HOUSTON (CN) - Insurance firms propped up Allen Stanford's $7 billion Ponzi scheme with phony letters to investors, claiming the Stanford bank underwent "stringent risk management reviews" and was run by "first class business people," investors claim in court.
Douglas and Adele MacArthur sued Robert S. Winter; Bowen, Miclette & Britt Inc. fka Bowen, Miclette, Descant & Britt; three Willis Group entities; and insurance dealer Amy S. Baranoucky in Harris County Court.
The MacArthurs claim the insurers are responsible for the $995,000 they lost to Stanford.
Stanford is serving 110 years in federal prison after being convicted last June of 13 of 14 counts of conspiracy, wire fraud and mail fraud.
The SEC in February 2009 charged Stanford and three of his companies with defrauding nearly 30,000 investors from 113 countries in the $7 billion Ponzi scheme.
The SEC froze his companies' assets and appointed a receiver to recover them.
Stanford's Antigua-based bank Stanford International Bank pulled off the fraud by selling certificates of deposit with fictitious interest rates, which Stanford attributed to his unique investment strategy.
In their lawsuit the MacArthurs say: "Many unanswered questions remain about how Stanford, a former gym operator from Mexia, Texas, came to operate a multifaceted financial empire from the Caribbean island nation of Antigua and Barbuda, but the one thing that can be said for sure is that, much like a turtle sitting on top of a fence post, he did not get there all by himself."
Defendants Robert Winter and Bowen, Miclette & Britt served as Stanford International Bank's insurance brokers and risk management advisers from the mid-1990s to 2002 or later, the MacArthurs claim.
They placed coverage for Stanford International Bank, and distributed financial statements for the bank in which they were listed as "'Insurance & Risk Managers' for SIB despite such financial statements being patently false and serving only as yet another misleading marketing tool for SIB," the complaint states.
They also sent out thousands of "'Safety & Security Letters'" as part of the scheme, the MacArthurs say.
"The Safety & Security Letters are well crafted for their purpose-to perpetuate fraud," the complaint states. "The letters sent on BMB stationary were signed by insurance broker and BMB employee 'Robert S. Winter, Financial Specialist' at a firm which purported to offer services in 'Insurance/Bonds/Risk Management.'
"The letters say that based on Winter and BMB's knowledge, SIB was composed of 'first class business people.' The letters specifically describe up to four different types of insurance coverage placed at allegedly 'A'-rated underwriters, i.e., Lloyd's of London, General Star Indemnity, and Great American Insurance Co.
"The letters describe risk management reviews (sometimes described as 'stringent' risk management reviews) by an outside firm, and the letters make it clear that the risk management reviews were material to obtaining the represented coverage.
"Remarkably, the Baranoucky and Willis letters use the same language as the BMB and Winter letters. Baranoucky and Willis' letters continued to tout the benefits of 'stringent risk management reviews' and the 'first class business people' at SIB.
"The Safety & Security Letters were a quid pro quo given by Willis and BMB to SIB in exchange for the privilege of selling insurance to Stanford and his entities and collecting a handsome commission. BMB and Willis knew that SIB and Stanford used the Safety & Security Letters to ensure that a critical mass of depositors would keep their monies with SIB. The Safety & Security Letters were either addressed to individual depositors or distributed in mass to the remaining depositors. These letters were a part of the marketing campaign used to give SIB credibility while it continued to take in new deposits and promote the classic Ponzi scheme."
The insurers sent the letters intending for investors to think the policies referred to would protect them, the MacArthurs say, when "in fact, the policies protected only SIB and its sole shareholder, R. Allen Stanford."
The MacArthurs seek treble damages for fraud, misrepresentation, negligent procurement/omission, failure to service policies, violations of the Texas Insurance Code and violations of the Colorado Consumer Protection Act.
Baranoucky lives in Vail., Colo., and sold insurance policies in Texas, the complaint states.
The defendant Willis entities are Willis of Colorado, Will of Texas and Willis Group Holdings.
The MacArthurs are represented by Randall Pulman with Pulman, Cappuccio, Pullen & Benson, of San Antonio.
Follow @cam_langford
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