MINEOLA, N.Y. (CN) – TitleServ, one of the largest title agencies in the country, swiped $7.9 million from customers’ escrow funds, the underwriter WFG National Title Insurance Co. claims in Nassau County Court.
New Jersey Title Insurance Co. has filed a similar complaint against TitleServ, which “was authorized to write title insurance policies in at least 26 states, including New York, on behalf of plaintiff,” according to the complaint.
WFG says that “TitleServ was one of the nation’s largest title insurance agencies and was authorized to write title insurance policies on behalf of other title insurance underwriters in 47 states.” It also “engaged in escrow and settlement services on its own behalf.”
WFG National Title says it entered into an agreement with TitleServ on Dec. 29, 2010. In the first two months, TitleServ generated “unusually high” returns of $70,000, according to the complaint.
“During a routine telephone call between WFG and TitleServ, a senior vice president at WFG made mention of the unusually high level of premiums being paid so early in the relationship. The TitleServ representative stated that they would provide WFG with a million dollars in premiums,” the complaint states. “This representation struck the senior vice president as suspicious.”
At the time, WFG says, its representatives began to hear “rumors” that two or three other title insurance underwriters had quit their agreement with TitleServ in recent months.
“The high level of initial revenue and the statement made by representatives of TitleServ lend credence to this rumor,” the complaint states.
WFG says TitleServ was “evasive” when it tried to schedule an audit of the company in early March.
By the end of the month, TitleServ had refused to set a date, and WFG says it “became uncomfortable” and terminated their contract. WFG says that on April 3, Citibank and Chase told their mortgage managers to stop using TitleServ, which closed up shop five days later.
That month The Wall Street Journal and Long Island Business News reported that TitleServ had “ceased operations after Citibank and Chase had instructed its mortgage managers not to put any further business through TitleServ and that the banks had refused comment concerning their reasons for doing so,” according to the complaint.
“Based on TitleServ’s imminent closing, WFG dispatched two auditors to TitleServ’s Woodbury offices on Monday April 11, 2011, to begin an immediate audit of their books and records. Under the terminated agency agreement, WFG retained the right to conduct such an audit, as it standard in the industry.”
TitleServ refused to grant the auditors access, then “relented” four days later, after negotiations with its president James Conway III’s attorney, WFG says.
TitleServ’s President Conway and Chief Financial Officer Rocco Abbondandolo are co-defendants, along with 20 John Does.
WFG claims that TitleServ never gave its auditors “complete access to TitleServ’s books and records” to which WFG was entitled, but the partial review gave indications of “suspicious activity.”
“WFG’s auditors have concluded, despite the absence of all pertinent information, that there is suspicious activity in and among many of TitleServ’s accounts that bear the hallmarks of suspicious activity, including transfers of Escrow Funds to operating accounts,” the complaint states.
“For example, there are numerous inter-account transfers that do not appear to have a legitimate economic purpose. In addition, these transfers are done in round numbers (i.e. $700,000, $1.5 million), which is unusual and suspicious.”
In an April 15 phone call with WFG representatives, “defendant Conway acknowledged that approximately $6 million was missing from the TitleServ trust accounts. Conway was unable or unwilling to declare who or what was responsible for the missing trust funds,” the complaint states.
“Additional documents and information reveal that approximately $7.9 million is actually missing from TitleServ trust accounts related to WFG insured closings.”
The FBI raided TitleServ’s offices in Woodbury, N.Y., on April 27, and carried away boxes of documents.
WFG seeks damages for breach of contract, breach of fiduciary duty, unjust enrichment, fraud and conversion.
It is represented by Arthur Jakoby with Herrick, Feinstein of Manhattan.
Also named as defendants are Titleserv of Alabama, Titleserv of Florida, Titleserv of Michigan, Titleserv of New Jersey, and Titleserv of Virginia.