Nebraska’s Grand Island Insurance, Under Investigation, Loses Licenses

January 30, 2009

Three principals of a Grand Island insurance agency under investigation amid allegations of a Ponzi scheme have agreed to have their insurance licenses revoked.

A state hearing had been set for next week to consider removing the licenses for James Masat, Stella Levea and Kenneth Mottin. The three are principals for First Americans Insurance Service. Bankruptcy court documents filed Tuesday say they waived that right in order to resolve other problems.

By doing so, they did not admit or deny allegations they face.

The state continues to investigate where more than $100 million went.

Attorney General Jon Bruning has said he believes some of it may have been paid out to investors. He had said the situation had characteristics of a Ponzi scheme, which is a scam in which people are persuaded to invest in a fraudulent operation that promises unusually high returns. The early investors are paid their returns out of money put in by later investors.

The Department of Banking and Finance earlier this month ordered First Americans and its officers and agents to immediately stop selling more promissory notes.

Department of Insurance director Ann Frohman said Tuesday’s license revocation resolves some disclosure issues raised in December. The agency, via Levea, told the department and state Department of Banking it had about $4.3 million in debt and was in shape to keep paying promissory note holders and keep their business going.

Less than a month later on Jan. 12, the agency filed for bankruptcy protection claiming between $100 million and $500 million in liabilities.

From an administrative standpoint, putting them out of the insurance business resolves that, Frohman said Wednesday.

“They have bigger issues than dealing with the Nebraska Department of Insurance,” she said.

On Wednesday, the court granted a motion to appoint a trustee in the bankruptcy case. That person will have all the authority of the agency’s management and directors. Until the yet-unnamed trustee decides what responsibilities will be delegated, it’s unclear whether Levea, Masat and Mottin would remain responsible for the agency’s management, said Bob Craig, the Omaha attorney handling the bankruptcy case for First Americans.

“It sort of makes sense to leave senior management in place with the proper sort of controls so everybody’s comfortable, because in a business like this, that knowledge base is very, very important,” he said.

Such an appointment is unusual for a Chapter 11 bankruptcy protection case, but needed to help allay concerns with efforts under way to stabilize the agency, he said.

A meeting of creditors is set for Feb. 20.

First Americans isn’t related to First American Corp., a Santa Ana, Calif.-based provider of title and specialty insurance and business information.

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On the Net:

Nebraska Department of Insurance, http://www.doi.ne.gov/

First Americans Insurance Service, http://www.fais.com

Latest Comments

  • January 30, 2009 at 3:30 am
    David says:
    This is a GREAT example of how effective regulation works. Under federal regulation, such Ponzi schemes go on for years undected, right under the SEC's big federal nose. Mea... read more
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