Insurer Washes Hands of Ponzi

     DALLAS (CN) – An insurer claims in court that it has no duty to defend or indemnify a Dallas law firm in civil lawsuits springing from the $57 million Striker Petroleum Ponzi scheme.
     Click here to read Courthouse News’ Securities Law Review.
     Greenwich Insurance Co. sued Steve Holmes and Carter Holmes PLLC in Federal Courts.
     Greenwich a member of the XL Group, claim the defendants have no coverage because the claims against Holmes were first made in the 2009-2010 or 2010-2011 policy period, but were not reported to the insurer until the present 2011-2012 period.
     “The claim was first reported in the 2011-2012 policy, some two years after it was first made,” the complaint states. “Accordingly, no coverage exists under any policy as the claim was not ‘made and reported’ during any single policy period.”
     Greenwich says the claims against Holmes’ law firm are simply a reiteration of earlier claims against Holmes, and so do not constitute a new claim under the policy.
     In at least four underlying lawsuits, investors claimed Holmes acted as trustee for the benefit of Striker debenture holders.
     The SEC claimed in a 2009 lawsuit that Striker, Mark Roberts, 58, and Christopher Pippin, 35, both of Frisco, Texas, defrauded investors of $57 million in debentures collateralized by oil and gas properties.
     The SEC said the offering materials “included material misrepresentations and omissions concerning Striker’s earnings and asset valuations, use of investor proceeds and the existence of a third party independent trustee for the debenture collateral,” as Courthouse News reported at the time.
     The SEC claimed that though the first of Striker’s three tax-advantaged oil and gas offerings initially achieved projected returns, production fell and the two later offerings never achieved projected returns, and declined in the months after their offering dates.
     Reichmann Petroleum Corp., the operator of most of the legacy properties, was forced into bankruptcy in December 2006, further disrupting production, the SEC said. Striker was paying only negligible returns by early 2007.
     “As a result of, among other things, the losses from the RPC bankruptcy, Striker’s inability to acquire and successfully develop additional oil and gas properties, and the low production from the legacy properties necessitating Striker’s use of debenture proceeds to pay the Legacy fixed returns and debenture interest payments, Striker could no longer meet many of its financial obligations,” according to the SEC complaint. “Consequently, just four months after completing the $12.5 million Series B-4 offering, Striker defaulted on its obligation to pay the interest due to the debenture holders.”
     The SEC claimed the company inflated its assets by at least $178.1 million.
     “In truth, Striker should not have included these amounts as assets on its financial statements because it had merely contracted with the Legacy LLCs to participate in the drilling of any additional wells on the PUD sites in exchange for 85 percent of the working interests held by the LLCs in each successful well,” according to the SEC complaint. “Striker did not own any mineral interest until a well was successfully completed – it only had a contractual right to participate in the drilling of any PUD wells.”
     The SEC said Striker later transferred most of its assets to another company, Llano Consolidated Resources, in exchange for shares of Llano stock, which could make assets more difficult to secure for the investors.
     In March, the court-appointed receiver for Striker was awarded $749,000 in professional fees and expenses, from the $5 million he was able to recover for investors.
     Chief U.S. District Judge Sidney A. Fitzwater found that receiver Dennis Roossien, of Munsch Hardt Kopf & Harr in Dallas, “acted reasonably and diligently and that the requested fees and expenses are reasonable given all the circumstances surrounding the receivership.”
     The SEC did not object to the fee awards; some investors did.
     Greenwich seeks a declaration that it has no duty to defend or indemnify Holmes or his firm, and seeks rescission based on Holmes’ failure to reveal the trustee relationship with Striker in policy applications.
     It is represented by Beth Bradley with Tollefson Bradley.

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