Insurance Executives Cleared of Fraud

By: U.S. Department of Justice Press Release; Julie Montanaro Email
By: U.S. Department of Justice Press Release; Julie Montanaro Email

UPDATED 3.9.2012 by Julie Montanaro

Four former executives of Vanguard Fire and Casualty have been cleared of federal fraud charges.

U.S. District Judge Robert Hinkle issued a judgment of acquittal on February 20, 2012 on the seventh day of trial.

U.S. attorneys had argued the men defrauded Florida's CAT fund when they reclassified insurance claims after back to back hurricanes in 2004.

"Our case is based upon no business purpose to reclassify these, other than extra money from the CAT fund," Assistant U.S. Attorney Corey Smith argued.

"You've got motive in spades. You just don't have a crime," Hinkle said in court that day. "I think the government has proved the defendants are innocent."

Judge Hinkle said in 15 years he had "never once" granted a motion ending a case midstream, but he did in this one.

Defense attorney Stephen Dobson, who represented William Sanders, says he is grateful the men were cleared. "This turned their lives upside down," he said.

He and other attorneys argued successfully that the men told the state about plans to move some of the insurance claims from Hurricane Jeanne to Hurricane Frances.

"How can it be fraud if they said, 'Here's what we're doing?'" the judge asked in court.

Defense attorney Tim Jansen, who represented John Henry Axley, said this was a civil issue, not a criminal one.

"We told the U.S. Attorney a year ago these men were not guilty of any crime. They spent six years and more than half a million dollars to prosecute them."

The U.S. Attorney's Office had no comment on the judgment of acquittal.
Tallahassee, FL - Four former executives of Vanguard Fire and Casualty Company have been charged with making false statements in filings with State regulatory agencies, and making false representations concerning the financial condition and solvency of Vanguard, announced Pamela C. Marsh, U.S. Attorney for the Northern District of Florida.

The twelve-count indictment alleges that between 2004 and 2007, William Sanders (60), Thomas Stinson (60), Richard Magsam (54), and John Henry Axley, III (46) made false statements in connection with financial reports and documents presented to the Florida State Board of
Administration, the Florida Hurricane Catastrophe Fund (“CAT Fund”), and the Florida Office of Insurance Regulation. The indictment also alleges that the executives made false representations concerning the financial condition and solvency of Vanguard, and that they conspired with one other to commit these offenses.

Between 2004 and 2007, Vanguard was a Florida property and casualty insurer based in Maitland, Florida. The company was entitled to receive reimbursement from the CAT Fund for claim losses exceeding $37 million as a result of any single hurricane.

The indictment alleges that, after four named storms struck Florida during the 2004 hurricane season, Vanguard experienced severe cash flow problems as a result of the unusual number of claims filed.
The losses incurred by Vanguard due to Hurricane Jeanne did not meet the $37 million threshold for reimbursement from the CAT Fund, while losses attributable to Hurricane Frances did. According to the indictment, the defendants fraudulently reclassified Vanguard’s Hurricane Jeanne loss claims as Hurricane Frances loss claims. They then submitted these loss amounts to the CAT Fund in order to fraudulently obtain reimbursement in excess of $20 million.

The indictment states that had Vanguard not received this excess reimbursement, it would have become insolvent by the end of 2004. Vanguard was liquidated and placed into receivership with the Florida Department of Financial Services in 2007, after the defendants were required to properly classify the losses attributable to Hurricane Jeanne.

If convicted, the defendants face a maximum penalty of 5 years’ imprisonment for conspiracy and a maximum penalty of 10 years’ imprisonment on each substantive count of insurance fraud.

The case was investigated by the Florida Department of Insurance Fraud and the Federal Bureau of Investigation. It is being prosecuted by Assistant U.S. Attorney Corey J. Smith.

An indictment is merely a formal charge by the grand jury. Every defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt.

