearing will consider whether Standridge’s license should be permanently revoked.

Details of 11 loans and one that was requested and denied are included in the petition. Those details indicate that Standridge still owes at least $6.9 million on eight loans he originated, ostensibly for clients who needed to finance insurance premiums. AID investigators, however, found that the loans were made against policies that never existed or against policies that were quickly canceled.

In one case, a check issued to an insurance carrier was instead endorsed by Standridge and deposited into one of his corporate accounts. Standridge also allegedly endorsed and deposited six premium refund checks – the largest being more than $41,000 – issued to customers of Gibraltar.

Standridge’s license has been suspended since March, when Bradford issued orders alleging that the Mount Ida agency owner misappropriated a $500,000 premium finance loan made by the Bank of Star City and falsified the collateral he used to buy Gibraltar.

The action taken in March included suggestions that Standridge had forged the signatures of two members of the board of directors of his Steve Standridge Insurance agency, State Auto Insurance Co. executives Richard Miley and Mark Blackburn, when pledging the agency’s assets as collateral on a loan used to buy Gibraltar. The petition filed Tuesday makes two new allegation of forgery:

* That Standridge forged his son Jared’s signature to the same “board consent” document; and

* That Standridge forged the signature of Phillip W. Ellis, president of First Service Bank, on a subordination agreement when he tried to use $4 million in certificates of deposit that secured a First Service loan to secure another loan from Chambers Bank of Danville.

It is unclear from the petition whether Chambers Bank made a loan to Standridge at that time, which was in April 2009. But Chambers Bank apparently did make $6.7 million worth of supposed premium finance loans to Standridge in May and August of 2009, of which some $5.9 million was still unpaid as of April, according to the AID petition.

Other lenders still owed money for premium finance loans made to Standridge, according to the AID, are:

* Bank of Delight, $349,582 on a loan made in April 2009;

* Premium Financing Specialists Inc. of Kansas City, Mo., $365,756 on a loan made in October;

* Select Premium of El Campo, Texas, $40,000 on a loan made in December; and

* Premium Advance Corp. of Illinois, $188,128 on a loan made Feb. 10.

John Ed Chambers III, owner of Chambers Bank, told Arkansas Business that he had done business with Standridge for “several years,” but he would not answer any other questions about the case. Chambers Bank has no pending litigation against Standridge, he said.

In addition to First Service, Chambers, the Bank of Star City and the Bank of Delight, Standridge had banking relationships with First National Bank of Hot Springs and Regions Bank, according to the AID’s filing. In the filing supporting the suspension of Standridge’s insurance license in March, the AID also revealed that he had borrowed $4 million from First Arkansas Bank & Trust of Jacksonville.

July 22, 2010

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