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Bankruptcy filing may reach $500 million
By Lisa Munger
lisa.munger@theindependent.com
The Nebraska attorney general’s office launched a criminal investigation on Tuesday into a Grand Island insurance agency, on the heels of a bankruptcy filing last week in which the business claimed liabilities that may reach up to half a billion dollars.
Another investigation into First Americans Insurance Service Inc. and its principal agents began last week when a creditor filed a complaint alleging the agency may be involved in wrongdoing, according to officials from the Nebraska Department of Banking and Finance.
“We are working closely with the Department of Insurance to see if any violations of the Security Act of Nebraska have occurred,” said Pat Saldana, a public information officer with the Department of Banking and Finance.
In First Americans’ bankruptcy filing, the number of creditors is estimated to be between 200 and 999, with liabilities between $100 million and $500 million, said Sheila Cahill, a staff attorney with the Banking Department’s Bureau of Securities. First Americans estimated its assets at $1 million to $10 million in the filing, she said.
Ann Frohman, director of the Department of Insurance, said she’d never seen a filing quite like this in her 15 years of service.
“This is absolutely the largest filing I’ve seen,” she said. “It’s rather appalling, in its scope.”
However, investigators wouldn’t confirm or deny that First Americans’ principal agents had created a Ponzi scheme.
Ponzi schemes generate returns for existing investors by acquiring new investors, until eventually there isn’t enough money to go around and the scheme unravels.
Nonetheless, investigators kept the possibility of criminal wrongdoing on the table.
“We expected, given the size of the bankruptcy filing and looking at the top 20 creditors and the size of the debts owed to the creditors, that the attorney general’s office should be notified,” Cahill said. “It raised some red flags with us. The potential for criminal prosecution is there.”
The top 20 creditors, including dollar amounts that First Americans reported those creditors invested in the agency, are included in the Chapter 11 filing. Most of them are individuals or couples with Nebraska addresses. Additionally, two are from Montana and two from Georgia.
Lloyd Johnson, a farmer from Genoa in Central Nebraska, is listed as the second-largest investor owed money by First Americans.
Johnson said Ken Mottin, a principal with the agency, approached him in 1993 to invest in First Americans. Johnson said he had already heard about Mottin and his agency through word of mouth.
He invested $10,000 initially. He said Mottin came back many times over the years to solicit additional investments.
Besides Mottin, Stella Levea and James Masat are also listed as principals with First Americans,
According to the bankruptcy filing, Johnson and his wife, Jean, invested more than $3.8 million in all — money that Johnson said he doesn’t know if he’ll see again.
Johnson said Mottin told him the money would be invested in “other insurance companies, Indian insurance and casinos.”
First Americans sells a full range of insurance products to Native American tribes and casinos, according to its Web site.
“We got regular payments of return on investments,” Johnson said. “They never missed a payment until December.”
Johnson said he usually received a 10 percent to 20 percent return on his investments. That is, until last month, when the checks stopped.
“The checks quit coming,” he said.
Barry Geweke, an Ord attorney representing a Burwell couple owed nearly $3 million by First Americans, said he wouldn’t comment on whether he thought his clients had been defrauded.
However, he said First Americans’ bankruptcy filing indicates that the agency lacks sufficient assets to repay its investors.
“First Americans is asserting it does not have collateral for those creditors,” Geweke said of the filing.
Robert Craig, an Omaha attorney representing First Americans, said people may be making too quick a judgment in proffering conjectures about the case.
“It’s too easy for people to leap to a conclusion that this is a Ponzi scheme,” he said. “The amount of (First Americans’) debt has grown over time. It does have common attributes with a Ponzi scheme, but that doesn’t mean that’s what it is.”
Craig said he wasn’t sure how the agency’s debt ballooned so high.
“It’s a very large amount of debt. We’re having the whole thing analyzed to figure out where did the debt come from and how did it grow to where it is today,” he said.
Craig said it appeared that First Americans’ payouts on investments “grew to the point where there wasn’t sufficient revenue to make the payments.”
The agency filed for Chapter 11 to reorganize its assets, in hopes of issuing some return on creditors’ investments, Craig said. However, he cautioned that people shouldn’t expect all debts to be repaid.
“I should not suggest (reorganization) will generate $100 million,” he said. “That’s just not going to happen.”
Mottin, Levea and Masat did not return calls for comment, nor were they available upon a visit to their office on Tuesday morning.
It appears that First Americans insurance coverage remains in place, said Frohman of the Department of Insurance.
She said insurance clients would not be notified of the criminal investigation unless coverage is affected.
Cahill, with the Banking Department, said the investigation is still in the beginning stages, though all creditors had been notified that an inquiry into the agency’s dealings is under way. She said it was hard to say how long it would be before more information would be available.
