April 25, 2016  | By McCathern Law

Oklahoma insurance regulators allege in a new lawsuit that two New York financiers took control of a local insurer using $30 million in counterfeit or worthless assets and then used the insurer to enrich themselves and their associates.

The insurer, Red Rock Insurance Co., is being liquidated by regulators, who allege the scheme led to a loss of $23.6 million in the insurer’s asset value. Three of the insurer’s former executives also are defendants in the suit, filed Friday in a state court in Oklahoma City.

The two defendants, Scott W. Hartman and Andrew B. Scherr, were partners in a small New York company that took control of the insurer in 2013.

An attorney for Mr. Hartman couldn’t immediately be reached. Jeffrey Hoffman, a partner at Blank Rome LLP who represented Mr. Hartman last year, said in an interview at the time that his client was a victim of a “scam” involving allegedly counterfeit assets.

The lawsuit follows an April 2015 article in The Wall Street Journal detailing the collapse of the Oklahoma insurer, formerly known as BancInsure Inc.

The complaint alleges that Messrs. Hartman and Scherr gained control of financially troubled Red Rock by agreeing to increase its capital by $30 million. But the capital they originally contributed was backed by bonds from an entity known as Altmark Ltd. Those bonds were discredited, the complaint says, after the person who supplied them was found guilty of fraud charges tied to selling counterfeit Altmark bonds.

After the two financiers gained control of Red Rock, according to the lawsuit, the company paid $610,000 for a shell company controlled by the two principals that had “little or no assets or value”; provided $4.7 million in unsecured loans to people and entities; and paid “grossly excessive fees” to Messrs. Hartman and Scherr.

The insurer also bought property adjacent to land owned by Mr. Hartman in Pennsylvania and sold part of it to Mr. Hartman’s sister-in-law, the complaint alleges, while transferring a partial interest in the property to a company co- owned by Messrs. Hartman and Scherr at no expense.

The two buyers of Red Rock had ties to Alexander Chatfield Burns, a young New York financier whose insurance empire collapsed in 2014 after hundreds of millions of dollars had been siphoned out of insurers he controlled, replaced by worthless or difficult-to-value assets such as a purported Caravaggio painting, according to court filings by Delaware insurance regulators.

Although Mr. Burns wasn’t involved with the Oklahoma insurer, Mr. Scherr was an executive and minority partner in Mr. Burns’s firm, Southport Lane. Mr. Burns, who has said he believes his firm complied with all relevant laws, hasn’t been accused of wrongdoing in any criminal or civil proceeding. Mr. Hartman was involved in a financing arrangement with Mr. Burns’s company that ended in 2012.

Levi McCathern, a lawyer for Michael Beasley, one of the three other defendants, said his client “is completely innocent of the allegations.” He said Mr. Beasley “was led by others into believing that the company was on firmer financial footing than was the reality” and “never unduly profited from the company and was devastated by its failure.” The other two defendants couldn’t immediately be reached for comment.

Read more: http://www.nasdaq.com/article/regulators-financiers-used-insurer-for-personal-gain-20160201-01229#ixzz3zEWgT7Ev – Dow Jones Business News, February 1, 2016.