Fraud

CARSON CITY, Nev.-Insurance regulators in two states have ordered a pair of unlicensed surety companies to stop underwriting after finding they have issued illegal bonds, including at least one purportedly backed by the Caribbean-domiciled Certusia Reinsurance Co. The Nevada and Georgia insurance departments issued cease-and-desist orders this month against Las Vegas-based Global Bonding; a predecessor company, Millennium Bonding Enterprise; and the companies’ principal, Robert Joe Hanson. Nevada regulators called Global Bonding and Millennium “a significant threat to the public,” charging that the companies have marketed themselves as a “treasury-approved provider” of surety bonds and as a “federally approved alternative.” Neither company is licensed as an insurer, and neither is listed by the U.S. Treasury Department as an acceptable surety for federally funded projects. In an interview, Mr. Hanson conceded Global Bonding’s lack of a license or Treasury listing but insisted that he is acting properly as an individual surety using federally approved forms. He said he will contest the insurance department orders. Global Bonding has caused problems for at least one company bidding on a federal project, though. The U.S. Army Corps of Engineers recently rejected a towboat construction bid by Horizon Shipbuilders Inc. of Bayou La Batre, Ala., because its Global Bonding bid bond failed to pass muster, documents show. Bond documents failed to make clear whether the surety was being provided by Global Bonding itself-which did not qualify as an acceptable surety-or by Mr. Hanson individually, the Corps of Engineers concluded. In addition, a $50 million asset reportedly backing the bond was held by Global Bonding rather than Mr. Hanson, the Corps found. This $50 million asset was a debenture issued by Hexagon Consolidated Cos. of America, a company whose top officers were sued for fraud by the Securities and Exchange Commission in March, government documents show. The SEC charged, among other things, that Hexagon claimed assets of as much as $318.6 million when the company, in fact, was worthless. The SEC revoked Hexagon’s stock registration earlier this year. Mr. Hanson said that the Horizon decision resulted from a “misunderstanding” that the Corps of Engineers did not give Horizon time to clarify. He also said he was not aware of Hexagon’s problems with the SEC at the time of the bond proposal. The Georgia and Nevada cease-and-desist orders followed reports in the Augusta, Ga., Chronicle that Global Bonding had also issued a $1.7 million performance bond covering construction of an office building by the Augusta Neighborhood Improvement Corp. In documents on that project, Mr. Hanson reported that his bond was backed by a $10 million corporate note provided by Certusia, a Nevis-based company that announced its entry into the U.S. surplus lines market last month. A lawyer for Certusia, though, denied that the reinsurer did any business with Global Bonding. The bond was issued “without the knowledge of Certusia, without the consent of Certusia and without Certusia receiving any of the premium collected,” said Thomas Novak, a partner with Sills, Cummis, Radin, Tischman, Epstein & Gross in Newark, N.J. Mr. Hanson disputed this, saying that a Certusia officer authorized the reinsurer’s participation and that Certusia received premiums. He declined to name the officer or say how much Certusia collected. Certusia, meanwhile, appears to be carrying out the large-scale reorganization that one of its officials promised when it opened an office near West Palm Beach, Fla., last month and announced plans to write surplus lines risks. Whether the changes meet with the approval of U.S. regulators and buyers remains to be seen. In a Sept. 30 financial statement, the reinsurer previously reported holding $1.19 billion in assets, including a disputed claim to pine forest acreage in Fiji valued at $568.8 million and a $3 million “letter of guarantee” from a Mexican credit union that was shut down by Mexican federal regulators in 1999 (BI, Nov. 17). In the month after that statement, though, Certusia wrought huge changes in its corporate structure and asset base, according to a new financial statement as of Oct. 31. Certusia and two affiliates are now units of a Bermuda holding company, International Capital Holdings (Bermuda) Ltd., the new statement says. The holding company, in turn, is owned by three corporate shareholders: Union Commercial L.L.C., a company incorporated in Florida at the end of August; and Underwriting Management Group Inc. and Commercial Acceptance Indemnity Inc., both based in Nevis. The investment in the Fiji pine forest and other assets included in the Sept. 30 statement are gone. Instead, the new statement reports that Certusia’s holding company has $1.7 billion in assets, including $1.6 billion in 10-year zero-interest bonds contributed by Union Commercial and Underwriters Management. Little information is given about the bonds, though the statement says that principal payments will be made by “dedicated third-party financial institutions to the order of independent regulated trustees” appointed by Certusia. Repayment on the bonds is guaranteed by a company identified as “AA Guardian National Financial Guarantee Trust,” the statement says. AA Guardian could not be located. Mr. Novak declined to comment on the guaranty company or answer questions about the bonds. Certusia principal Mel Derutledge did not respond to several messages seeking comment. Certusia’s Oct. 31 statement includes an audit opinion from M. Irvin Boncamper, a St. Kitts accountant and business consultant who has previously served as an auditor, director or owner of two failed offshore insurers. In the 1990s, Mr. Boncamper was the auditor and a shareholder of Keyes International Insurance Co. Ltd., a short-lived Caribbean insurer that claimed a net worth of $2.4 billion but disappeared after being hit with a $1.5 million surety bond claim. The claimant later named Mr. Boncamper, Keyes and others in a civil fraud lawsuit seeking to recover on the bond. In early 2000, Mr. Boncamper took over ownership of International Casualty & Surety Co., a New Zealand company whose previous managers had been indicted for bankruptcy fraud. Despite Mr. Boncamper’s announced plans to recapitalize it, IC&S was ordered into liquidation in New Zealand about eight months later. Mr. Boncamper,