ST. LOUIS (CN) – The 8th Circuit ruled that the Arch Insurance Company has no duty to defend a man accused in a multimillion-dollar Ponzi scheme.
Bryan Behrens had sued Arch for a declaration that the insurer would defend him against prosecution from the Securities and Exchange Commission, which claims Behrens operated a $3.5 million Ponzi scheme while working at Sunset Financial Services.
Behrens said the insurer should cover him since it had extended a policy to Sunset, and he ran the alleged Ponzi scheme through a Sunset branch office for which he served as president and CEO. Over the years, Behrens’ former clients have filed several lawsuits in connection to the scheme, which they say has cost them millions.
On Monday, a three-judge appellate panel upheld the Nebraska District Court’s ruling that Behrens’ actions fell outside of coverage because they occurred through a third entity that Behrens controlled independently, National Investments. Sunset had never signed off on the allegedly fraudulent promissory notes that he sold through National, the ruling states.
“The record demonstrates that the securities at issue were not arguably authorized or approved by Sunset, or processed through Sunset,” Judge Steven M. Colloton wrote for the court. “Although an allegation in the SEC complaint avers that Behrens solicited investors from a firm that he operated as a branch office of Sunset, the complaint further alleges that the notes were actually sold through a separate entity, National, that was not affiliated with Sunset. The complaint also includes allegations that Behrens appeared to be the only person who controlled National, and that Sunset terminated Behrens when compliance officials learned of his activities with National. If Behrens sold the promissory notes from an entity separate from the Sunset branch office, and Sunset terminated Behrens as soon as it learned about the notes, then it is not plausible to infer that Sunset authorized, approved, or processed the sale of those securities. Behrens points to no other facts ascertainable by Arch that would defeat application of the exclusion.”