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  • by Steve Location: Florida Native/resident, heavily insured by my local, but mostly through VA, better MD's. on Mar 11, 2012 at 05:01 PM
    Anybody ever heard of an insurance company going bye-bye because of mismanagement? Profits guide these animals. These four are four of thousands. Just soak that in, and get back with me if you need something else. In a note to a hoodrat: "John"@12:11 AM, Just get a note as to the time of day...Do you have a job? A life? why are you bothered with this sort of thing on a weekend during the hours of darkness? If you do not work weekends, I suggest a little change in your lifestyle. I'm just sayin'. Thanx
  • by Jane on Mar 9, 2012 at 05:56 PM
    They bought off the judges. These criminals deserve the full weight of the law, but the are protected by their powerful and connected political friends. Start eating cake everyone!
    • reply
      by John on Mar 9, 2012 at 09:11 PM in reply to Jane
      Jane, your an idiot. Plan and simple. How are these guys criminals when they wrote letters to the CAT FUND explaning exactly what they were going to do and why, thew CAT FUND reimbursed them based on their explanation. The OIR reviewed all evidence and determined no criminal activity occurred but you get on overzealous Federal prosecutor trying to make aname for himself and he takes it to a grand jury. Jane, do you know how easy it is to get an indictment from a grand jusry??? Probably not cause your an idiot.
      • reply
        by teacher on Mar 10, 2012 at 06:51 AM in reply to John
        John, YOU'RE an idiot that can't spell or understand the difference between "you're" (a contraction of "you are") and "your" (a possessive denoting "ownership"). Your message may be correct but your grammar and spelling relegate your response to the trash bin.
        • reply
          by Anonymous on Mar 10, 2012 at 06:43 PM in reply to teacher
          The lack of spelling and grammar abilities doesn't mean John is an idiot. Most people could understand exactly what he was saying, and as you said yourself, his message was correct.
  • by gatorcane Location: Hawthorne on Feb 16, 2012 at 01:34 PM
    Where's the fair and balanced media reporting? Big news when they were charged. No news when they are accquited. Cat Fund monies went to pay claims to policyholders.
  • by Steve Location: Tallahassee on Feb 15, 2012 at 05:58 AM
    These "guys" were all aquitted yesterday in Federal Court, with the judge ruling the Gov't didn't have enough evidence for the defense to even have to put on a defense. They are innocent. Judge said the Gov't proved their innocence. Where is the reporting on this part of the story?
  • by John Location: west palm beach on Mar 18, 2011 at 07:16 PM
    These guys are scum stealing from hurricane victims to just get richer the republicans and their greed are out of control I hope they all go to prison for 50 years each
    • reply
      by anon on Mar 9, 2012 at 05:29 PM in reply to John
      I think they "did" pay for loss by hurricane victims...just a different hurricane. One wasn't "catastrophic enough"
  • by you are clueless Location: Florida on Mar 4, 2011 at 05:18 AM
    More competition to lower rates?? don't make me laugh. The first day they open up rating we'll see 50% increases.
  • by Amber Location: Florida on Mar 3, 2011 at 01:22 PM
    This is bull! They are just the fall guys
  • by Think about it Location: Florida on Mar 3, 2011 at 06:01 AM
    You guys are blaming the players when it is the game that deserves the blame. Florida needs more competition to lower rates and spread the risk. If the rules allow, or better – entice – thinly funded companies into the arena, it forces the decision makers to take risks to save a company. Which is worse, trying get the claims paid or going bankrupt. The OIR needs these companies to save their own hide for poor decisions they made and then crucify the players for trying to meet claims obligations. I am not defending the poor decisions made by the management – just wondering why the mother is eating its young. Who else will be willing to set up shop here in Florida if this keeps up.
  • by Tampabay Adjuster Location: Tampa on Mar 2, 2011 at 05:58 PM
    What is going on with the POE lawsuit?
  • by Arthro on Mar 2, 2011 at 09:42 AM
    This is just the tip of the iceberg...and further evidence that property insurance must be reformed in Florida. After chasing out the large, financially stable companies, Floridians were left with few reliable choices. Vanguard was a fly-by-night company, allowed to operate with inadequate reserves by the OIR. There are plenty more of these companies in Florida, just waiting for a big hurricane so they can declare bankruptcy and deny claims, and let their "management" companies and executives walk away with billions. Luckily, we haven't had a hurricane...yet. When we do, it will be a huge financial disaster for Floridians who are relying on shaky Florida domestic insurers, and the overexpsoed Citizens and CAT Fund mechanisms.
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