Insurance Executives Indicted on Federal Charges of Insurance Fraud

TALLAHASSEE, FL—Four former executives of Vanguard Fire and Casualty Company have been charged with making false statements in filings with state regulatory agencies and making false representations concerning the financial condition and solvency of Vanguard, announced Pamela C. Marsh, U.S. Attorney for the Northern District of Florida.

The 12-count indictment alleges that between 2004 and 2007, William Sanders, 60, Thomas Stinson, 60, Richard Magsam, 54, and John Henry Axley, III, 46, made false statements in connection with financial reports and documents presented to the Florida State Board of Administration, the Florida Hurricane Catastrophe Fund (“CAT Fund”), and the Florida Office of Insurance Regulation. The indictment also alleges that the executives made false representations concerning the financial condition and solvency of Vanguard, and that they conspired with one other to commit these offenses.

Between 2004 and 2007, Vanguard was a Florida property and casualty insurer based in Maitland, Florida. The company was entitled to receive reimbursement from the CAT Fund for claim losses exceeding $37 million as a result of any single hurricane.

The indictment alleges that, after four named storms struck Florida during the 2004 hurricane season, Vanguard experienced severe cash flow problems as a result of the unusual number of claims filed. The losses incurred by Vanguard due to Hurricane Jeanne did not meet the $37 million threshold for reimbursement from the CAT Fund, while losses attributable to Hurricane Frances did. According to the indictment, the defendants fraudulently reclassified Vanguard’s Hurricane Jeanne loss claims as Hurricane Frances loss claims. They then submitted these loss amounts to the CAT Fund in order to fraudulently obtain reimbursement in excess of $20 million.

The indictment states that had Vanguard not received this excess reimbursement, it would have become insolvent by the end of 2004. Vanguard was liquidated and placed into receivership with the Florida Department of Financial Services in 2007, after the defendants were required to properly classify the losses attributable to Hurricane Jeanne.

If convicted, the defendants face a maximum penalty of five years’ imprisonment for conspiracy and a maximum penalty of 10 years’ imprisonment on each substantive count of insurance fraud.

The case was investigated by the Florida Department of Insurance Fraud and the Federal Bureau of Investigation. It is being prosecuted by Assistant U.S. Attorney Corey J. Smith.

An indictment is merely a formal charge by the grand jury. Every defendant is presumed innocent unless and until proven guilty beyond a reasonable doubt.