Arrest warrants have been issued for two New York financiers after prosecutors filed charges in Oklahoma state court relating to the purchase and handling of a now-defunct Oklahoma insurance company that the pair once controlled.
Scott Hartman and Andrew Scherr face 28 counts of felony charges that include using counterfeit bonds in order to take control of the bankrupt insurer, forgery, filing false documents with the state insurance department, using the insurance company’s assets to enrich themselves, and more.
In 2013, when Hartman and Scherr took control of Oklahoma City-based BancInsure, which was re-named Red Rock Insurance, regulatory approval was based on the representation that they would invest some $30 million in capital into the company. To facilitate the transaction, they used their financial services holding company, Foster Jennings Inc., which paid $1 for BancInsure.
BancInsure had specialized in insuring community banks. It suffered big losses during the economic downturn that began in 2008, which depleted its surplus. At the time of the Foster Jennings purchase, BancInsure was in danger of being taken over by regulators.
The company reported in an October 2013 announcement that, as Red Rock, its “new strategy will involve writing business in the program distribution segment of the industry, where managing general agents and program administrators focus on insurance for specific types or classes of businesses, from commercial auto fleets and real estate agents to marinas and wind turbines.”
Red Rock was placed into liquidation in August 2014 by the Oklahoma Insurance Department, which filed suit against Hartman and Scherr in early 2016, accusing the pair — and several others — of infusing Red Rock with worthless assets and using it as a vehicle through which to enrich themselves.
The department’s lawsuit, filed Jan. 29, 2016, stated that a series of questionable actions caused the company to lose at least $23.6 million in asset value and the promised capital infusion necessary to continue operations never materialized.
Nestor Romero, assistant receiver for the Red Rock liquidation, told Insurance Journal in May 2015 that while Foster Jennings represented certain assets used to gain control of the company as being marketable securities, both state and federal insurance regulators found those assets and a variety of other investments — including a stamp collection that was supposedly worth $40 million — offered by Foster Jennings to be unsuitable.
The charges filed by Acting District Attorney David Prater in Oklahoma County District Court on May 8, 2018, echo many of the accusations contained in the insurance department’s 2016 lawsuit.
Hartman and Scherr are accused in the charging document of knowingly using various counterfeit Altamark Bond/Credit Linked Notes to gain control of BancInsure/Red Rock. The document filed by Prater also states that the pair used the assets of the company “to pay themselves exaggerated director fees, salary and wages” and for “a series of highly suspect/preferential loans to individuals previously associated with the defendants.”
The charging document also states that Scherr and Hartman arranged and concealed the “unlawful” sale and transfer to BancInsure/Red Rock a company that they controlled, the Andina Group Inc., from Foster Jennings for $610,000.
The two men also are accused of failing to file individual tax returns in Oklahoma in 2013 showing payments made to them by BancInsure/Red Rock.
In an emailed statement, Oklahoma Insurance Commissioner John Doak thanked District Attorney Prater, and Oklahoma County and FBI investigators for their work in bringing charges against Hartman and Scherr.
“In Oklahoma we are committed to protecting our citizens from fraud and financial crimes. We will not stand by and allow individuals to defraud our citizens or businesses, and my department will continue to support law enforcement against anyone foolish enough to try,” Doak said.
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