“In any investigation, we look at what has been offered, if there was someone directly soliciting investors — were there misrepresentations made or material facts omitted,” she said. “Any violation of the Securities Act is a felony.”
Another investigation into First Americans Insurance Service Inc. and its principal agents began last week when a creditor filed a complaint alleging the agency may be involved in wrongdoing, according to officials from the Nebraska Department of Banking and Finance.
“We are working closely with the Department of Insurance to see if any violations of the Security Act of Nebraska have occurred,” said Pat Saldana, a public information officer with the Department of Banking and Finance.
In First Americans’ bankruptcy filing, the number of creditors is estimated to be between 200 and 999, with liabilities between $100 million and $500 million, said Sheila Cahill, a staff attorney with the Banking Department’s Bureau of Securities. First Americans estimated its assets at $1 million to $10 million in the filing, she said.
“This is absolutely the largest filing I’ve seen,” she said. “It’s rather appalling, in its scope.”
However, investigators wouldn’t confirm or deny that First Americans’ principal agents had created a Ponzi scheme.
Ponzi schemes generate returns for existing investors by acquiring new investors, until eventually there isn’t enough money to go around and the scheme unravels.
Nonetheless, investigators kept the possibility of criminal wrongdoing on the table.
“We expected, given the size of the bankruptcy filing and looking at the top 20 creditors and the size of the debts owed to the creditors, that the attorney general’s office should be notified,” Cahill said. “It raised some red flags with us. The potential for criminal prosecution is there.”
The top 20 creditors, including dollar amounts that First Americans reported those creditors invested in the agency, are included in the Chapter 11 filing. Most of them are individuals or couples with Nebraska addresses. Additionally, two are from Montana and two from Georgia.
Lloyd Johnson, a farmer from Genoa in Central Nebraska, is listed as the second-largest investor owed money by First Americans.
Johnson said Ken Mottin, a principal with the agency, approached him in 1993 to invest in First Americans. Johnson said he had already heard about Mottin and his agency through word of mouth.
He invested $10,000 initially. He said Mottin came back many times over the years to solicit additional investments.
Besides Mottin, Stella Levea and James Masat are also listed as principals with First Americans,
According to the bankruptcy filing, Johnson and his wife, Jean, invested more than $3.8 million in all — money that Johnson said he doesn’t know if he’ll see again.
Johnson said Mottin told him the money would be invested in “other insurance companies, Indian insurance and casinos.”
First Americans sells a full range of insurance products to Native American tribes and casinos, according to its Web site.
“We got regular payments of return on investments,” Johnson said. “They never missed a payment until December.”
Johnson said he usually received a 10 percent to 20 percent return on his investments. That is, until last month, when the checks stopped.
“The checks quit coming,” he said.
Barry Geweke, an Ord attorney representing a Burwell couple owed nearly $3 million by First Americans, said he wouldn’t comment on whether he thought his clients had been defrauded.
However, he said First Americans’ bankruptcy filing indicates that the agency lacks sufficient assets to repay its investors.
“First Americans is asserting it does not have collateral for those creditors,” Geweke said of the filing.
Robert Craig, an Omaha attorney representing First Americans, said people may be making too quick a judgment in proffering conjectures about the case.
“It’s too easy for people to leap to a conclusion that this is a Ponzi scheme,” he said. “The amount of (First Americans’) debt has grown over time. It does have common attributes with a Ponzi scheme, but that doesn’t mean that’s what it is.”
Craig said he wasn’t sure how the agency’s debt ballooned so high.
“It’s a very large amount of debt. We’re having the whole thing analyzed to figure out where did the debt come from and how did it grow to where it is today,” he said.
Craig said it appeared that First Americans’ payouts on investments “grew to the point where there wasn’t sufficient revenue to make the payments.”
The agency filed for Chapter 11 to reorganize its assets, in hopes of issuing some return on creditors’ investments, Craig said. However, he cautioned that people shouldn’t expect all debts to be repaid.
“I should not suggest (reorganization) will generate $100 million,” he said. “That’s just not going to happen.”
Mottin, Levea and Masat did not return calls for comment, nor were they available upon a visit to their office on Tuesday morning.
It appears that First Americans insurance coverage remains in place, said Frohman of the Department of Insurance.
She said insurance clients would not be notified of the criminal investigation unless coverage is affected.
Cahill, with the Banking Department, said the investigation is still in the beginning stages, though all creditors had been notified that an inquiry into the agency’s dealings is under way. She said it was hard to say how long it would be before more information would be available.
“In any investigation, we look at what has been offered, if there was someone directly soliciting investors — were there misrepresentations made or material facts omitted,” she said. “Any violation of the Securities Act is a felony.”
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