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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